Competition and Bid Price

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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 by......
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