NEGOTIATION SKILLS/CASE STUDY
rickyrickrick
CASESTUDY.pdf
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This case was written by Olivier Aba, Associate Professor at Grenoble École de Management.
It is intended to be used as the basis for class discussion rather than to illustrate either
effective or ineffective handling of a management situation.
© 2012 Grenoble École de Management. No part of this publication may be copied, stored,
transmitted, reproduced or distributed in any form or medium whatsoever without the
permission of the copyright owner.
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Kitchen and Info Systems – Role Info Systems, Seller – Case (B) Information known by both sides Kitchen is the largest manufacturer of professional kitchens in France and is based in Lyon. Over the last few years, Kitchen has been growing rapidly; it is now a leader in its market, and currently employs 800 people. Its annual turnover is close to €500 million. Founded more than 30 years ago, Kitchen has always been profitable and plans to replace the majority of its computers, 3 BS300 mainframes from Big Blue. Jérôme V., the IT manager for Kitchen, has been in his position for the last 2 years, and has been given the responsibility to move the company from mainframes to a client/server environment. Big Blue is so far Kitchen’s sole supplier for mainframes. Kitchen’s Executive Committee is convinced that Big Blue has, so far, well served its interests. However the quality of the support from Big Blue has not been up to Kitchen’s expectations. Big Blue's sales and support office is in Paris, 500 km away from Kitchen’s facilities. Jérôme is a very influential figure among the IT managers community in France. Kitchen’s CEO is a well‐respected member of the Chamber of Commerce of Lyon, and well known in the distribution sector in France and Europe. A few months ago, Kitchen publicly announced its European expansion plans for the coming years with an opening of new sales offices and warehouses in Germany, Switzerland and Italy. Kitchen is now in the process of completing the first phase of its migration from mainframes to client/server. Phase 1 covers marketing and sales and will result in the replacement of 2 BS300 mainframes as well as the installation of the Sales and Distribution module of SAP/R3. A second phase is scheduled at a later date. Moon Computer, an American company, is one of the world's leaders for high performance servers, and present in France through a subsidiary in Paris. It also has several sales offices in Lyon, Lille, Toulouse and Marseille. To very large accounts, Moon sells direct, and through a network of resellers for smaller accounts; the resellers provide pre‐sales, sales, installation, training, and hardware and software support. A week ago, Jérôme called Info Systems, Moon’s reseller for the Rhône‐Alpes region, based in Lyon. He talked with Robert T., account manager responsible for the distribution sector at Info Systems and requested a very urgent quotation for 4 Model 40 servers and the return credit conditions for the first 2 BS300. Jérôme indicated that Kitchen had already received a very competitive offer for servers from Big Blue and stressed that, if Moon and Info Systems wanted to enter the account, they would have to provide a very attractive offer for the servers and return credit for the mainframes. Jérôme also requested a very short delivery, 4 weeks, and stated that the implementation of the SAP/R3 application was under the responsibility of a system integrator. Consequently
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Info Systems should only focus their attention on the 4 servers. During the telephone call, Robert indicated that the Model 40 list price was 120 K€ and that Info Systems would be able to offer a 5% discount, or 114 K€ net per server. This price included delivery, installation, and the standard configuration. For the return credit, Robert, mentioned 10 K€ per mainframe. Jérôme has not yet received any written confirmation of the pricing made by Info Systems’ over the phone. Info Systems is one of the largest resellers for Moon in France. It was created 8 years ago, developed quickly and successfully in France with the sale, distribution of computer equipment and delivery of related services. Info Systems’ turnover has grown very quickly, between 30 and 40% per year, with a focus on SMEs and large accounts, primarily in the chemical, medical, plastic, and telecommunication sectors. Its latest turnover is 150 M€, with 80 employees, and a very good profit level. Services represent approximately 60% of the turnover of Info Systems. Info Systems’ office in Lyon, cover sales and support activities and is located very close to Kitchen’s headquarter and also to Moon’s Lyon sales office. Moon and Info Systems have an excellent reputation for the quality of the equipment, and also for their services. Info Systems is however known to charge every time for its services. Info Systems business in France has been expanding rapidly over the last few years, as well as in Western Europe. Last year, to address its development in Western Europe, Info Systems has opened an office in Munich, Germany, with both sales and support activities. Yesterday, Jérôme called Robert to speed things up and set an appointment as soon as possible. He emphasized again that Kitchen wants an overall very attractive offer and that he hopes to receive a formal detailed proposal from Info Systems prior to their upcoming meeting. He said that he was not willing to discuss the implementation of SAP and the associated services since these items were currently under the responsibility of a system integrator that has been doing a good job and working with Kitchen for a while. The meeting will take place at Kitchen’s premises in the presence of Jacques D., Kitchen’s Purchasing manager.
Information known only to Info Systems Robert is a young and aggressive salesman. In the last years, his results have been among the best at Info Systems; he has, so far, always been selected for the “President’s Club", which rewards the best people. This year, business has not been good for both Info Systems and Robert. Robert is far behind his targets for the quarter and needs a very big deal to be able to make it again to the “President’s Club”. Info Systems is also behind its quarterly and yearly forecast levels. Given the rather sluggish environment, there is a strong pressure to close this deal.
