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In the case of Standard Machine’s pricing predicament, Occidental Aerospace’s loyalty might have been based on Standard being the only available supplier, and not on Standard effectively demonstrating the value of their product. Whether the customer is truthful or not in what is being communicated regarding the other competitors, resistance to Standard Machine’s price is likely a result of one of four things: Standard Machine’s product is not offering as much value as expected, the price is just too high relative to the value, Occidental does not understand the value, or Occidental has learned how to exploit Standard’s pricing process. Whatever the reason, it led to ineffective pricing, which resulted in the resistance. The immediate task is to determine how to deal with the unexpected negotiation and the exception to the fixed price policy. The secondary task is to determine how to retain Occidental Aerospace’s account.
Why was the pricing ineffective? Scott’s act of going to his boss to ask for an exception revealed to Joann that there was no price integrity and a negotiation was in fact possible. Good policies enable prices to change along the demand curve without changing expectations in ways that cause the demand curve to “shift” negatively for future purchases. Poor pricing policies create incentives for customers, sales reps, or competitors to behave in ways that will undermine future sales or customers’ willingness-to-pay. Perhaps Standard Machine’s fixed price policy was a result of product-led value creation, and they used a cost-plus method to cover fixed costs and achieve a desired profit margin. As an immediate resolution to this one piece of equipment, Tony should tell Scott that we would not be able to come down on the price of the single purchase. Then he should empower Scott to offer discounts with repeat or bulk orders in the future. Scott would explain the advantages and value trade-offs as a loyal customer that may meet or exceed...
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