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Crown Cork & Seal in 1989
Tamira Conner 3/1/2013
. container.2 billion industry. along with over capacity has shrunk the companies’ margins because of their discount methods to maintain their market share. Pepsico Inc. beverage and aerosol can industries. Supplier Power: Steel less expensive. but aluminum is preferred choice and mostly controlled by 3 producers. Crown could be considered to be in the packaging. They maintained relationships with more than one can supplier and if the supplier did not meet their needs then they would cut their orders or move on to another supplier.1. The fact that the container industry had very little product differentiation made it very easy for the buyer to switch and this is what they did. And although the switch from aluminum to steel is inexpensive. These five companies’ are American National.. Analyze industry Crown competes in. v. Suppliers: Medium to High because they both had several advantages to each other. metal container. Competition from customers who have started to employ in-house manufacturing for their needs ii. Pepsico Inc. which controlled a significant amount of volume. iii.. However Crown competes mainly in the metal container industry. Continental Can. Inc. and Coca-Cola Enterprises Inc. . Competition: High because five firms that dominate this $12. iii. Reynolds Metals. Those who produced aluminum had more supplier power since the three largest producers supplied the metal can industry. Crown Cork & Seal and Ball Corporation. Buyers: The largest buyers in this industry were the Coca-Cola Company. Anheuser-Busch. Barriers to Entry: Startup and Manufacturing costs are high and industry controlled by few industries. These Companies maintains relationships with many suppliers. Anheuser-Busch Companies. Buyer Power: Composed of few very large buyers such as Coca-Cola. The competition is high because of little product differentiation in the products. of higher quality and was more economical to recycle. iv. This gave the companies in the metal can industry less choices from which to pick. Substitutes: There exists the option of switching to plastic or glass which has there advantages. ii. The advantage of steel over aluminum was price and it represented a savings of $500 million for can manufacturers. Rivalry: Five firms dominate this industry with a total market share of 61% 2) Container Industry i. There are tradeoffs to using either aluminum or steel. 1) Packaging Industry i. aluminum was much lighter.
( Crown. Barriers to entry: High since there are only five firms that control 61% of the market. there are few product options available to the multiple buyers. Continental Can. Suppliers: The suppliers in the metal can industry are considered powerful since it is dominated by basically 3 aluminum companies and are a highly concentrated industry in itself. High start-up and manufacturing costs would prohibit someone from entering the market. Finally. .Since they all produced mostly two-piece cans and catered to the metal beverage containers market. buyers have the ability to backwards integrate and produce their own cans. Buyers were geared toward low volume multi-label output which was not suitable for in-house can manufacturing process. ii. Anheuser-Busch Companies. Crown succeeded with a differentiation strategy. and Ball Corporation). low profits and intense competition. which puts additional pressure on the producers to push costs below the industry entry costs for the buyers. such as Reynolds Metals. For a typical three-piece can production line. 2. buyers can purchase cans from any producer with low producer switching cost and can have relationships with multiple producers. iv. Who are the main buyers of the can? How do can manufacturers attract the business from the buyers? Soft drink manufacturers are the main buyers of the can The Coca-Cola Company. Reynolds Metals. Dominated by 5 firms 61% Market Share.iv. it cost at least 7 million in basic equipment. and The Seagram Company. which increases buyer power. Barriers to Entry: It is difficult for a small start-up firm to have any real significant impact on obtaining market share unless they come in on a large scale because of the monopoly owned by the five firms. however. making the large scale buyers highly coveted by the producers. The 10 largest buyers represent approximately 30% of the market. Two-piece can lines cost $16 million and the investment in the equipment was anywhere from $20-$25 million per line. American National Can. PepsiCo Inc. Buyer Power: High in the metal can industry there are many producers of metal cans. The metal container industry was characterized by low growth. Two different groups of customers—food and beverage canners—accounted for 80 per cent of the metal containers produced. 3) Metal Container Industry i. The suppliers also pose a threat of entering into metal can manufacturing. there appears to be a low product differentiation among the five firms. which make them a powerful supplier. Further. iii.
3. Switching costs can be high if the producer has to go to another supplier across the country. 2) Since they all produced mostly two-piece cans and catered to the metal beverage containers market. such as Reynolds Metals. Reynolds Metals. and Ball Corporation). Why is the can very important to buyers? What incentives do the buyers of the can want from the can manufacturers? Products are indifferent. 4. supplier power is medium. In addition. Continental Can. there appears to be a low product differentiation among the five firms. there are only 5 main producers of metal cans. 3) The suppliers in the metal can industry are considered powerful since it is dominated by basically 3 aluminum companies and are a highly concentrated industry in itself. for example. Can production lines can cost anywhere between $16-25 million making it very difficult for the average Joe to start a company from ground up. What were the barriers to entry in 1989? What was the major reason for lack of entry? Barriers to entry 1) It is difficult for a small start-up firm to have any real significant impact on obtaining market share unless they come in on a large scale because of the monopoly owned by the five firms. which make them a powerful supplier. 4) The suppliers also pose a threat of entering into metal can manufacturing. ( Crown. Overall. utilizes themselves as an aluminum supplier. . American National Can. This is due to the fact that start-up and manufacturing costs are very high. Is it possible for can manufacturers to successfully trade one off against the other in a price negotiation? Why? or Why not? Producers of metal cans are limited by the supply of raw materials for their cans and the location of the suppliers of the raw materials. vertically integrated Reynolds. What are the substitutes of metal containers? What impact does the availability of the substitutes have on the structural attractiveness of the metal container industry? The possible substitutes for the aluminum beverage cans are plastic packaging containers. The prices of the aluminum beverage can be controlled by the prices of the possible substitutes. glass bottles and steel cans. so buyers face no switching cost and since the buyers of the can are not the end users there are incentives to control prices more. making the need for companies like Crown to work more closely with suppliers to properly compete with the partially. Suppliers of the can manufacturers are the major aluminum and integrated steel companies. 5. 7. thus the suppliers have only limited options. 6. Is it a problem that Reynolds is both a supplier and competitor? Reynolds.
