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1. A bidder who looks to bid low because he understands the customer will have a long time need for their services, versus overpricing the customer is a smart business person. People are usually more privy to people who seem to be trying to save them some money. If the bidder enters the agreement at this angle, the buyer may assume the bidder is keeping their best interest in mind. On the flip side, Depending on the level of expertise the buyer has he may understand that is why the bidder is bidding low. He could then question whether the bidder actually has their best interest in mind.This makes me think of a situation I was in a few years back with a friend who was starting a business. He needed help with starting up his business. This means he needed someone to create a solid business plan, keep a running tab on the company budget, forecast costs of items needed for operation, as well as be involved in the daily interactions with customers. It was a travel baseball organization. He needed to understand how much equipment he needed, logistics handled around ordering jerseys in a timely manner for players, creation of parent communications, as well as handle travel logistics. Because I knew I was looking for a job in the Atlanta area (which is where he stayed), I knew at some point I may need him for a place to stay temporarily. I knew I needed to be flexible in regards to being able to just pick up and leave in order to be ready for a career opportunity that came my way. Because this was a greater good situation where I could benefit from helping him start his business and in turn have a place to stay, I took on all of the responsibilities for a very small fee. This strategic move made him feel as though he owed me something for doing all of that work for his company so he let me stay for a couple of months until I was able to find a place of my own. Thus far, it has been the best decision of my life.

 2. If there is expected goodwill that would come from me bidding lower than competitors to get a contract, then I would definitely bid lower. I don’t have a bidding example, but I do have an example of a nail salon that I go to in my neighborhood. In Chicago, standard nail salons usually charge $40-$50 for a manicure and pedicure. Only some of the fancier places that may have marble floors and serve you drinks while you are getting your nails done would charge much higher than that. The place that I go to is on a main street where there are about 5 other nail salons within 7 blocks of each other. Each of these places charge $40 for a manicure and pedicure, but the place I go to charges $30 for a manicure and pedicure. I always pass the other places, and it’s easy to tell from the outside how busy the one I go to is compared to the others. I have actually been to the other salons and had to pay the higher price because I didn’t feel like waiting at the one I normally go to (if you don’t have an appointment, the wait can sometimes be long). I’ve told so many friends about this place, and now it is the only place they go to. The quality is just as good as the other places, but a lot cheaper! The inside of the nail salon is also just as clean and nice as the other ones.

This nail salon knows what the other places are charging because they can walk by them every single day and see the signs outside that say $40. Therefore, this salon is purposely setting a lower price than the other places so that they can get more customers than the other salons. This is what Douglas (2012) refers to as penetration pricing. By doing this, they can gain greater market share, because they are offering the same quality service as the others, but their price is 25% cheaper. If the nail technicians were no good and if the place was a dump, then I would probably pay $40 to get my nails done somewhere else. However, the quality is no different than the others. As Douglas (2012) states, this place would be a bargain “with its price positioning being lower than its quality positioning. It offers more quality per dollar, or ‘bang for the buck’ as some would say” (Ch. 9.1, para. 6). Also, I usually give a higher tip to them because I think about what I would be paying at the other place and it’s still a lot cheaper. I think what they are doing is smart, since they are maximizing their profit for the long run, and people will continue to recommend them for their services!

References

Douglas, E. (2012). Managerial economics.  San Diego, CA: Bridgepoint Education, Inc.

Directions

 Respond substantively to at least two of your classmates’ postings. Substantive responses use theory, research, and experience or examples to support ideas and further the class knowledge on the discussion topic