Negotiation Issues In Relationship Modification

Introduction

This report covers the negotiation between the distribution manager of Sydney Shirts and the general merchandising manager of Retailer 4. Sydney Shirts supply high quality differentiated wide product line and nationally advertised brand of business shirts to Retailer 4. In collaboration with Retailer 4, Sydney Shirts enjoy a wide consumer appeal and good sales. The parties in the negotiation are representatives of their respective companies which wish to review their relationship, which indicated there was a need to reassess the non-binding agreement between both firms.

There are a variety of issues which are to be negotiated between both firms while creating a modified relationship. There are different aspects of the joint agreement, and each agreement is accompanied by its own reason. These aspects are described as follows.

Quantity to be ordered

The quantity to be ordered makes up the first aspect of the negotiation. Both parties came to an agreement that for each order made by Retailer 4, 85% of the total batch with consist of the current style of business shirts and 15% will consist of knit spot shirts. There will also be an overall increase in the total units purchased from 500 to 600. This means that the minimum quantity to be made per order will be 600 units.

The reason for the agreed proportions of the types of shirts to be taken per order (85% current style business shirts, and 15% knit spot shirts) is to result in the increased attractiveness of the stores of the retailers. In the short-run, it will ensure there is product diversity, and many clients will be attracted due to different tastes and preferences they have regarding Sydney Shirts. Also, adding the new special line of fashion knit shirts to the store's label will aid in attracting new clients in the long-run. By attracting new and many clients, the volume of sales is expected to increase.

The change in minimum order quantity (from 500 to 600 units) will result in a loss on the part of Retailer 4. Given the Retailer 4 orders 270,000 units per year,

Retail Margin for retailer

The agreed retail margin for Retailer 4 is $2.25 per shirt. This means that for every shirt sold by Sydney, Retailer 4 earns a profit of $2.25. Therefore, for the yearly quantity, the total profit earned by Retailer 4 is:

Advertising

As per the agreement, an advertisement for the shirts is meant to be done fortnightly. The expenses for the advertisements shall be split equally between both the retailer and the manufacturer. This means that the content responsibility shall be shared between both organizations. The outcome of this cooperative advertising scheme is that both organizations will have to incur additional costs of up to 2 cents per unit. Therefore, since the minimum quantity to be ordered is 600 units, which is ordered every 7 days, instead of the usual 10 days, a total of 1200 units will be ordered every fortnight. In calculation, this will result in each party incurring $24.00 every time an advertisement is made.

In the long run, this is beneficial to both organizations because there will be increased awareness of the shirts following this shall be the influx of new clients. Both organizations will be in a position to engage in equally beneficial self-promotion due to having shared content responsibility (Yan, 2010). Also, splitting the advertising costs will reduce expenses for both firms, and only a small amount of financial resources shall be allocated to advertising. The shared advertising will illustrate the shared vision both organizations have in their cooperation in the sale of Sydney Shirts. It will also be easier for the organizations to fund for advertising on a frequent (fortnight) basis, and eventually, both firms will get enough exposure to the market of potential customers. As a result of cooperating with a large manufacturer, Retailer 4 will gain sufficient experience which it can emulate in the advertisement of other products in its merchandise.

Quantity and Quality of Displays

Sydney Shirts requested Retailer 4 to increase the quality and quantity of displays of their products in the stores. As a result, the agreed upon rate of increase in shelf space change is 10%. This aspect of the agreement will benefit Sydney shirts as it will result in an increase in its market share. This will result in some loss on the part of Retailer 4 because there will be limited space to shelf other products that will serve as alternatives to customers. This means that 90% of the shelf space will be left for allocation of products from other sources of supply, yet Sydney contributes to only 8% of Retailer 4’s profits.

Sydney shirts are also launching a new display system with carts/trolleys holding and displaying shirts. This will affect the trolley supply whereby there will be 50 trolleys in 50 shops, each trolley makes a contribution of $800, and they shall be supplied to Retailer 4 during the period of the promotion. The trolleys are also beneficial due to their good appearance in-store, and according to hearsay, they are well received by customers.

Order time

Instead of the usual 10 days, it was agreed that Sydney should fill orders every 7 days. This is beneficial to Retailer 4 because they will be more responsive to demand and be in a better position to avoid stock-outs. This will minimize the likelihood of substitution of other brands when Sydney shirts are not available. The advantage of this reduced order time is that shipments will be received fast enough to ensure that customers are well-served, and this has a positive impact on revenue for both firms.

