Athens Glass Works

ATHENS GLASS WORKS

GROUP 13

Introduction:

Athens Glass Works (AGW) was a midsized, regional glass company serving several niche markets in the southern United States. The company enjoyed a dominant market position for non-glare glass in the southern region because of its fast and reliable service, willingness to deliver glass on short notice at no extra charge whatsoever, provision of an exceptionally high quality non-glare glass with little loss of light and no blemishes, operation of its own fleet of vehicles in order to efficiently manage delivery times and to provide reduced shipping charges and finally AGW’s sales staff was highly regarded as exceptional for it helpful and generous service to its customers. However in 1992, the company because of the increased pressure to improve margins, raised the price its non-glare glass from $2.15 sq./ft to $2.36 sq./ft.

The problem at hand for Christina Matthews, the product manager for non-glare glass at AGW and Robert Alexander, the controller of the Specialty Glass division at AGW, is to decide whether to continue with the present price of $2.36 or revert back to the old price of $2.15.

Exhibit 2 presents an analysis on the variable cost and its impact on the unit contribution margin and the total contribution margin.

The team at AGW was presented with two options:

1. Whether to return to the previous price of $2.15
2. Whether to maintain a price of $2.36

According to Christina, the total regional volume for the fourth quarter of 1993 was expected to be 920,000 sq./ft and she believed that if the company were to revert back to the old price of $2.15, it could increase a major portion of the market share with sales of 275,000 sq./ft. However, if the company decides to maintain the current price of $2.36, it would risk losing sales to up to 150,000 sq./ft.

At a price of $2.15, the company maintains a market share of 29.89% whereas at a price of $2.36, the market share for AGW falls to 16.30%.

Market Share:

In the case of market share, a normal trend is observed regarding AGW with respect to its competitors varying within the range of (34-36)% (see exhibit 1). This trend continued for the year 1991 in its third and fourth quarter as well as maintained its respective range for the further three quarters of the year 1992. However, as the company increased its price per square foot to $2.36 with its perception being that its competitors would also increase their prices under the pressure of corporate policies, its market share drastically dropped to 26% and continued to decline thereafter to up to 20% in the second quarter of 1993 as their competitors retained their prices to $2.15. Moreover the sales volume also decreased rapidly when AGW increased its price per unit (exhibit 1). As a result, the AGW management found itself in conundrum of whether to reduce the price back to its previous value, because doing so would help it regain its dominant market share back, or maintain the price at the current value and keep its profit margins at a high.