Polycorp Ltd.: A Pricing and Investment Dilemma
In January 2016, the founder and chief executive officer of Polycorp Ltd., near Toronto, Ontario, needed to decide whether to cut prices for products produced by the largest of the company's three divisions, the mining division. Polycorp had become a global leader in providing protective rubber liners for mining mills. The liners were consumable products, thus generating a constant stream of revenue. The company's mining division accounted for almost half of the firm's sales, generated the highest margins for the company, and had the greatest potential for growth. It was also the costliest division to run. But the mining sector was in a downturn, with falling prices for various ores. With excess capacity in the industry, customers demanding price concessions, and competitors pricing aggressively, the founder wondered if Polycorp should alter its current premium pricing strategy for mill liners. Lowering prices would reduce the company's margins, and lower margins would, in turn, limit the firm's planned capital investments, which were needed for the company to sustain its growth and profitability. Could Polycorp sustain its premium pricing tactic in a marketplace that was becoming increasingly challenging? Peggy Cunningham is affiliated with Dalhousie University.