Question

Scott, the salesman for Standard Machine, has just received a call from Joann, the purchasing agent for Occidental Aerospace. Occidental has been one of Standard’s largest and most loyal accounts. Following Standard’s fixed price policy, Scott submitted his bid at list price, $429K. Now Joann has called to inform Scott that his bid was not good enough. She told him that one other competitor had bid “under $390K” and another “a little over $400K”. She tells Scott that to win this business; he needs to cut his price by an additional $22K. Although this bid is only for one piece of equipment, Joann reminds Scott that the company will be building two new plants over the next four years, representing “a lot of potential business.” Scott has gone to his boss Tony, the sales manager, to ask for an exception to the fixed price policy.

Why do you think Standard Machine is in this difficult situation with what was previously a loyal customer? What has changed? What would you do?

Answer 1

Why do you think Standard Machine is in this difficult situation with what was previously a loyal customer?

1. The increased level of competition: The level of competition has gone up. Due to competitive landscape, there is a price cutting. The competitors of Standard Machine has made bid competitively and thus underbid the Standard Machine in this contract.
2. Standard machine is in this situation because of its fixed price policy. It has not been able to match the prices offered by its own competitors.
3. The customer has more choices now. They are getting the same quality delivered for a relatively lower cost.
4. Lack of cost control measures at the Standard Machine - due to costs, the company is not able to submit the competitive bids.

What has changed?

1. Competitive landscape has changed
2. Competitors have probably value based pricing while Standard Machine is still stuck with Fixed Pricing Policy
3. Transparency and awareness of the customer: Customers have many choices to choose from
4. Rising costs at Standard Machine

What would you do?

1. Shift towards value based pricing
2. Offer a price which is attractive to customer
3. Assess the cost structures of the competitors and compare mine costs with them. Identify cost reduction measures.
4. Customer service and quality: Improve the both so that customer remains loyal to me.