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As part of its standard business policy, Info Systems provides its sales personnel with flexibility to negotiate prices; however sales reps are not authorized to go beyond 20 % in discount. For Model 40 servers, Info Systems offers a standard 5% discount. Robert’s commission is based on a minimum selling price of 96 K€ and it goes up with the selling price. Info Systems’ success has been linked to its ability to understand the needs of its customers and offer tailored solutions. These solutions incorporate servers with the latest technologies, usually from Moon, as well as appropriate assistance and consulting services. Sales of Moon’s servers and related services now represent approximately 55% of the turnover. Based on his experience, Robert feels that Big Blue is likely to be “aggressive” and price servers between 95 and 105 K€, net after discount. He thinks that they may also offer a fairly large return credit, probably between 20 and 25 K€ per server. To counter Big Blue, he will push Info Systems main selling arguments: price/performance ratio for the servers as well as the quality of after‐sales support from Moon & Info Systems. Info Systems always had a cautious and measured expansion approach trying to follow the development and growth of its customers. It gradually opened offices in France, covering sales and services and hardware support. In Europe, Info Systems is already present in Munich, Germany, with an office staffed with 8 people (sales and support), and covering three large customers. The Munich office is currently working on several potential major accounts in the electronics and aeronautics industry that could materialize in the next few weeks. Christophe S., Vice President for Sales, is finalizing an expansion plan in Switzerland and Italy. In the short term, 6/18 months, Christophe has set his priority with Italy, and then Switzerland. The next office is planned to be in Milano in 6 to 9 months. Christophe however remains very pragmatic and opportunistic; he is ready to adapt Info Systems’ plans based on the upcoming customer opportunities which could arise in Italy, or Switzerland. Info Systems’ support organization is small but regarded as efficient. Lyon and Munich offices provide local support to customers with first level of hardware support and minimum support for software. The second line support, primarily software, is provided from Lyon. Info Systems has a very close partnership with Moon in France and with their European software support center in England. This has allowed Info Systems to build an excellent reputation for the quality of its support. Due to the current order situation, winning this account is critical to Robert, Christophe & Info Systems, first for the short term, but also for the future, when looking at the potential of the Kitchen account over the next few years. Kitchen would also be the first major account in the distribution sector, a new priority target market for Info Systems.
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Targets and limits of Info Systems for the negotiation
Price and discount: the net selling price per server cannot be below 96 K€. Robert has set his target within a range of 100 to 105 K€ after discount.
Return credit: Robert has already indicated 10 K€ per mainframe, but he can, if necessary, improve his offer to around 12 and even up to 15 K€ per mainframe, since Info Systems has excellent connections with a second‐hand equipment broker specialized in Big Blue equipment. He is ready to show flexibility in that area.
Delivery lead time: Right after his last call with Jérôme, Robert contacted Moon and learnt that, due to a recent and major upsurge in orders for the new Model 40, a delivery from Moon factories for 4 servers within 4 weeks is out of the question. Moon’s factory indicated that 8/9 weeks appears “feasible” for 4 servers, but without any real firm commitment. With Christophe’s help, Robert could potentially escalate and request the delivery of one server in 6 to 7 weeks; the results of such escalation cannot however be predicted. The delivery issue has not yet been communicated to Kitchen. Robert will cautiously indicate 9 weeks when starting the discussions.
Payment terms: Due to the slowdown in sales, Info Systems is temporarily short of cash. The directives from Info Systems’ Finance manager are that payment terms beyond 30 days cannot be accepted, and that 10 days payment terms is what has to be requested and obtained from the customers. At this point in time, this is a critical element for Info Systems. Payment terms are from date of delivery.
Penalty for late delivery: In the last years, Info Systems has seen more and more customers requesting this type of clause. Robert remains quite cautious as Moon's delivery performance tends to be fairly unpredictable and has caused him some serious problems in the past. Info Systems’ Finance manager directives are to limit the penalty to 1200 € per day maximum (for the global 4 servers delivery). This point is quite sensitive and needs Christophe’s final approval. Robert, in such cases always opens with 500 € per day and, in the end, expects to finish around 1000 € per day maximum (for the 4 servers delivery).
Hardware warranty period and support prices: Moon/Info Systems’ standard warranty is 1 year for hardware and 1 year of free support for software. The standard hardware support coverage is 5 days a week, 9 am. to 5 pm. Info Systems and Robert have seen in recent months more and more customers asking for 2 or even 3 years warranty included in the price! Robert is allowed to go up to 18 months included in the price; he would feel very good if he could reach that with Kitchen. An additional year of hardware warranty or support is priced at 3.5% of the server list price and costs about 1% to Info Systems. Coverage for Saturday is priced at +25% over the 5 days coverage. Robert has some leeway in that area, but needs to consult with Christophe prior to making a final offer. 3% per year is really the maximum that can be granted and against other concessions.
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Hardware training: Info Systems on‐site customer training is priced at 1200 €/day (5/6 students maximum). If delivered at Info Systems or Moon's premises, the training price comes down to 800 €/day. On the average, courses last 3 days. Robert has some flexibility in terms of training prices. In most cases, the training ends up being priced 1000 €/day on‐site or 700 €/day at Info Systems or Moon's premises.
The different points to negotiate are summarized in the following table and the opening levels indicated below should be used as a starting point for your negotiation.
Items to be negotiated for Info Systems
In the next few hours, Robert T., account manager, responsible for the distribution sector, will meet Jérôme C., Kitchen IT manager, and Jacques D., Kitchen Purchasing manager at Kitchen’s premises. Robert’s manager, Christopher S., Info Systems’ Vice President of Sales, will attend the meeting. Get prepared for the negotiation with Jérôme C. and Jacques D.
Negotiation Items Opening levels
Price per server (net after discount) 114 K€
Return credit per mainframe 10 K€
Delivery lead time 9 weeks
Payment terms (from date of delivery) 10 days
Penalty for late delivery 500 €/day for the 4
servers
Hardware warranty period 1 year included in the
server list price
Hardware support cost 3.5% of server list
price
Hardware training cost 1200 € /day for 5/6
students
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