Pricing Kennedy Capacitor

Kennedy Capacitor assignment

1. Why is the industry in such a mess? What factors have contributed to the mess?

Highly competitive market. In 2003, Kennedy was the market leader with 50% market share, Hamilton with 25% share, Lawford and Steward with 12-13%, and AG with 1%. However, after 7 years, market share becomes more and more even between competitors. No leader has the market power to dictate the price umbrella (i.e. Lawford doubled its share to 28% and AG went from 1 to 16%, mainly because they introduced a lower price line of capacitors)

Overcapacity along with declining demand cause suppliers to cut their prices in order to cover their fixed cost. Also, because of low barriers to entry, new competitors obtain more market share by lowering industry price. In May 2010 companies are bidding below $1/kvar. The price has been consistently decreasing since 1976 when it was at $16/kvar since then price dropped over 40% in 4 years to $9/kvar in 1980 and decreasing by about $2/kvar each decade.

Commoditized product: There is an excess supply of capacitors with not enough differentiation. While Kennedy prides itself in providing high quality capacitors, clients don’t care about quality standards. Clients are price sensitive and their decision is made based on the lowest price over lifetime.

Confusing pricing policy: Published price list becomes inconsistent, there were no price discipline for sales forces i.e. given discount up to 40% of book price, more than 28 changes in their prices under two years. Also, no cancellation penalties made easy for customers to switch companies.

1. Evaluate Kennedy’s past pricing strategy in particular and marketing strategy in general. What would you have done differently if at all? Why?