Fire Safety Case Analysis

TO: Mike Carey – Vice President of Marketing FROM: Cristian Oana – Marketing Consultant DATE: 28/01/2001 SUBJECT: Pricing strategy of future FSI product line. Purpose and Overview Please review the following sections based on your current pricing strategy and market research as well as future recommendations. The report contains a SWOT analysis that will highlight the need for a switch in pricing strategy from the current Value Based pricing to Price leadership. FSI is the only manufacturer of the HERO line product having only one competitor (Guardian) which currently holds a market share of 42%.This fact underlines our company standing as an Oligopoly and allows us to lead the way in price determination. Summary of Past and Current Situations Self-contained breathing apparatus systems are worn by fire and rescue personnel in hazardous situations where smoke, poisonous gas or low levels of oxygen inhibit search and rescue operations. FSI has been the leading provider of the digital breathing apparatus system since 1990 holding a consistent price of 1485$ per unit. Almost 100% of FSI’s business is conducted with U.S. fire and rescue departments that belong to regional purchasing organizations. Contracts are one year in length with the exception of the California Region. In 2001 FSI increased the price by 5% to increase revenue. In 1995 Guardian introduced their own product line-up and managed to capture up to 42% market share. Their current cost is 1500$/unit. The challenges FSI currently faces is weather a further increase in price will keep its current market share despite competition and maximise revenues for the future.An appropriate pricing strategy must be chosen to ensure the HERO lines’ life cycle. Based on the items highlighted in bold in the following SWOT analysis, a price leadership strategy is recommended. SWOT Analysis STRENGTHS * Unique product line that uses reliable digital equipment. * Fire Safety Inc. has a very wel l established brand name in the domestic market * Fire Safety Inc. provides the highest quality equipment at an affordable 1560$/ unit. * Increased sales despite 5% price increase * Since Fire Safety Inc. s very successful in the domestic market it established financial resources to possibly expand to foreign markets * Current market situations indicate an Oligopolistic environment * Product is familiar to US consumers – identified need for future equipment as stated by law| WEAKNESSES * The established ten year market perception for the price of the product. * No significant product line changes or updates which the competition may take advantage of. * No patent protection which may yield more emerging competition in the future. * HERO – brand name is not well known outside the domestic market. Company’s variable cost per unit of $560 may be high. | OPPORTUNITIES * New standards require fire and rescue departments to convert to digital technology. * Opportuniti es for gaining market further share and profit maximization. * Opportunities to achieve higher level of profit * New product innovations that can be incorporated into existing product line * Opportunity to expand to other foreign markets * Extending contracts to 3 years across the US to guarantee constant sales. | THREATS * Guardian has a manufacturing cost advantage compared to FSI that resulting from sophisticated production equipment.. FSI may experience loss of market share due to only one year contracts. * Loss of profitability due to increased prices. * Difficulty in gaining market share from competitors. * Guardian is offering a very similar product at a similar price| Assumptions on Which the Strategy is Based a. The market will remain an oligopoly. b. FSI will remain the leader of digital breathing apparatus systems. c. The National Institute of Occupational Safety and Health will not change legislation regarding safety in the near future. d. Guardian may increase pricing a s well due to FSI’s price increase. e.The state of limited competition will be retained for the following year. f. Proven reliability and results may capture further market share despite price increase. Pricing Strategies That Emerge From SWOT Fire Safety Inc. has a very well established brand name in the domestic market holding a leading market share of 58%. FSI estimates that the market will grow by 44% in 2002. For the past 11 years, the HERO lineup has enjoyed increased sales year to year by providing top of the line Digital Breathing Apparatus Systems. Currently, FSI is the leading manufacturer and distributor of these systems.Despite the 5% increase in price for 2001, sales have increased showing no signs of market response. Our competition has their product line set at a slightly lower price (1500$/unit) which indicates a clear weakness in an established market led by our company. Price leadership â€Å"An observation made of oligopolistic business behaviour in which one company, usually the dominant competitor among several, leads the way in determining prices, the others soon following. The context is a state of limited competition, in which a market is shared by a small number of producers or sellers. This pricing strategy is perfect for FSI, having only one competitor and a successful sales record. Summary and Request for Action A further price increase is recommended for 2002 taking into account the above highlighted facts. There is no reason to believe that FSI’s market share will drop and based on the previous year’s sales adding $3,548,625 to the bottom line it is a clear indication that a Price Leadership strategy is crucial to the company’s success. In an Oligopolistic environment, it is the ideal choice.