TransDigm case Memo
From the case, one can see that TransDigm has been growing at a steady rate since its inception in 1993. The revenues grew at an average rate of 20%, while the non-GAAP EBITDA grew at 24% (Esty & Fisher, 2020). For a company of its nature, this is a significant achievement. At the time, it was one of the leading organizations in its business segment in terms of performance. The company has a value-based strategy that employs particular operating principles to achieve its goals. These principles perhaps irked the parties that came out in public to criticize the company’s way of doing business.
TransDigm seemed to have taken advantage of this situation to gouge customers. In this regard, one of the most important recommendations would be to change its pricing strategy. TransDigm should reduce its prices to the industry’s average while maintaining quality as a temporary measure. This will effectively ensure it regains customers’ confidence as it schemes a long-term strategy to respond to the falling stock prices. The company can afford to operate at a lower marginal scale because of the economies of scale it enjoys (Esty & Fisher, 2020). As evident in the case, TransDigm still enjoys better returns because of the high sales compared to their counterparts.
Another critical recommendation would be to involve more in CSR practices. Engaging in these practices would take the company a long way in rebuilding its tarnished reputation because it would appear as considerate to the community’s needs. When Andrew Left published the allegations, the company suffered severe damage to its reputation, which was reflected in the stock prices falling (Esty & Fisher, 2020). Coupled with reducing prices, this tactic would save TransDigm.
The company has been accused of gouging customers, a serious ethical issue in the business environment. Price gouging is when a company sets its prices unreasonably high because customers perceive its products as of better quality than the competitors. As such, the company takes advantage to charge exorbitant prices. To avoid these ethical issues in the future, the organization needs to consider the prices charged by other companies in the same market segment and harmonize their prices. Since it manufactures products of better quality, it will fetch the customers who were previously not able to buy because of price gouging.
My personal bias may indeed have influenced my considerations. It comes from the fact that the company has long been abusing its position in the market by establishing a pricing strategy that violates consumers’ rights. Even though an organization may be an industry leader because of the quality of products it manufactures, it needs to be responsible enough to care for the consumers. Taking advantage of these consumers constitutes unethical business, which can sometimes turn tragic, like in the case of TransDigm.
As a result of the above-highlighted recommendations, the company is likely to improve its performance. As it currently stands, the negative publicity interfered with its performance to the point that it may not recover without implementing these recommendations. Specifically, the positive publicity, which will come from the CSR practices, is bound to improve relations between the company and investors. Consequently, the revenue and stock prices will go up, and the organization will return to its position as an industry leader.
Pricing strategy can be critical in business to the extent that it can cultivate a particular relationship between an organization and the public. As witnessed in the case of TransDigm, the public can inflict immeasurable damage on the performance of a business if it notices a situation where the company is taking advantage. TransDigm needs to overhaul its pricing strategy to let it out of the mess it has gotten into.
Esty, B., & Fisher, D. (2020). TransDigm in 2017: The Beginning of the End of the End of the Beginning?. HBS Case, (720-422).