Business-To-Business Marketing Negotiation Exercise Manual for Retailer of Sydney Shirts “Retailer 4” You are the general merchandising manager for a designated retail operation. One of your suppliers is Sydney shirts. Sydney is a manufacturer of high quality, differentiated, wide product line and nationally advertised brand of business shirts. They enjoy wide consumer appeal and good sales. Table 1 shows the facts which pertain to your relation with Sydney shirts in your market area. The figures in the table are approximate and are based on a market analysis your firm had done to show you your position in the market relative to the other retailers of Sydney shirts. You should not divulge information contained in Table One to Sydney unless or until you think this information will improve your bargaining position at some Point. Instructions In this "exercise" you will enter into negotiations with Sydney. This follows a management review of the relationship, which indicated there was a need to reassess the (nonbinding) agreement between the firms. You have replaced the representative who dealt with Sydney for a number of years. Coincidentally, they too are providing a new sales/marketing representative to negotiate with you this time. There are a number of issues YOU have been directed by your firm to raise with Sydney as you negotiate a modified relationship. Also Sydney wish to renegotiate some factors of their relationship with you. For each aspect of the joint agreement you reach, you should write down the reason for this decision. This may be different from the reason Sydney has so you need not share this information with them. These reasons may be the basis for a report to your Head Office assessing the rationale behind and effectiveness of this negotiation. You have been given complete autonomy for the purposes of negotiating with Sydney. However Head Office will be watching your performance and in the long term your own future in this retailing chain depends on the quality of your negotiations and the agreement reached. (While you may decide to terminate the relationship with Sydney if no agreement is reached, this will require substantial justification as well). Your negotiation should be based on an assessment of your relations with Sydney. Feedback as to the impact of your demands and Sydney's demands are outlined in the following pages. 1FACTORS TO BE NEGOTIATED WITH SYDNEY 1. In-house market research indicates that increased product diversity would increase store attractiveness to customers. This, it is postulated would increase sales. In line with this it is suggested that Sydney should add a special line of fashion knit shirts with our store's label. This could initially replace 2.5% of their current volume to us. It is possible that this will cause no cannibalisation, in which case orders for the standard shirts would soon return to normal. It is also possible that this line extension will attract new customers to Sydney brands. 2. Sydney should fill orders in 7 days instead of the usual 10 days. This will increase our firm's responsiveness to demand and avoid stock-outs. This will decrease the likelihood of substitution of other brands when Sydney shirts are not available. 3. Sydney is to increase the three yearly special price promotions to four. In the past these have increased store traffic and business overall as well as resulting in increased sales for Sydney. Current trends however are towards increased price competition between retailers. Therefore price promotions are becoming necessary just to keep up with our competitors. 4. Sydney is to increase the cash discount period to 15 days instead of the current 10 day cash discount period. This will increase our firm's net margin by approximately 5 cents per unit for all Sydney shirts purchased. 5. Sydney is to provide specially designed packaging for 10% of current volume ordered for three months at no extra cost to us. This is for our store's 25th anniversary celebrations. While we recognise this will increase Sydney's costs it will ensure orders from us during this period and will increase the association in the minds of consumers between Sydney and our stores. 2INTELLIGENCE REPORT FROM HEAD OFFICE Based on an assessment of the past relationship with Sydney and the current state of' the industry, these are thought to be the factors that Sydney will introduce into the negotiation with you: 1. To increase the minimum quantity ordered at one time from the current 500 units. This will increase our costs by 3 cents per unit and decrease their distribution costs by an estimated 5 cents per unit (on all units ordered). 2. They will attempt to cut our net margin by up to 5%. 3. To ask us to advertise twice a month. They may propose some sort of cooperative advertising scheme where costs and control of content are shared. If costs are shared equally, this will result in increased costs of about 2 cents per unit for their firm and for our firm. 4. To ask us to increase the quality and quantity of displays of their products in our stores. This will benefit them because of their possible increase in market share. However we may suffer because it reduces our ability to offer alternatives to customers. They are also launching a new display system with carts/trolleys holding and displaying shirts. These do look good in stores and we have heard are well received by customers. 