Computron

CASE ANALYSIS: COMPUTRON INC.

Group members:

Andrea Vallabh

Ksenia Ferapontova

Heinrich Von Keler

Ngo Pham Thuc Uyen (Lisa)

Instructor: Mr. Johnson

BSL - Business School Lausanne

Industrial Marketing

July 18th, 2007

SWOT analysis

STRENGTHS WEAKENESSES

Special techniques on how to produce specialized computers. Manufactured in US, have to pay import tax => prices increase

Largest market share in Germany (30%) High markup on cost => higher prices than competitors

Good relationship with Konig, customer loyalty

Good reputation for flexible, accurate and high quality computers

OPPORTUNITIES THREATS

Constructing a plant in Frankfurt to serve the whole Europe and to avoid the import tax. Competitors are competing on both techniques and prices.

German market to increase 25% for the next several years

$1,300,000 worth of new business in the future.

Case summary

Computron is an American firm that had an European sales office in Paris with Thomas Zimmermann as its manager. The main product is 1000X computer which is famous for its precision, dependability, flexibility and ease of operation. Comparing to other medium sized, Computron has its price higher than the competitors.

The main market of Computron in Europe is Germany; therefore, it is planning to build a manufacturing plant in Frankurt to be entirely free from import tax. However, this new plant might have to sit idle for a couple of moths if Computron couldn't win the bid to sell its computers to Konig, the biggest customer in Europe. From a reliable source, Zimmermann knows that if the bid of Computron is not higher than 20% of its competitors, it would stand a chance to get the contract. Nevertheless, the president of Computron had stated that reducing a price is not an option and he intended to raise mark up cost higher. On the other hand, competitors are competing on both techniques and prices in the bid and that makes the problem more complicating. Zimmermann now has to decide whether or not he should cut the price down to win the bid or risk the chance and might have to let the new plan be idle for a while.

We suggest that Computron should go with the price cutting strategy and offer the bid as $ 200 000. This way it could maintain to keep the profit and establish good relationship with Konig which can be the foundation for the contract that's worth $ 700 000 in the next several years.

QUESTIONS AND ANSWERS

1. How far does Zimmermann have to cut price to have a chance?

Company Price offered (assumption)

Computron $ 311 200

Ruhr Maschinenfabrik, AG $ 218 000 (From a reliable source)

Elektronsche Datenverarbeitungsanlagen (EDAG) $ 272 800 (assumption, since its price is only undersold Computron by the amount of import duty)

Digitex, GmbH $ 155 600 (assumption. In the worst case, its price would be as half as Computron's)

Other competitors Not significant factors to concern.

In this case, the lowest offer is from Digitex and in order to win the bid, Computron should at least offer a price around $ 186 720 (155600 + 20% x 155 600). However this would mean that they would be selling at a loss as $ 186 720 is below the production cost of $ 192 000. Hence they would not be able to make a profit and this sale would be pointless. In order to get the correct picture of the situation and pricing strategy we must look deeper into the case.

- Mr. Zimmerman cannot do much to counter the pricing of Digitex, who sells below Computron's cost of manufacture; however, the technology they offer is inferior to that of Computron, so they do not represent a real threat.

- An important aspect here is that Zimmerman knows the customer's vice president who is in charge of purchasing. Hence, he can use his knowledge and contacts to persuade Konig about the importance of high quality products and create customer value. This could help to justify in the customer's eyes a higher price than some competition.

- Another important factor to consider is the past experience of the customer with Computron products, as we know that they are already familiar with their products so it would be easier to train their new employees with the old one rather than the new one . Also computron products are very flexible and have the possibility to be recycled later in their life cycle.

2. What is gained by bidding low?

First of all, it would give them a better chance to win the contract, but the question is how far down should they bid. Since Computron is already the market leader, it does not need to bring down the price as low as other companies do. Computron is famous for its quality and efficiency, so it would not be right for them to have bids lower than all the rest as it might make Konig wonder about the quality of the product.

However, there are some competitors whose products are very efficient as well, so they need to make sure the bid is lower than those offered by Ruhr and EDAG. As they are German companies, they do not need to pay import taxes while Computron still has to. By defeating them in this bid, Computron can decrease their morale and discourage others to join the market.

The most important gain in bidding low or to be more precise to obtain the Konig contract would be of strategic matter. Konig is the is the biggest customer in West Germany, and that is Europe's largest economy. They also constituted over 80 %of Computron's sales in Germany. It is important to them because Germany consisted