Private Information for the Seller: PVC Corporation
You are a big seller of PVC (Polyvinyl Chloride). A very large sale to another customer which your company expected did not materialize. It’s now a matter of drumming up as many orders as possible to keep the plant going. Management wants the Fancy Furniture order very badly.
Fancy Furniture, a big user of PVC material, pays its bills late but shows good potential as a future customer. It wants to buy 6,000,000 pounds this year.
It costs you $0.756/pound to produce (after costs).
Vendors A, C, D, and E have taken a number of orders from you recently.
You are aware that the customer’s Manufacturing Director is against you because of two recent delivery and quality problems…which were your fault.
You know that you have a good product, and that you provide excellent service most (but not all) of the time.
The Buyer has made it clear that he expects good service and quality in addition to the best price. But knowing that margins in furniture are slipping, you know that Fancy Furniture is under heavy price pressure.
The Buyer told you that he is going to place the order with you or someone else today. In fact, you saw your competitor in the lobby.
You know that your company has a reputation for high prices. If you don’t get this large order, production costs are likely to go even higher. You are behind in your sales quota. This is a chance to catch up.
20% profit over cost has been your standard. However, competition is growing and costs are rising.
You have a limited time to settle. Otherwise you may be in big organizational trouble.
General Information for Both Parties
The Seller is PVC Corp. The product is Polyvinyl Chloride (PVC), a plastic raw material in pellet form sold in bulk for use in the manufacture of such items as transparent wrapping for meat, surgical masks, and simulated leather upholstery.
The Buyer is Fancy Furniture Inc., a furniture manufacturer that needs 6,000,000 pounds per year. This is a large (but not huge) order. Fancy Furniture’s need for PVC has expanded over the past four years at 10% per year.
The price over the past two years has fluctuated between $0.75 and $0.85 per pound. Prices differ considerably between Sellers. The trend is up.
All producers of PVC raw material are capable of producing to approximately the same specification, but there are important differences in molding qualities and color consistency from batch to batch and company to company.
There are large differences between companies in production costs due to scale of operations and marketing costs.
There are critical differences in the technical support services provided to end users of the raw PVC. Some producers provide extensive engineering and follow-up services if the customer runs into trouble. Other PVC producers do very little after the sale is made.
All Sellers of PVC have bid on the same delivery requirements, quantity, quality standards, color consistency, payment terms, and transportation (FOB customer plant).
The Sellers know that the Buyer is talking to all of them today. The Buyer is getting close to making a final decision.
If you settle, be sure to agree on a price per pound on the entire 6,000,000 pounds.
The PVC Corporation bid is $0.95 per pound.
Complete Following Information Before Negotiations Begin:
Asking price per pound (PVC Corp bid).
The highest price you believe you can get; the one that would make you feel that you achieved an excellent deal.
The price you aspire to; the price below which you will personally consider your performance a disappointment.
Your estimate of the Buyer’s aspiration level; the price above which he or she will feel a sense of disappointment.
The lowest price that you will take if the pressure gets very heavy.
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