Question

Confidential Role Information for GTechnica (Seller)

You are the Vice President of Sales for GTechnica, a Massachusetts‐based developer and
manufacturer of precision electronic components for use by computer and computer accessory
manufacturers in their products. Your research and development team recently completed work
on a new processor chip – the GT7 ‐‐ for consumer‐oriented graphics accelerator cards, and your
firm has now readied a production line at your Wisconsin manufacturing plant capable of mass
producing the chip.

Graphics accelerators are video adapter cards that one can plug into a PC (in an available
expansion slot on a PC’s motherboard) designed to boost a computer’s performance on multimedia
tasks such as games or scientific applications that are graphic intensive. These accelerator cards
typically include their own memory and their own specialized processor to handle the intensive
mathematical operations involved in graphics applications. An accelerator card enhances PC
performance by freeing up a computer’s main processor and memory for other operations, while
the graphics card handles the computational load associated with graphics. The demand for
graphics accelerator cards by the general consumer market has grown significantly in the last few
years as home and small business PC users have increasingly sought more and better processing
power to handle the snazzy graphics that software developers have been adding to productivity
applications as well as games.

Six months ago, when the GT7 was first announced in the trade press, GTechnica was
approached by a European firm called SysD, which is one of the leading makers of add‐in circuit
boards for PCs, including graphics accelerator cards. SysD was interested in using the GT7 for its
latest model accelerator card, and you were able to reach a deal to sell 15,000 units (GT7
processors) to SysD at a price of $37 per unit. At the time that deal was made, this was a good price
for GTechnica, for two reasons. First, you weren’t sure when the chip was announced that this new
and relatively untested processor could fetch much more than $30 until it had more of an installed
base in the marketplace. Second, your main competitor in this market is thought to be supplying
similar (but slightly less advanced) processors for an average unit price of about $28. But as it
turned out, SysD was unhappy with their existing primary supplier of processors, and anxious to
bring out a new accelerator card with enhanced capabilities, and they agreed to pay $37 per unit.
Unfortunately, three months after closing the deal, as you were completing development on
your production facility for the GT7 (before any units had yet been made or shipped), SysD
exercised an option in the contact to delay their purchase of the processors by one year. Now you
have about nine months of underused (unused, really) production capacity for making GT7s. If you
could find another accelerator card manufacturer interested in the GT7 and close a deal quickly,
there is time to produce and ship 15,000 units before you have to turn your production capacity
back over to making GT7s for the delayed SysD contract.

As luck would have it, while at a trade show a couple of weeks ago, you ran into an executive
with a graphics hardware firm in California called AccelMedia. AccelMedia, a relative newcomer to
the market, has been growing rapidly because of the sudden popularity of its graphics accelerator
products. The executive you spoke with at the trade show told you that AccelMedia has an urgent
need for approximately 15,000‐20,000 processors for their newest accelerator card (a model called
the AMPro 50). Figuring that this could be an excellent way to make use of the temporarily idle GT7
production capacity, you then contacted AccelMedia’s Director of Component Sourcing, who
confirmed that they are seeking a supply of processors, and that GTechnica’s GT7 would meet their
specifications. The two of you agreed to schedule a meeting to negotiate the possible sale of GT7
processors to AccelMedia.

Your goal in the upcoming negotiation is to get the highest possible price per unit for the
processors that you sell to AccelMedia. Your net unit cost for the GT7 is $16; anything above that
will represent a profit for GTechnica, and given the fact that the production line will sit idle if no
deal is made (there are no other potential customers on the horizon at this point), you should
probably be willing to accept any deal that exceeds unit cost. But your boss, the Executive Vice
President for Sales and Marketing, has made it clear that you will be judged by how much better
than this you can do.

Another issue is the volume of a contract: You have the capacity to make and ship as many
as 15,000 units, and you would like a deal that comes as close to that as possible. However, you
cannot make a deal for more than 15,000 units because the production line will have to be turned
over to the delayed SysD contract at that point, and there is no other possible production capacity
that can be shifted to making GT7s in the near future. Thus, the negotiation you are about to
conduct is really a one‐shot opportunity to do business with AccelMedia.

As you wait for the meeting with AccelMedia’s representative, you are thinking through the
approach you will take.

• What is the unit price you would like to receive for the GT7s? ____$37______
• What is the unit price you will initially present to AccelMedia? ___$30_______
• What is the lowest unit price you will accept for the GT7s? ____$22______

Question 5. Define your best Objective Criteria.

MARKET VALUE - What would others be willing to pay for the same thing?

PRECEDENT - What was the basis of previous agreements?

TRADITION - How have you done it in the past?

EXPERT/SCIENTIFIC JUDGMENT - Is there a well-developed body of knowledge?

EFFICIENCY - Is this the best way to do it?

COSTS AND PROFITS - Are there margins which must be met?

POLICY - Is there an internal or external set of rules that serve as a guide?

RECIPROCITY - Would the other party feel compelled to return the favor?

STATUS - Will you defer to someone's title or position?

PROFESSIONAL/INDUSTRY STANDARDS - Is there a 3rd party standard we can refer to?

Answer 1

Ans 5 : Best Objective under this situation is to get the highest possible price per unit for the
processors that we sell to AccelMedia and the order quantity should not be more than 15000 units of GT7s because if it will happen ,the production line will have to be turned over to the delayed SysD contract at that point, and there is no other possible production capacity that can be shifted to making GT7s in the near future. Thus, the negotiation I am about to conduct is really a one‐shot opportunity to do business with AccelMedia. this way we will be able to utilize the Plant Efficiency.

1. MARKET VALUE - What would others be willing to pay for the same thing?- as far as no competitor is present, AccelMedia will happily pay this Price.
2. PRECEDENT - What was the basis of previous agreements?-The basis for previous agreements was uniqueness of the Product GT7.
3. TRADITION - How have you done it in the past?-We haven't done it in the recent past.
4. EXPERT/SCIENTIFIC JUDGMENT - Is there a well-developed body of knowledge?-Yes our decision is backed by a well developed body of knowledge.
5. EFFICIENCY - Is this the best way to do it?-Yes it is the best way to do it.
6. COSTS AND PROFITS - Are there margins which must be met?-Yes there are Profit and capacity margins, which must be met.
7. POLICY - Is there an internal or external set of rules that serve as a guide?-No, there are no well defined Internal and external set of rules.
8. RECIPROCITY - Would the other party feel compelled to return the favor?-Yes the other party SysD will feel Compelled to return the Favor of Postponing the Order by nine months.
9. STATUS - Will you defer to someone's title or position?-Yes, I can Get Promotion or demotion.
10. PROFESSIONAL/INDUSTRY STANDARDS - Is there a 3rd party standard we can refer to?-No, There is no such standard we can refer to.