This case talks about Sheridan Carpet Company that produces high grade carpeting material for use in automobiles and recreational vans. It was the industries practice to announce the prices of their products prior to the 6 month seasons. Sheridan was the largest company in its segment of the automobile carpet industry. Most of Sheridan’s competitors were smaller than Sheridan and they awaited Sheridan’s price announcement before setting their own selling prices.
Sheridan produced a carpet named Carpet 104 which had especially dense nap & required special machine to produce.
Sheridan had raised the price of this carpet from $3.90 to $5.20 per square yard from Jan. 2000 so as to increase the margin of carpet 104 up to that of other carpets in the line.
Although Sheridan increased the price of the carpet 104 to $5.20 but the competitor’s kept the price at $3.90 only. This led to a loss of market share of Sheridan.
Estimates of Marketing Manager, Mel Walters for 2001-1 SALES( in sq. yards) Industry- 6,30,000 Sheridan- 1,50,000 (@$3.90) 65,000 (@$5.20)
There were also some concerns about the pricing which were discussed by the marketing manager and the chief accountant.
The concerns were:
1) Whether the competitors would also reduce price if Sheridan reduces it.
2) Whether the decision related to pricing of carpet 104 affect the sales of the other carpets of the company.
But they concluded that the competitors could not reduce the prices further because they were in poor financial condition and the sale of other carpets will not be affected because 104 was a specialized item.
ANALYSIS OF ISSUES IN THE CASE
ISSUE- Sheridan’s salesperson are employed on salary basis.
SOLUTION- The salesperson of Sheridan were employed on a salary basis so irrespective of the no. of units