This concept is known as lead time reduction, and it results in overcoming the order fulfillment challenges that may be existing prior to the agreement. On the part of the retailer, this aspect will require that labour management strategies are utilized appropriately through the short-run and long-run since the productivity of the workforce will be key in ensuring the success of order fulfillment (Melanie, 2018). If possible, during the long-run, Retailer 4 will have to incur the costs of automation of its labour processes so as to streamline and increase the profitability of its store operations. In addition, in case traditional techniques of order fulfillment are in use, both organizations will have to incur the costs of improving technology in order to facilitate faster filling and delivery of orders. eCommerce platforms can be adopted by both organizations in order to satisfy the growing customer demands, especially considering that fortnight advertisements will boost awareness and attract new customers (Melanie, 2018).

Price Promotions

Prior to the agreement, the price promotions were three in number. After the agreement, this aspect was revised to four promotions in a year. Further particulars to this aspect are that there will be an increase in price promotions to 5 in a year if the sales are increased drastically or if the prices of competitors turn out to be very similar. The benefit of these price promotions over the previous years has been that they result in increased store traffic and overall business, which settles down to increased sales for Sydney Shirts. With more price promotions, there will be higher price competition between retailers and eventually, it will be easier to keep up with the competition in the long-run

Normally, price promotion takes advantage of the price sensitivity trait of customers of the shirts. The logic behind the aspect will be that any losses incurred will be offset by the increased volume of sales and the attraction of new customers. There are other kinds of price promotions which can be used by both firms, and they are; coupons, buy one and get one free, point of sale discounts, loyalty schemes, and trade promotions. Coupons can be given to consumers after the purchase of certain products such as magazines/journals, email, or via the internet. Discounts are only given to customers who provide coupons. Buy one and get one free is self-explanatory from its name where one item is given as a free gift after buying one product of the same kind (McCormick, 2016). This strategy is useful in increasing product or service awareness. Discounts at the point of sale are used where a certain amount is advertised to have a percentage-off at the point of sale. Loyalty schemes are where a retailer has the option of using loyalty cards, which aid in the management of discounts and the promotion of rewards.

Trade promotions involve discounts given to businesses which purchase products from a manufacturer for the purpose of resale. A trade promotion would be a useful part of this agreement as it will allow the firms to trade with other organizations which buy the shirts at retail price for the purpose of resale in other business activities (McCormick, 2016).

Payment Discount Period

According to the agreement, the payment discount was increased from 10 to 15 days. This discount will result in an increase in the net margin of Retailer 4 by nearly 5 cents per unit for every Sydney shirts purchased.

Special Packaging

As per the agreement, it is expected that 10% of the volume ordered from Sydney are delivered with specially designed packages. The advantage of the special packages is that they will be at no extra cost to Retailer 4. Therefore, the cost responsibility shall fully be catered for by Sydney Shirts. The purpose of the special packages is to facilitate the 25th-anniversary celebrations for the store. While Sydney will be incurring costs for this celebration, in the short-run, more orders shall be received during the period and will increase the association in the minds of consumers between Sydney and the Retailer 4’s stores.

This aspect is similar to sponsorship – a common technique in marketing that is used as a way of acquiring competitive advantage in the market. Retailer 4 will exploit this sponsorship investment to enhance its customer relationship activities through the themed business event, which is the 25th anniversary (Donlan & Crowther, 2014).

Ongoing Commitment

The nature of the agreement was a three-year commitment. A discount period was offered if the shelf space was increased by Retailer 4. This formal agreement ties Retailer 4 to Sydney Shirts for 3 years whereby they will be required to provide demand forecasts and minimum orders through the period. This decreases the flexibility of Retailer 4 and therefore, its ability to respond to changes in the market. However, its supplies of products would be made stable.

The advantage of this agreement is that a partnership will be established between the businesses, and complex services shall be delivered to customers. This facilitates customer satisfaction and value. In order for this ongoing commitment between two firms to grow and prosper, relationship marketing strategies will have to be employed with great effect. The strategies should guide the firms towards the potential clients who are likely to result in the highest profits, and this will be in terms of customer equity, customer value over a lifetime, and treating them good enough to establish and sustain long-lasting relationships which are profitable (Konhauser, 2007).

References

• Donlan, L. & Crowther, P., 2014. Leveraging sponsorship to achieve consumer relationship objectives through the creation of ‘marketing spaces’: An exploratory study. Journal of Marketing Communications, 20(4), pp. 291-306.
• Konhauser, A., 2007. Understanding Value in B2B Buyer-Seller Relationship: Do Matching Expectations Improve Relationship Strenght?, s.l.: Auckland University of Technology.
• McCormick, M., 2016. Why Use Promotional Pricing?. [Online] Available at: https://blog.blackcurve.com/why-use-promotional-pricing
• Melanie, 2018. Overcoming the Challenges of B2B Order Fulfilment. [Online] Available at: https://www.unleashedsoftware.com/blog/overcoming-challenges-b2b-order-fulfilment
• Yan, R., 2010. Cooperative advertising, pricing strategy, and firm performance in the e-marketing age. Journal of the Academy of Marketing Science, 38(4), pp. 510-519.