Harvard Business Review: The Case of the Pricing Predicament #1

Using Occidental Aerospace and Standard Machine Corporation as your examples, andexplain pricing objectives.

• Discuss price elasticity
• Discuss the total cost of this transaction
• Finally, explain which of the three choices presented by Scott Palmer you would choose and why.

The Case of the Pricing Predicament

by Mary Karr

As soon as Scott Palmer's secretary told him that Joanne Braker from Occidental Aerospace was on the phone, he knew he was in for a long day. Inheriting the Occidental account had helped him earn top sales commissions last year, his rst at Standard Machine Corpora- tion. But a month ago, Joanne informed Scott of the purchasing department's new, more ag- gressive competitive bid policy, and said it would apply to the acquisition of a computer- ized milling machine for Occidental's new training center.

Scott nevertheless submitted his $429,000 proposalwithgreatcondenceandeven boasted to his regional sales manager that the deal was "in the bag." After two weeks of unre- turned phone calls, however, Scott got the feel- ing his condence had been sorely misplaced.

"Hi, Joanne. Long time, no hear. What's up?"

Joanne got right to the point. "Scott, I've got a $22,000 problem you can solve."

"What do you mean?"

"You know we have to look hard at a number of different vendors on purchases of this size. And your bid is well above the competition's. Kakuchi came in under $390,000, and Akita Limited at a little over 400K."

She waited, and Scott waited back, not want- ing to show his anxiousness. "The way I count it," she nally continued, "you're $22,000 too high, and I just can't sell that here."

"Well, Joanne, you get what you pay for in this world. You know that Standard's got the best machine tool equipment in the world. Not to mention our service and training. So we have to sell at sensible list prices, no more no less, if we want to keep providing the kind of products and service you expect from us."

Scott began to recount Occidental's long and fruitful relationship with Standard, and the un- matched performance of its milling, grinding, and boring machines. But Joanne interrupted.

HBR's cases, which are ctional, present common managerial dilemmas.