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UGBA 169 Case: Pricing Computron 2021-all answers correct

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Case: Pricing Computron HBS # 9-597-063 Discussion Questions: Q6. What should Zimmerman bid? Why? Zimmermann should submit a bid in the amount of $1,046,400. I recommend this bid price based on the following reasons and analyses: a) $1.046M is 20% above the lowest bid of Ruhr’s planned bid, that is $872K. Computron would have a chance of winning the contract only if its bid was no more than 20% higher than the lowest bid. Hence, in order to have a higher probability of winning the bid, Computron cannot go higher than $1.046M. b) At $1.046M bid price, Computron doesn’t have enough profit margin. With a factory cost of $768K, import duty as 15% of quoted US price, and transport and installation costs of $67.2K, at a bid price of $1.046M, Computron has a markup of 10.9% over the factory cost. This is not a common instance in the company’s history. There was only one more time when the markup went as low as 20%. However, to lock-in the customer and ensure stickiness, and not allow anyone else to be a partner to Konig, Computron needs to take this step. Their main focus should not be profits at this stage but on maintaining their exclusive relationship with Konig. They can recoup the profits in the long term. c) Computron considers EDAG as their real long-range threat. EDAG bid price is short by Computron’s price only by import duty, therefore their bid price is $1,091,200 (Computron’s bid price of $1,244,800 minus the import duty). The bid price of $1.046M is competitive with EDAG. The Computron bid removes all allocated costs for R&D (8%) and SG&A (6%) which is comparable to the 15% European tariff that EDAG has used to undercut Computron in the past. d) Computron should also not go lower than $1.046M because it provides a superior product in addition to the opportunity for Konig to avoid any switching costs associated with moving to a new computer manufacturer. Therefore, my recommendation considerations are based on optimizing the tradeoff between Computron winning the bid and maintaining their relationship with Konig vs maximizing their profit margin based on their strategic position of being a high quality computer manufacturer. It is imperative that Computron win the contract bid as Konig makes up 80% of German sales and has the potential to generate up

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