5. To ask for a more formal agreement, this may tie us together for a period of time or ask us to provide forecasts of demand or minimum orders overtime. While this decreases our flexibility and thus ability to respond to market change, it would increase our stability of supply. Important Notices 1. All the above factors may lead to increased sales volume for both the manufacturer and retailer. However there is always the possibility of no volume increase. 2. We are aware that Sydney wishes to maintain a substantial presence in all existing market areas. 3. Not all information which potentially would assist you in reaching an agreement has been provided. You can make any reasonable assumptions about the market you wish however these must be agreed upon by both parties. You may also make any assumptions you need to about the nature of your firm and their capabilities. Please ensure you catalogue and justify all such assumptions. 3TABLE 1 (CONFIDENTIAL INFORMATION) The purpose of this information is to enable you to assess your relative position in the channel network. Channel Variables Retailer 1 Retailer 2 Retailer 3 Retailer 4 Retailer 5 (our firm) Buying Volume (Units) 15,000 75,000 135,000 270,000 500,000 from Sydney (yearly) Sydney Shirts Percent of 50 25 10 5 2 your Sales Volume of Shirts (%) Net margin per Unit ($) 3.00 2.75 2.50 2.25 2.00 % Sydney's Contribution 35 20 12 8 4 to your Profits (Men's shirts) Number of Alternative 0 2 3 4 4 Sources of Supply of Sydney (#) Cost of switching To 30,000 20,000 15,000 10,000 5,000 Alternatives ($) Description of Retail Characteristics: Single unit men’s store Multi-unit department stores (10 stores in major cities in the state) State-wide department store chain with 25 stores National mens wear store chain with 50 stores National department store chain with 150 stores NOTE: Buying is centralised for all multi-unit department stores. You are acting as a general merchandising/purchasing manager. 4MANAGEMENT PRIORITIES While our firm can survive without Sydney's product we don't want to have to. They reinforce the image our chain wishes to project. Their product is of good quality and well-received by consumers. They command a certain brand loyalty. Some customers would certainly be lost as it is estimated that 25 % to 60% of Sydney customers will not purchase substitutes and will instead visit another store. Retailing is however increasingly competitive and it is important to keep prices competitive. Therefore you are directed to negotiate an effective and equitable arrangement with Sydney. The most important factors in this arrangement are a commitment to long-term product diversity and contributions by Sydney towards assisting our firm in retaining and increasing our stores attractiveness and desirability to customers. 5NEGOTIATION EXERCISE - DECISION SHEET RETAILER REPRESENTATIVE (Full name and ID) ________________________________________ MANUFACTURER REPRESENTATIVE (Full name and ID)________________________________ DECISIONS A.Quantity to be ordered Current style(s) business shirts_________________________ % Knit sport shirts ____________________________________ % Overall increase/decrease _____________________________ Minimum Qty to be ordered ___________________________ B. Retail margin ________ per shirt C. Advertising Frequency________________________________________________________ Cost split ________________________________________________________ Content Responsibility ______________________________________________ D. Shelf Space change______________ % increase/decrease (delete one) E. Trolley Supply Number to be supplied ____________________________________________________ Contribution per trolley____________________________________________________ Timing of trolley supply to the retailer________________________________________ F. Order time_______________days G. Price promotions Number ____________ Any other particulars _____________________________________________________________________________________________ _____________________________________________________________________________________________ _____________________________________________________________________________________________ ____________________________________________________ H. Payment, discount period ____________days I. Special packaging Period of time__________________________ Cost responsibility ______________________ 6J. Ongoing commitment Nature of any agreement reached:___________________________________________________________________________________ _________________________________________________________________________________________ _________________________________________________________________________________________ _______________________________________________________________ K. Other areas negotiated and decisions reached _________________________________________________________________________________________ _________________________________________________________________________________________ _________________________________________________________________________________________ _________________________________________________________________________________________ ________________________________________________________________ We hereby agree that the decisions outlined above are agreed to by both parties; Manufacturer:_____________________________________________________________ Retailer:__________________________________________________________________ 7