Please enable JavaScript.
Coggle requires JavaScript to display documents.
[CO] Chapter 6 – Rules :pen:Members: Sunny/Cindy/MJ/Phoebe/Ian (3. Mass…
[CO] Chapter 6 – Rules
:pen:Members: Sunny/Cindy/MJ/Phoebe/Ian
3. Mass-Market Rules
No negotiations between sellers and buyers
Sellers got the" Take it or leave it power"
Risk- Postponement of customer's purchase
Granting an MFC :check:
1. January Sales
Chrysler
(a variant of MFC)
Buyers of January- A larger rebate offer
no incentive to wait
less temptation of rebates offer
Retailers- 30/60 days price protection
consumer market- catch- offer to meet the competition
mass- consumer market- can't make any rule easily-
only make rules of what you do, not what the customer does
.
best- price guarantee
- "Never Knowingly Undersold" (John Lewis- British retail chain)
what you sell matters the most
Immediate Problems
Profits had just lowered.
Low price is an offensive & defensive move
2. General Motors leads the charge
Make better cars & make them more efficiently.
teamed up with Household Bank-
GM Card>
>> 5% credit of their
charge volume-only
After
negotiation of the deal
1st year- 55,000 card rebates & through Feb 1994, 123,000 GM Card rebate redemption ($40 million in total)
3. Targeted Rebates
GM card is a big deal but how has it changed the game?
GM & Ford charge $ 20,000 - division of market is on people's natural preference
direct $ 2,000 rebate to the natural customer base and raises list price to $21,000 at the same time. ---GM & Ford's both ahead of the status quo.
key to effectiveness ---rebates are targeted
win-win pricing dynamic
4. Healthy Imitation
Sound's good means there is a copy.
Ford joined Citibank-
Ford-Citibank Card
get customers off the sidelines (positive effect)
more card programs- less price cuts>>> more price stability
5. More winners
GM encloses marketing materials in the Household;s credit-bil
GM gets Household to share in the rebates costs, standard practice in the credit-card business
What good for GM is also good for Household.
Effect of pricing dynamics - greater price stability
Car buyers and sellers are not losers either--- since higher prices lead to a win-win outcomes
6. Lessons in the Cards
Treat own customers better than rival's customers
To prevent price wars- charge low prices to own customers while offering high prices to rival's customers
Wisely use credit-card rebate programs since it's not suitable for all businesses.
2.Contract with suppliers
MFC
To guarantee a supplier that you'll pay him at least as much as you pay any other supplier of the same resource
MCC
Get a right to buy as opposed to a right to sell
Take or pay
Either take the product from the supplier or you pay a supplier a penalty
Pros
Reduce risk to your supplier
Reduces a rival's incentive to come after your customers
Con
Increase severity of price war if deterrence falls
1.Contracts with customers
Meet-the-Competition Clauses (MCC)
Healthy Imitation
CON
Allows competitors to bid without having to deliver
PROS
You know what bid you have to beat
Lets you decide whether to keep the customers
Reduces the incentive for competitors to bid
Eight Hidden Costs of Bidding from a Rival's Perspective
Existing customers will then want a better deal
Set a bad precedent
Retaliate
You will use the low price he helped create as a benchmark
Wins the business,loses the money
Give his customers' competitors a better cost position
Unlikely to succeed
He shouldn't destroy your glass house
Block BIdders
Miami Dolphins football team :dolphin:
What all these more negotiable rules have in common is that they involve "details"
most-favored-customer clauses (MFC)
a contractual arrangement
"Tarun" card game
ALL students will get a worse deal :warning:
Tarun will get the best deal
given to any of the other students
Case:
88% of the average whole sale price/
the best price given to anyone in the retail pharmaceutical trade
drug manufacture isn't going to offer anyone a price below 88% :!!:
the Federal Election Campaign Act
buying airtime
:!!: the networks ended up making more money than before
MFCs change the game
when your customers have MFCs
more able to withstand pressure to lower price
"
strategic inflexibility
"
you have more power when your hands are tied
4. Government Rules
Regulate the rules in game
e.g. Anti-trust Law
Most-Favored-Customer Clause
Faced the challenge of《Section 5 of Trade Commission Act》
Meet-the-Competition Clause
《Robinson-Patman Act》give a justification to use it
Take-or-Pay Contracts
Never faced challenge of Anti-Trust Law
Rebate Programs
Never faced challenge of Anti-Trust Law
Laws
5. Changing the Rules
Don't assume every player will follow your rule
Rules can be made/change by who has power
If you can change the rules, others too
People usually neglect the importance and opportunities to change the rules
Rules always have space/chance to negotiate
Targeted rebates
Give your potential customer more rebates, not your competitors customers
Healthy Imitation
Decrease the price war
Ford-Citibank's Card
More winners
GM card program
Have more advertising about the car
Share the cost of debates
Gain the member of GM card quickly
Decrease the price war
Rebate Program
Pros
Charge your own customers low prices without threatening your rival's customer base
Let customers have royalty
Cons
In rewarding loyalty in cash rather than kind, doesn't raise your add value
Not effect on small-ticket items
Customer
company
guarantees the best price
:no_entry:Natural guess:
the customers do better with the protection of an MFC
BUT MFCs change the game!
.