Co-Opetition - Adam M. Brandenburger [129]
The good news was that the customer’s business was doing so well that he could see he was going to need more product before year-end. The bad news was that the customer wanted a discount for the extra volume—a 10 percent discount. Melanie said that she’d get back to him.
Melanie’s CFO was dead set against giving the discount. The customer had agreed to a price and was now trying to wriggle out of it. Giving the discount would not only be throwing away money today, it would set a bad precedent. The customer would get the idea that future contracts could be renegotiated. Even worse, the discounted price might become a new baseline for future contract negotiations.
Rather than just give away money, the CFO wanted to link the discount to a contract extension. The customer might tell Melanie that the discount would make him favorably disposed come contract-renewal time, but why leave things to chance? The CFO suggested to Melanie that there be a quid pro quo: the customer gets the discount and, in return, agrees to extend the current contract for another year.
Melanie saw this as a very dangerous tactic. It was only July, and the current contract still had five months to go. In the normal course of events, she wouldn’t even start to discuss next year’s contract until November. Asking for the quid pro quo would open the subject today, and that was the last thing she wanted to do.
Melanie knew that November was the right time to negotiate a new contract. At that late date, the customer would be hard-pressed to find a replacement supplier who could deliver in January. However, if Melanie started negotiating next year’s contract now, the customer would have several months in which to qualify a replacement. That’s why she thought it best to keep discussions about the discount and the next contract as far apart as possible.
Melanie had another reason to keep the two games separate. Quite apart from whether it was wise to put next year’s contract on the table now, she was concerned that the customer might resent the linkage.
The CFO accepted Melanie’s arguments but countered that giving in to the customer would make them look like pussycats. But Melanie looked at it differently: she didn’t mind if the customer perceived her to be a pushover. Come November, the customer would likely be a little more confident than usual going into the annual contract negotiation and therefore a little less prepared.
Melanie called the customer back and reiterated that the current contract required him to buy all his product from her at the current price. That said, she was happy that his business was doing so well and wanted to help out. What discount did he really need? The customer said 7 percent, and it was a done deal.
As it turned out, the year-end contract negotiations were quite tough and dragged on well into December. Finally, the customer threatened to drop Melanie if she didn’t agree to his terms. Melanie told the customer that he might want to consider how he would get supplied next month. The customer realized that at this late juncture he didn’t really have any alternatives to Melanie. His bluff had been called. Melanie signed the customer to a new, multiyear contract on terms that both of them could live with. The base price would remain the same as last year’s, and incremental volume over last year’s total would be rewarded with discounts.
Our last case study in the book brings us full circle. We began our exploration of PARTS with the story of Holland Sweetener’s entry into the U.S. aspartame market once NutraSweet’s patent expired. We saw how Holland helped save Coke and Pepsi hundreds of million of dollars without getting much in return. That was the endgame. Here, we return to take a look at the opening game as it played out in Europe.24
Sweet Temptations NutraSweet’s European patent expired in 1987, five years before the U.S. patent expired. Although the European market for aspartame was small, and not especially