Polycorp Ltd.: A Pricing Dilemma

Description

In January 2016, the founder and chief executive officer of Polycorp Ltd., near Toronto, Ontario, needed to decide whether to cut prices for products produced by the largest of the company’s three divisions, the mining division. Polycorp had become a global leader in providing protective rubber liners for mining mills. The liners were consumable products, thus generating a constant stream of revenue. The company’s mining division accounted for almost half of the firm’s sales, generated the highest margins for the company, and had the greatest potential for growth. It was also the costliest division to run. But the mining sector was in a downturn, with falling prices for various ores. With excess capacity in the industry, customers demanding price concessions, and competitors pricing aggressively, the founder wondered if Polycorp should alter its current premium pricing strategy for mill liners. Lowering prices would reduce the company’s margins, and lower margins would, in turn, limit the firm’s planned capital investments, which were needed for the company to sustain its growth and profitability. Could Polycorp sustain its premium pricing tactic in a marketplace that was becoming increasingly challenging?

Learning Objective

This case can be used in an introduction to business or marketing course at the undergraduate level or in graduate-level courses in marketing management, marketing or business strategy, or global marketing. If taught at the undergraduate level, students should already have an appreciation of the fundamentals of business and marketing before undertaking an analysis of this case. The case familiarizes students with a small, successful, Canadian business-to-business (B2B) company that made inroads to a marketplace dominated by large, well-established competitors. The case illustrates the interdependencies of strategy, growth, and pricing and margin decisions. Students have to consider whether premium pricing tactics that have been supported by competitive advantages in products and services can be sustained in a challenging marketplace. Working through the case and assignment questions will help students do the following: ·Describe the factors that led to the high performance and global success of a small, private, entrepreneurial Canadian firm competing in a B2B marketplace. ·Complete an in-depth industry analysis to understand the critical success factors in an evolving, dynamic market. ·Explain how a company created a significant competitive advantage by undertaking a focused strategy and deploying its resources and capabilities through related diversification, careful market selection, and superior products and service. ·Describe the pros and cons of price cuts and how margins are linked to a firm’s ability to sustain ongoing capital investments and innovation.

Keywords

Capital expenditures Margins