RMIT Classification: Trusted

Business-To-Business Marketing

Negotiation Exercise

Manual for Retailer of Sydney Shirts “Retailer 4”

You are the general merchandising manager for a designated retail operation. One of your
suppliers is Sydney shirts. Sydney is a manufacturer of high quality, differentiated, wide
product line and nationally advertised brand of business shirts. They enjoy wide consumer
appeal and good sales.

Table 1 shows the facts which pertain to your relation with Sydney shirts in your market
area. The figures in the table are approximate and are based on a market analysis your firm
had done to show you your position in the market relative to the other retailers of Sydney
shirts.

You should not divulge information contained in Table One to Sydney unless or until you
think this information will improve your bargaining position at some Point.

Instructions

In this "exercise" you will enter into negotiations with Sydney. This follows a management
review of the relationship, which indicated there was a need to reassess the (nonbinding)
agreement between the firms. You have replaced the representative who dealt with Sydney
for a number of years. Coincidentally, they too are providing a new sales/marketing
representative to negotiate with you this time.

There are a number of issues YOU have been directed by your firm to raise with Sydney as
you negotiate a modified relationship. Also Sydney wish to renegotiate some factors of their
relationship with you. For each aspect of the joint agreement you reach, you should write
down the reason for this decision. This may be different from the reason Sydney has so you
need not share this information with them. These reasons may be the basis for a report to
your Head Office assessing the rationale behind and effectiveness of this negotiation.

You have been given complete autonomy for the purposes of negotiating with Sydney.
However Head Office will be watching your performance and in the long term your own
future in this retailing chain depends on the quality of your negotiations and the agreement
reached. (While you may decide to terminate the relationship with Sydney if no agreement is
reached, this will require substantial justification as well).

Your negotiation should be based on an assessment of your relations with Sydney. Feedback
as to the impact of your demands and Sydney's demands are outlined in the following pages.

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FACTORS TO BE NEGOTIATED WITH SYDNEY

1. In-house market research indicates that increased product diversity would increase
store attractiveness to customers. This, it is postulated would increase sales. In line
with this it is suggested that Sydney should add a special line of fashion knit shirts
with our store's label. This could initially replace 2.5% of their current volume to us.
It is possible that this will cause no cannibalisation, in which case orders for the
standard shirts would soon return to normal. It is also possible that this line extension
will attract new customers to Sydney brands.

2. Sydney should fill orders in 7 days instead of the usual 10 days. This will increase
our firm's responsiveness to demand and avoid stock-outs. This will decrease the
likelihood of substitution of other brands when Sydney shirts are not available.

3. Sydney is to increase the three yearly special price promotions to four. In the past
these have increased store traffic and business overall as well as resulting in
increased sales for Sydney. Current trends however are towards increased price
competition between retailers. Therefore price promotions are becoming necessary
just to keep up with our competitors.

4. Sydney is to increase the cash discount period to 15 days instead of the current 10
day cash discount period. This will increase our firm's net margin by approximately 5
cents per unit for all Sydney shirts purchased.

5. Sydney is to provide specially designed packaging for 10% of current volume

ordered for three months at no extra cost to us. This is for our store's 25th anniversary
celebrations. While we recognise this will increase Sydney's costs it will ensure orders from
us during this period and will increase the association in the minds of consumers between
Sydney and our stores.

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INTELLIGENCE REPORT FROM HEAD OFFICE

Based on an assessment of the past relationship with Sydney and the current state of' the industry,
these are thought to be the factors that Sydney will introduce into the negotiation with you:

1. To increase the minimum quantity ordered at one time from the current 500 units. This will
increase our costs by 3 cents per unit and decrease their distribution costs by an estimated 5
cents per unit (on all units ordered).

2. They will attempt to cut our net margin by up to 5%.

3. To ask us to advertise twice a month. They may propose some sort of cooperative
advertising scheme where costs and control of content are shared. If costs are shared
equally, this will result in increased costs of about 2 cents per unit for their firm and
for our firm.

4. To ask us to increase the quality and quantity of displays of their products in our
stores. This will benefit them because of their possible increase in market share.
However we may suffer because it reduces our ability to offer alternatives to
customers. They are also launching a new display system with carts/trolleys holding
and displaying shirts. These do look good in stores and we have heard are well
received by customers.

