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Fixed Price Policy

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?

Solution Preview

In this scenario, Occidental Aerospace is a long-standing client for Standard Machine. Standard Machine is now in this difficult situation because competitors have underbid Standard Machine. The Aerospace Company now realizes that they can acquire the needed asset at a price lower than what Standard can provide, so the purchasing manager is encouraging Standard to drop its price. Because Standard has a fixed price list, we ...

Solution Summary

This solution explains why Standard Machine is in this particular position, and what should be done. A detailed answer is provided.