CROWN CORK AND SEAL COMPANY, INC

Case Study

Discussion Questions

1. What are the most significant factors affecting competition in the metal container industry?

2. What strategy does Crown Cork have for competing in this industry?

3. What advantages, if any. Does a firm the size of Crown Cork have over American Can and Continental Can? How do to you explain the comparisons shown in Exhibit 3 in the case?

4. What recommendations would you make to management?

Analysis

1. Identification of industry characteristics.

2. Identification and analysis of Crown Cork & Seal’s strategy.

3. An explanation of Crown Cork & Seal’s performance relative to its competitors.

4. Identification of the major problem facing Crown Cork & Seal.

5. Development of recommendations for dealing with Crown Cork & Seal’s problems.

Product flow chain

Suppliers Manufacturers Customers

Product flow

•There are very few suppliers

•These suppliers are large, powerful

•Probably dictate prices to the manufacturing firms

Supplier

•Few firms•Growth is slow• It is a very large market

•Tough price competition

•Fixed costs are relatively high

•Little product differentiation

•Little value added

•High transportation costs

•Close substitutes exist

•Two-piece cans have brought change to the industry

Manufacturer

• Large and powerful customer base

Customers

Where the power lies….???

The answer seems obvious…………..

- With the suppliers, &- With the customers

Analysis: Key Factors

1. The metal can manufacturers are caught between strong suppliers and customers.

2. Industry growth is slow.

3. Close substitutes exists.

4. The cost structure of the industry.

Analysis:

Organizing the Strategy into Six major functional Areas

1. Products concentration on aerosols and beer and soft drinks

2. Manufacturing many smaller plants with extra can-forming line

3. Research and development follower strategy

4. Marketing use of sales engineers

5. Internationalemphasis on less-developed countries

6. Finance reduce debt and buy back shares

Analysis: ???????

Organizing the Strategy into Six major functional Areas

1. Products concentration on aerosols and beer and soft drinks

2. Manufacturing many smaller plants with extra can-forming line

3. Research and development follower strategy

4. Marketing use of sales engineers

5. Internationalemphasis on less-developed countries

6. Finance reduce debt and buy back shares

Are all of these

strategies are

obvious ?

Why do these

particular market

segments make so

much sense ?

Analysis: Ans…

1. Beer and soft drinks represent growth areas in the metal container industry.

2. Although beer and soft drinks face threats from aluminum, these market segments face only minimal threats from other materials such as fiber foil, plastic, or glass.

3. Aerosol cans build on existing strengths of Crown Cork & Seal.

Analysis

In term of Crown’s research and development Strategy

What a follower strategy is ?????

Analysis

On the marketing side ….

What extent sales or selling is important in the metal container industry.

Selling per se is done rather infrequently in the metal container industry and can probably be handled by a few sales executives with a lot of help from top management.

Analysis

On the international side…..

1. These countries are most likely to make the most of Crown Cork & Seal’s entire product range, beginning with crowns and gradually moving up to three piece and two-piece metal cans.

2. Growth is rapid in these areas.

3. Suppliers and buyers are unfamiliar with the technology in these countries, making forward or backward integration very unlikely.

4. There are very few competitors in these countries.

Evaluation of Performance relative to its Competitors

What are the risks of diversification?

Three major risks….

First: There is no guarantee that a firm will enjoy success in “new” business.

Second: Diversification brings with it the risk of neglecting the core business.

Third:This neglect can be especially harmful if there is technological change in

the industry.

Identification of Problems

Crown Cork & Seal’s current problems..

1. The retirement of John Cannelly

2. The banning of aerosol containers that use fluorocarbons

3. Legislative regulation of nonreturnable containers

Identification of Problems

Two points should emerge:

1. The strategy is indeed risky. Crown sees itself as being in the tin-plate container business for aerosol and beverage cans. Broader definitions – tin-plate containers, metal containers, or packaging – imply less risk for the company.

2. On the other hand, Crown has been earning above-average returns. DO these returns justify the risks?

Recommendations

Three broad categories of recommendations :

1. Recommendations to radically change Crown Cork & Seals’ strategy

- moves into different types of materials and markets - diversify from Crown’s narrow base in metal cans

2. Political Action/Lobbying

- Crown Cork & Seal should support the efforts of its trade association to prevent the ban on fluorocarbons and - to prevent the enactment of legislation regulating use of nonreturnable cans

3. Pressure on both its suppliers and customers

- to respond to both the ozone and nonreturnable threats

Key note:

I like to end the case and finally with a discussion of some broad

questions:

1. Has Connelly chosen an appropriate balance between risk and return in his corporate strategy? Can you make this or any other business strategy risk-free?

2. Will Crown Corm & Seal become another Head Ski or Volkswagen?

3. Would you bet against the future success of Crown Cork & Seal?

Thank you…