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Wsj After Cost Cutting Essay

1853 words - 8 pages

Survival Strategies: After Cost Cutting, Companies Turn Toward Price Rises --- They Don't Call Them That, But Some Trim Discounts And Add New Premiums --- Charging Extra for Odd Sizes By Timothy Aeppel 1,783 words 18 September 2002 The Wall Street Journal (Copyright (c) 2002, Dow Jones & Company, Inc.) Inside the walls of American industrial companies, something unusual is going on: an all-out search for new ways to charge more money without raising prices. Goodyear Tire & Rubber Co. has chopped discounts to its biggest distributors, which had been taking advantage of favorable prices to undercut Goodyear elsewhere. Jergens Inc., a Cleveland industrial parts maker, has started charging big ...view middle of the document...

The justification: The diapers will have stretchy material all over, not just up the sides. General Motors Corp. will charge extra for antilock brakes in some of its 2003

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cars, instead of including them at no charge. Now that kind of thinking is showing up at companies such as Jergens, the Cleveland industrialequipment company. In July, an aerospace parts maker ordered 500 of the company's 2-inch metal locating fasteners, which are used to hold things such as metal parts in position on factory cutting or assembly machines. The customer also asked for 10 1 3/4-inch versions. Jergens president Jack Schron says in the past he would have swallowed any extra cost of making the odd-size fasteners, selling all 510 at the same price to win customer loyalty. Not anymore. Instead, he calculated precisely the cost of making the 10 odd-size fasteners from scratch, including the cost of setting up the machines for that size and the overtime pay for workers staying late to make the changes. And he charged that amount -- even though he actually made 510 full-size fasteners and shortened 10 of them. That was cheaper than going through the equipment changes and halting and restarting production -- and gave him a healthy profit margin. Mr. Schron says he started changing his approach to such "specials" earlier this year, after he realized he had to do something about prices, yet couldn't raise his base product prices without losing business. "You can't get more for your standard stuff. Everyone is watching every penny of every transaction," he says. "So you have to get it some other way." At Goodyear, the company recently realized it was a bad idea to reward its sales force purely for volume, rather than price, and revamped its bonus system to encourage them to hold the line. Since January, bonuses are weighed on "revenue per tire" as well as raw numbers. At the same time, Goodyear started requiring salespeople to get approval from its Akron, Ohio, headquarters when they want to offer special deals to customers. Now, when a customer tells Goodyear that it's getting a great offer from a competitor that Goodyear needs to match, the salesperson no longer has the leeway to make the deal. The information goes to the company's "tactical pricing group" in Akron. The 10-person group tries to determine whether the competitor's offer is for real, using information gleaned from what it knows of the other company's strategy in that area, and more importantly, whether Goodyear could make money if it matches the offer. Goodyear has had a pricing team since 1998, but it didn't have final say on such deals until January. To really gain control of prices -- and increase them -- Goodyear had to crack down on the deep discounts it gives its largest distributors. The prices were so low that regional distributors were loading their warehouses and reselling the tires outside their own area. Even with the added cost of...

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