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1081_CDPS_G1 [CO] Chapter 6 – Rules ([2] Contracts with suppliers (take…
1081_CDPS_G1
[CO] Chapter 6 – Rules
[1] Contracts with customers
MFC- most favored customer clause
company must guarantee the best price for consumer, in order to avoid differentiated treatment while negotiations.
from Customer's perspective
pros
benefit from any other better deal, which means you would never be in disadvantage of cost.
cons
everyone can be equal so you won't be able to get special deal
from Seller's perspective
pros
makes you a strong negotiators
lower the will of customer's incentive to bargin
cons
your rival can easily target your customer; also harder for you to target your rival’s customers.
makes you a tougher or makes it worse
EX2-2 Medicaid floor vs MFC => That gave the drug manufacturers an incentive to raise prices.
EX2-1: Favoring the house: Federal Election Campaign Act=> the law was like hidden tax
EX1. Adam's card game: Although Adam gave Tarun a MFC, can still make the bargaining no longer symmetric.
MCC- meet the competition clause
Use it when rival wants to target you customers
you can also call last-look provision, or meet-or-release clause. often found in commodity businesses.
MCCs helps improve your bargaining position(sustain a higher price)
pros
reduce the incentives for competitors to bid; help you to guess the floor price in order to decide the price
knowing if you would keep dealing with your customer
cons
competitors can bid without having to deliver
[2] Contracts with suppliers
take or pay contract
pros
benefit to supplier
know amount of demand in advance , enable to plan production better
benefit to buyer
supplier probably reward buyers with a lower price
reduce the incentive of a rival to grab customers
Due to certain retaliation, so this contract have effect of deterrence for rivals.
because of take or pay contract
lost customers :arrow_right: reduce the amount of demand:arrow_right:
pay the penalty :arrow_right: turn part of variable cost into fixed cost
cons
increase severity of price war if deterrence fails
structuring negotiations
in the businesses faced
large fixed costs
relative to
variable costs
very common
commodity inputs, electricity and cable programming
it hard to store the output for suppliers, so make buyers have bigger bargaining power
either take all the product or pay a penalty
most-favored-supplier clause
you pay him at least as much as you pay other supplier
meet the competition clause
continue supplying :arrow_right:pay the best price anyone else offered
[3] Mass-market rules
general motors
effects
Healthy imitation
:red_cross:Disadvantage
hard to take market share from others
example
Volks-wagen of America :handshake:MBNA
cresit-card rebate program
Ford :handshake:Citibank
700per year in rebates
:check:Advantage
more credit card program appear
low prices are no longer attractive
price stability increases
less tempted to cut price
gets customers off lines
attract people who don't have brand loyalty
More winners
GM :car:
promote efficiently
encloses marketing material in credit-card bill
cost decrease
Household share the cost of rebates
Household :bank:
8-million-plus new accounts
5200 lift annual charge volume
low rates of churn and delinquency
Car buyers :silhouettes:
get better and cheaper cars
Higher prices push manufacturers to design well
lessons
pricing
principle
treat your own customers better than your rival's customers
benifit
gave Ford breathing room to raise price
win-win-dynamic
GM get opportunity to firm up price
govern rules
unilateral contracts with customers
guarantee them discounts
Rebates
The GM card
Price dynamics between GM & Ford
The point of targeted rebates
Chrysler & guaranteed rebates
Rules in mass market are different
There's no negotiation
[4] Government rules
Have power to make many rules
Make the rules that say what the rules other players can make
antitrust law
The Robinson-Patman Act
Price discrimination
Direct regulation
[5] Changing the rules
Do not assume your rules will rule
Freedom is a double-edged sword
Do not follow others blindly
Do not count on others to follow rules.
Team member
105106065 王泰然 Frank
106212022 蔡昀雯 Winnie
105212042 金純之 Sunny
105212048 謝其佑 Jason
106212004 郭儀中 Eva
105212017 賴珮綺 Christy
pricing dynamic s in credit card
more loyal customers
less incentive to compete onprice
price stability increase