Competition and Bid Price
COMPUTRON INC. CASE
I. Problem Identification:
What bid price should Computron Inc. set, so that the Computron can achieve management’s profits target, match the customer’s requirement and be competitive with respect to the competitors?
II. Alternatives:
1) Bid Price: $ 746,880.00 within 20% offered by Digitex pricing of $ 622,400.
- Will sell less than factory cost of $ 768,000, hence no profit and reduces cash flow required for future investments.
- Computron will lose premium quality image, since Konig will assume quality was compromised to reduce price.
2) Bid Price: $ 1,046,400, within 20% of Ruhr’s pricing of $ 872,000
+ Digitex won’t be considered since it is highly technically inferior to Computron, since they want dependable item
+ Reducing price will discourage Ruhr entering specialized product segment in future, hence reducing competition
- Will not get 33 1/3% mark up on cost, whereas gets a low 5% markup cost and makes a net loss of -7%
- Reduces overall profit only to 6%, which is the Computron’s current profit that the management wants to increase .
- In case Computron Inc. gets order, it will be difficult to raise prices for later business prospects
$ 1,270,400, since Konig is expected to buy around $4,000,000 worth computers in next 2 years.
3) Bid Price: $ 1,091,200, matching EDAG’s pricing
+ Considering EDAG as main competitor, Computron will get the order since Konig has used product before.
- Mark up on cost will be only 15.9% with a net loss of -1%.
- Computron will lose premium quality image, since Konig will assume quality was compromised to reduce price.
- 15% reduction in price from normal price of $ 1,270,400.
4) Bid Price: $1,309,440.00, 20% higher than EDAG’s pricing considering 17.5% tax.
+ Can achieve the management’s corporate goal of increasing the mark up from 33 1/3%. Mark up will be 38.42%
+ Konig has used Computron product previously and is within 20% price limit mentioned
I. Problem Identification:
What bid price should Computron Inc. set, so that the Computron can achieve management’s profits target, match the customer’s requirement and be competitive with respect to the competitors?
II. Alternatives:
1) Bid Price: $ 746,880.00 within 20% offered by Digitex pricing of $ 622,400.
- Will sell less than factory cost of $ 768,000, hence no profit and reduces cash flow required for future investments.
- Computron will lose premium quality image, since Konig will assume quality was compromised to reduce price.
2) Bid Price: $ 1,046,400, within 20% of Ruhr’s pricing of $ 872,000
+ Digitex won’t be considered since it is highly technically inferior to Computron, since they want dependable item
+ Reducing price will discourage Ruhr entering specialized product segment in future, hence reducing competition
- Will not get 33 1/3% mark up on cost, whereas gets a low 5% markup cost and makes a net loss of -7%
- Reduces overall profit only to 6%, which is the Computron’s current profit that the management wants to increase .
- In case Computron Inc. gets order, it will be difficult to raise prices for later business prospects
$ 1,270,400, since Konig is expected to buy around $4,000,000 worth computers in next 2 years.
3) Bid Price: $ 1,091,200, matching EDAG’s pricing
+ Considering EDAG as main competitor, Computron will get the order since Konig has used product before.
- Mark up on cost will be only 15.9% with a net loss of -1%.
- Computron will lose premium quality image, since Konig will assume quality was compromised to reduce price.
- 15% reduction in price from normal price of $ 1,270,400.
4) Bid Price: $1,309,440.00, 20% higher than EDAG’s pricing considering 17.5% tax.
+ Can achieve the management’s corporate goal of increasing the mark up from 33 1/3%. Mark up will be 38.42%
+ Konig has used Computron product previously and is within 20% price limit mentioned