8 Pages Posted: 5 Apr 2010
This case is designed to illustrate the relationships among product costs, consumer demand, competition and industry structure, and a firm's pricing objectives. The case has a specific decision orientation in that students are asked whether they would raise, lower, or maintain current prices on each of two distinct product lines. It allows for an interesting debate between accounting-oriented students and marketing-oriented students. The marketing manager of the industrial valve division of Cantro Corporation must decide on pricing policies for his division's two products, lubricated and eccentric plug valves. These two products exhibit different cost structures and competitive characteristics. These are the division's objectives for these products (1) to maintain and increase market share, (2) to improve profits, and (3) to maintain a posture of industry leadership through stable and responsible pricing practices.
Late in November, John Williams, marketing manager of the industrial valve division of the Cantro Corporation, was reviewing the pricing policy for his division's products—lubricated plug valves and eccentric plug valves used in gas and fluid control equipment. His recommendations concerning factory prices were to be submitted to the division general manager later that week.
Cantro was a highly diversified, multidivisional corporation with sales volume in excess of $ 770 million. The industrial valve division had been formed as a separate Cantro division about 20 years ago. Its product line was sold to the industrial and construction markets by a salaried sales force that also handled the product lines of several other Cantro divisions. The division's income statement for the fiscal year ending September 30 is shown in Exhibit 1.
Product and Market Characteristics
Lubricated plug and eccentric plug valves were used in a wide variety of gas and fluid control applications. Major customers of the division's products were to be found in the chemical, construction, oil and gas, public works, and utilities industries. These valves were also used by original equipment manufacturers (OEM) of items, such as pumps, compressors, steam turbines, engines, steam condensers, and plumbing, refrigeration, and air conditioning machinery.
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Keywords: competitive factors, industrial marketing, industry analysis, marketing management, pricing, product costs
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