October 19, 1990
Beauregard Textile Company
In September 1990, Joel Calloway and Clarence Beal, Jr., sales manager and controller respectively of the Beauregard Textile Company, met to prepare recommendations for fourth-quarter fabric prices. When approved by the executive committee, fabric prices were published and mailed to customers. These prices wereconsidered firm for the quarter. Beauregard was one of the largest firms in its segment of the textile industry with annual sales of about $82 million. Company sales persons were paid straight salaries and sold the full line of fabrics. On this occasion, Calloway and Beal were particularly concerned on how to price Triaxx-30, a blend of nylon, polypropelene, and rayon used for special outdoorapplications. In January 1990, Beauregard had raised its price for Triaxx-30 from $3 to $4 a yard in order to bring its profit margin up to that for other products. This action reflected in part an adjustment to recent increases in costs. It was also motivated by a directive from the board of directors that urged management to strengthen the company’s working capital position so as to ensure theavailability of adequate funds for a recently approved long-term plant modernization and expansion program. (Triaxx-30 was woven on special equipment that could not be used for other purposes.) Calhoun & Pritchard Inc., the only significant alternative supplier of T-30 (the common trade reference for Triaxx-30-type fabric), had held its price at $3. (Calhoun & Pritchard normally waited for Beauregardto announce fabric prices before mailing its own price list.) As a result, Beauregard had lost market share. As the sales history in Exhibit 1 shows, the total market for T-30 fabric had remained remarkably stable for the last three years at about 225,000 yards perquarter. These data also showed some customers to be price-sensitive, switching immediately to the low cost supplier. Based onconversations with his sales people, Calloway believed that a number of customers would discontinue or restrict their use of T-30 fabric if it were no longer available at $3, reducing the overall demand by 20%. The following excerpts from the discussion reveal some of the two men’s understanding and concerns about the Triaxx-30 pricing decision: Calloway: If we reduce our price to $3, ol’ C and P mightdrop its price, leaving us worse off.
Beal: I doubt they would go below $3. For one thing, they haven’t done so in the past. For another, their costs are comparable to ours. (See Exhibit 2 for the Triaxx-30 cost schedule.) And from what I hear, Calhoun & Pritchard is in a tight financial situation as a result of its recent takeover defense. What I’ve never been
This case was prepared byProfessor Francis J. Aguilar as a basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. This case incorporates parts of the Atherton Company case (156-002). Copyright © 1990 by the President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685 or write Harvard BusinessSchool Publishing, Boston, MA 02163. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.
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able to figure out is why they didn’t move up to $4 when we went up. They’ve got to be losing money at $3. It just doesn’t make sense. Calloway: Well, Clarence, that’s their problem. Our problem is if we both continue to charge current prices, our order book remains depressed. My people would prefer to drop the price to $3 and regain our old customers. They’ll come back with price...