5. To ask for a more formal agreement, this may tie us together for a period of time or
ask us to provide forecasts of demand or minimum orders overtime. While this decreases our
flexibility and thus ability to respond to market change, it would increase our stability of
supply.

Important Notices

1. All the above factors may lead to increased sales volume for both the manufacturer
and retailer. However there is always the possibility of no volume increase.

2. We are aware that Sydney wishes to maintain a substantial presence in all existing
market areas.

3. Not all information which potentially would assist you in reaching an agreement has
been provided. You can make any reasonable assumptions about the market you wish
however these must be agreed upon by both parties. You may also make any
assumptions you need to about the nature of your firm and their capabilities. Please
ensure you catalogue and justify all such assumptions.

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TABLE 1
(CONFIDENTIAL INFORMATION)

The purpose of this information is to enable you to assess your relative position in the channel
network.

Channel

Variables Retailer 1 Retailer 2 Retailer 3 Retailer 4 Retailer 5

(our
firm)
Buying Volume (Units) 15,000 75,000 135,000 270,000 500,000
from Sydney (yearly)
Sydney Shirts Percent of 50 25 10 5 2
your Sales Volume of
Shirts (%)
Net margin per Unit ($) 3.00 2.75 2.50 2.25 2.00

% Sydney's Contribution 35 20 12 8 4
to your Profits (Men's
shirts)
Number of Alternative 0 2 3 4 4
Sources of Supply of
Sydney (#)
Cost of switching To 30,000 20,000 15,000 10,000 5,000
Alternatives ($)
Description of Retail Single unit Multi-unit State-wide National National
Characteristics: men’s store department department mens wear department
stores (10 store chain store chain store chain
stores in with 25 with 50 with 150
major cities stores stores stores
in the state)

NOTE: Buying is centralised for all multi-unit department stores. You are acting as
a general merchandising/purchasing manager.

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MANAGEMENT PRIORITIES

While our firm can survive without Sydney's product we don't want to have to. They reinforce the
image our chain wishes to project. Their product is of good quality and well-received by consumers.
They command a certain brand loyalty. Some customers would certainly be lost as it is estimated that
25 % to 60% of Sydney customers will not purchase substitutes and will instead visit another store.

Retailing is however increasingly competitive and it is important to keep prices competitive.

Therefore you are directed to negotiate an effective and equitable arrangement with Sydney. The
most important factors in this arrangement are a commitment to long-term product diversity
and contributions by Sydney towards assisting our firm in retaining and increasing our stores
attractiveness and desirability to customers.

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NEGOTIATION EXERCISE - DECISION SHEET

RETAILER REPRESENTATIVE (Full name and ID) ________________________________________

MANUFACTURER REPRESENTATIVE (Full name and ID)________________________________

DECISIONS

A.Quantity to be ordered

Current style(s) business shirts_________________________ %

Knit sport shirts ____________________________________ %
Overall increase/decrease _____________________________
Minimum Qty to be ordered ___________________________

B. Retail margin ________ per shirt

C. Advertising
Frequency________________________________________________________
Cost split ________________________________________________________
Content Responsibility ______________________________________________

D. Shelf Space change______________ % increase/decrease (delete one)

E. Trolley Supply
Number to be supplied ____________________________________________________
Contribution per trolley____________________________________________________
Timing of trolley supply to the retailer________________________________________

F. Order time_______________days

G. Price promotions Number ____________

Any other particulars

____________________________________________________________________________________________
____________________________________________________________________________________________
____________________________________________________________________________________________
_______________________________________________________

H. Payment, discount period ____________days

I. Special packaging
Period of time__________________________
Cost responsibility ______________________

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J. Ongoing commitment
Nature of any agreement
reached:___________________________________________________________________________________
_________________________________________________________________________________________
_________________________________________________________________________________________
_______________________________________________________________

K. Other areas negotiated and decisions reached

_________________________________________________________________________________________
_________________________________________________________________________________________
_________________________________________________________________________________________
_________________________________________________________________________________________
________________________________________________________________

We hereby agree that the decisions outlined above are agreed to by both parties;

Manufacturer:_____________________________________________________________
Retailer:__________________________________________________________________