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?
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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