I. Major Facts
At times in business pricing, there are situations where one can make concessions for their good customers to favor them for a particular business. The timing however needs to be ideal, not too late for them to do anything about the deal, and it should be confidential. Most companies are known to make contracts at fixed prices other than depend on the market forces to fix the prices (Nagle, 2011). When such sellers have some fixed price policies to observe, it is not fair to make them price down in order to give them a deal against their will. The seller gets the concession by accepting to decrease the price in their quotation. It is common to come across costs in businesses that are permanently fixed (Nagle, 2011).
II. Major Problem
In this case, Occidental is trying to coarse Standard to change their fixed price policy in order to win the sale. The problem is that Occidental has been a loyal customer to Standard and if Occidental learns that Standard could be a little flexible with the prices, Occidental may develop the trend to always make a bargain knowing too well that Standard�s policy is a fixed price policy. On the other hand, Standard could lose one of its most loyal customers to competitors if it does not adjust the price to accommodate their deals (Nagle, 2011).
III. Alternatives
There are two alternatives that Standard could exploit in this case. One of the options is turning down the offer by Occidental and maintaining the fixed price. This would mean that Standard is ready to lose Occidental on this deal and other deals in future.
The second option is making use of strategic pricing. The main aim of strategic pricing is making a profit. It means giving a fair price to the customer and ensuring that the merchandise is appealing to the customer while still maintaining a favorable profit margin (Nagle, 2011). It requires the use of fixed costs optimally to keep up with competitors who are keen to win the deal. The fixed price policy may be changed to accommodate deals that are deemed profitable.
IV. Advantages and disadvantages
Reducing the price to get the deal may seem like a good idea to achieve more sales but it is not a good idea financially. It offers a short-term advantage, but the margins will of course be smaller. However, in some conditions, a price cut while considering favorable profit margins for the company may work well, especially for loyal customers (Nagle, 2011).
Rigid pricing may mean loss of business, and when the other customers realize that the competitors are offering better prices, they may shift to the competitors. Price reduction could also be advantageous to the firm. When done strategically and confidentially, it could involve one or very few loyal customers.
V. Choice and rationale
The choice of the action to take in this case is very sensitive. The other customers, apart from Occidental, should not know about the price cut. It would be wise for Standard to offer Occidental a lower price to ensure that they retain then for future business. The price should however be negotiated, Standard should not allow Occidental to dictate the price of the equipment. The profit margin should be favorable
VI. Implementation
The best way to implement this deal is through a memorandum of understanding signed by both parties. They should agree that the deal will be held in utmost confidentiality and that the price cut is given on conditions that Occidental will remain a loyal customer to Standard.
- Nagle, T. J. E. (2011). The Strategy and Tactics of Pricing; A Guide to Growing More Profitably. New Jersey, NJ: Prentice Hall.
