Reference no: EM132949717
The Cinnamon Case: sales negotiation (role play) - (A)The Seller
You are the owner of Mahek Masala Products Pvt. Ltd., a trading company that deals in the trading and processing of specialized spices from Kerala. Kerala is a state in Southern India and is considered the spice capital of India.
Last year, you achieved a turnover of Rs. 120 crores' with purchases of Rs. 110 crores. Yours is an established company, and you have been in this business for many years. As a result, you enjoy a very good reputation in the market. You cater mostly to the premium end of the market, and your product quality and prices are never questioned.
Last week, when meeting with your suppliers, your main provider informed you that he had obtained batch of high-grade cinnamon. You verified this information and found the cinnamon to be of a very rare quality, the best you had ever seen. Your supplier offered it to you at Rs. 290 per kilogram, with the condition that you buy the cntire 1,000-kilogram lot. He also informed you that the shelf life of the raw cinnamon bark was three weeks. Impressed with the exceptional quality of the product, you purchased the entire lot immediately.
Raw cinnamon bark contains many impurities, and the only way to sell it at a premium is to clean it with natural chemicals. The associated costs of this process are Rs. 70 per kilogram. Thus, after processing, your costs will go up to Rs. 360 per kilogram (including other related expenses). This cost will represent your floor price, which you have not disclosed to anyone; any offer beyond this price would be acceptable to you. Most of your family members agree that this cinnamon is of extremely rare quality, and they feel that its sale represents an opportunity for you to make a lot of money.
You know that no one in the market would require such a large quantity of cinnamon unless they have huge catering orders or sweet-preparation orders, or unless they produce canned baby food or Ayurvedic medicines. The market price of second-grade cinnamon powder is Rs. 320 per kilogram. You do not deal in the second-grade cinnamon powder. Most users do tend to use this grade, however, as it is good enough for their needs.
You discover through a reliable source that the government is about to issue an ordinance that will mandate the quality of ingredients to be used in baby foods. One of the involved ingredients is high-grade cinnamon powder, which is the grade that you possess. You are excited by this news since it guarantees your ability to casily sell your current 1,000-kilogram stock of high-grade cinnamon. Furthermore, the government will also announce a price subsidy of 10 per cent to be granted to baby food manufacturers who use this high-grade cinnamon powder.
Marex Pharma Ltd., the market leader in the baby food segment, approaches you with an offer to buy 700 kilograms of high-grade cinnamon powder at a price of Rs. 390 per kilogram. You are happy about the offer, but you still have to deal out the remaining 300 kilograms. Even so, you don't want to lose this opportunity, as you know that Marex has a good market reputation, and this is the first time you have dealt with them. You have not yet begun to negotiate with Marex, but, to guarantee the quality of the cinnamon, you have a three-week window of t?me before the deal must close.
You also receive an equally attractive inquiry from Offshoot Intermediaries Limited. Offshoot is a diversified pharma company that enjoys a healthy share of the baby food market. Offshoot's payment terms are better than Marex Pharma's, and while Offshoot has not yet made a specific offer, it has shown a keen interest in purchasing your entire stock of cinnamon powder.
Offshoot Intermediaries Limited is a family-run enterprise. Its staff members are believed to be good business people with a smart market sense. You also know that, due to a problem with the quality of one of its drug formulations, Offshoot is not on good terms with the current government.
On the way to your meeting, you think about what offer you should make to Offshoot. With all the information you have gathered, and with the offer from Marex Pharma, you consider pitching a price of Rs. 800 per kilogram of cinnamon, which should be fair. No one knows the real price in the market since such a high quality of product has never before been offered and since all previous prices were based on people's best judgment. You are keenly aware that a deal must be negotiated as soon as possible while the quality of the cinnamon stock remains at its peak.
As the seller, your goal is to get the best deal for yourself.
PARTICIPANT'S NOTE: For the sake of brevity and better understanding, please confine yourself to only those facts mentioned in the case study. Do not make any assumptions or guesses. Any calculation should be rounded off to the nearest rupee.