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Jane has had good past experience with Gary’s company Vanguard Machines Corp., and she does not want to end the relation just like that apparently. In fact she needn’t have rung him, because she has had better offers from Gary’s competitors. Still, because of the good relation she gives him another chance. Note that she has actually suggested a re-bid price for Vanguard which is higher than that of the competitors! Satuchi’s offer was under $390,000, Takuni just over $400,000, and for Vanguard Jane will accept an offer price of $407,000. She does not force Gary to set a price that is lower than those of his competitors.
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No, Gary did a poor job. He told Jane what she already knew (top quality, fixed price, advanced technology), but he did not listen. You may wonder whether he realized that his re-bid price could still be higher than those of his competitors. He only saw the $22,000 problem. What is much worse is that he criticized his competitors when talking to a customer. This is unacceptable. A customer judges which company he orders with, and he makes up his own mind. He is not interested in one company foul-mouthing another. What makes his criticism even more unacceptable than it already is, is the fact that it is based on outdated information. He ridicules his competitors’ software as unintelligible, but in fact it is ‘pretty damn good ‘ according to his boss. He ridicules his competitors’ ‘field circus’, but does not know that their new US field service centres are ‘mighty impressive’ (again in Freddy Daniels’ words). Apparently, he has not been watching the competition as his boss has. A sales employee who is so complacent that he cannot be bothered to do his basic homework, deserves to be fired, don’t you think?
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Gary is in a panic. The only way out he sees is to give in and re-bid at $407,000. Does he have good arguments? Yes, Cosmix’s two future plants. But does he use this to full effect and is he convincing? Not at all. He appears not to know about the state of the market and the quality of his competitors. Freddy is much more knowledgeable and sounds much more convincing.
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Some students blame market situations or the fixed-price policy, but here you should look at how each person has handled the situation. Should Freddy have told Gary about the increase in quality of the competitors? No, this is not his task, because he may assume that Gary finds this out for himself. After all, Gary is the sales manager. Is he to blame for the policy? No, everybody knows about it. Is he stubborn? Perhaps yes, but he is not convinced by Gary that this deal is special and deserves another approach. And what about Gary? He misjudged the situation and was overconfident where he should have been more cautious. He failed to do a proper competitor analysis and he failed to appreciate Cosmix’s new purchasing policy. He was not in control of the conversation with Jane and not with Freddy either. You wonder how he could have done so well the previous year. He does not prepare good arguments to convince. Should he go to Freddy’s superior Jim Murphy? This is not a good idea, because he will probably get the same answer anyway, and he will definitely offend Freddy by passing him by.
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Whether a fixed-price policy is feasible depends on the type of market you are in, the market circumstances and your own position in the market. Take a simple example from a different type of market: the car market. This market is segmented, and there is a great difference between cars for the common man and ‘dream cars.’ Ferrari and Rolls Royce are in a league of their own. They do not advertise or give discounts. When you are interested in a discount, you should not step into the Rolls Royce showroom in the first place, because a salesman will not be interested in bargaining with you. A Toyota salesman, on the other hand, will negotiate about prices with you and arrange a loan so that you can afford to buy a Toyota car. It is a completely different ball game.
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In the present situation you can only wish it had never happened. Gary should have got much closer to this important customer and watch its moves. He failed to observe that he was getting into a tricky situation. He should have exploited his good past relation much better. He should have enquired into Cosmix’s future needs, so that he could develop a supplier partnership for Vanguard, not just for one machine in the existing plant but for a whole series of machines in the new plants. Think of the money Vanguard can make when fitting out two new plants. Compared with that sum of many million dollars, $22,000 is peanuts. You might almost be tempted to offer this machine at half-price, if Cosmix guarantees that Vanguard can fit out their new plants. Making a long-term commitment rather than a short-term one would be much more rewarding.
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Alternative one does not seem to offer much scope for real savings for Vanguard. It is partly a cosmetic change, suggesting that Cosmix gets a different machine and Vanguard has not lowered the price for the original machine. And partly it is a ‘power’ change. Whether Cosmix will be pleased with reduced engine capacity is open to doubt. After all, this is not what they asked for. Alternative two does offer scope for savings, but it is a dangerous move. Vanguard is famous for its service. It has built up a reputation on the USP of service. When you reduce service, you lose the distinguishing feature, and you no longer stand out among the competition. Alternative three is neither one thing nor the other, typical for those who cannot choose or those who do not like alternatives one and two.
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