This made for lower R&D expenditures and. in which it would quickly adopt new technological innovations. and quick response to customer needs are the some evidences that Crown provided differentiation. 4) The company also followed a "fast second" R&D strategy. Only differentiation strategies make Crown’s products more attractive than others. lower overhead 5) While Crown Cork and Seal’s competitors were using the cash generated by their business to expand into unrelated diversification. the problems of packaging these products were considerable. i. . Crown Cork and Seal was able to charge a premium price and avoid the price competition game. Crown differentiated itself by 1) Maintaining excess capacity so that it could meet surges in customer demand. Crown Cork and Seal repurchased stock. 2) Provided technical help to customers’ production problems. Because it was dealing in such "hard-tohold" products as carbonated beverages and aerosols. resulting in steadily increasing earnings-per-share figures. Technical service and rapid delivery Almost every company’s selling price is identical. after allowing other firms to make the initial investment. Crown has the ability to provide technical assistance and specific problem solving at the customer’s plant. therefore. thereby becoming a problem solver as well as a can provider. Crown’s research team also worked closely with customers on specific customer requests. Generally. thereby alleviating customers’ inventory needs.8. Crown has also implemented just-in-time delivery techniques effectively. Is there some way to differentiate yourself in the can manufacturing industry? Explain. the only way to differentiate a company in a commodity industry is by price. flexibility. High quality. 3) By providing flexibility in delivery as well as technical advice to clients in the growth segment of the can consuming market.
as in motor oil. Uses included i.00 to $10.9. which manufactures steel and aluminum cans. The plants were small and located near the customer instead of the raw materials. What are the main elements of Connelly’s strategy? Why was the strategy the key contributor for the company’s superior performance? Crown has a focused strategy on core competencies which include: 1) Continuous control of costs 2) Improvement in quality 3) Maintenance of customer service and customer support. engaged only in a limited amount of applied research and was positioned as a "fast second" in implementing new developments. Crown Cork and Seal’s management has felt that. By exiting from market segments where decreasing metal can usage was the trend. 6) Connelly also focused on heavy investment abroad in developing nations. 4) He focused on specialized uses in international markets. There was 24-hour operation. customer service and accountability.11 10) Focus on profitable market segments i. which resulted in greater quality control and lower costs. However. eventually anticipating and capitalizing off the soft drink business. they did concentrate still on providing the best customer service by helping to fulfill specific requests of customers through R & D.3 percent market share). 8) As far as marketing and customer service is concerned. 7) Crown Cork and Seal. as one of the smaller firms in the industry (in 1978 it was number four in sales and held 8. Invested heavily in new and geographically spread out facilities. Connelly reduced debt and stopped dividends to allow for company growth. it could leave the technological innovation to others. . 5) In distribution. Crown responded quickly and provided problem solving and technical assistance directly to the customer. Beverage cans and aerosol cans. flexibility. reducing debt form 42% to less than 2% and increasing EPS from $3. 11) Decentralized responsibility which productivity among plant managers. the company did grow. ii. and concentrating primarily in the areas where growth was expected (soft drinks and beer). Connelly believed in maintaining close ties with the customer to improve quality. In turn. Connelly expanded national distribution in the U. quality.S through manufacturing reorganization. i. 9) Through financing. Connelly always put the customer and its needs first. which provided products for numerous customers located near their plants.
4) Consolidation 5) Diversification 6) Price reductions 7) Operating margin decreasing 11. Is diversifying into plastic packaging an attractive opportunity? Why? Why not? Yes. glass containers. . This trend is taking away a lot of business from the can manufacturer industry. Plastic closures. Production of cans at "captive" plants-those producing cans for their own company use-accounted for approximately 25% of the total can output in 1989. What changes are taking place in the can manufacturing industry? Any change to the industry would be deemed threat in the can manufacturing industry. 1) New Packaging materials a. single-label production runs made them more profitable. Aluminum was lighter. "superior lithography qualities" and less costly to recycle. They went from 9% market share of the container market in 1980 to 18% in 1989. Crown is efficient in creating low-cost manufacturing plants and the acquisition would not be difficult since both already produce metal containers. in-house manufacturing a. b. Crown could expand into the glass and plastic container industry. weakening future growth potential. It is attractive because metal cans are not expected to grow. and plastic containers have growth expectations. had better quality. 2) Industry moving toward usage of glass and plastic bottles a. 12. 3) Increase in. Aluminum became substitute to steel cans. Many brewers found it advantageous to invest in captive manufacturer because high-volume. Plastics were also the growth leader in the 1980s.10. Should Avery acquire Continental Canada? Why? Why Not? In order to increase market share making it a market leader and take advantage of the economies of scale acquiring Continental Can would deem beneficial to Crown despite the difficulty most firms face in acquisition.
Is selling the business an option? Why? Why not? No. .13. Is acquisition of the US operations of Continental Can a good decision for Crown? Why? Why not? Due to high volume and low margin business Crown needs to acquire Continental Can would expand the market share of Crown. While competition is high Crown has found a way to differentiate itself which coupled with the acquisition of Continental will make them a leader in the industry. 14. Crown’s market share would increase from 7% to 25% making it on par with American National Can. By acquiring Continental Can.