Essay on Standard Machines Pricing

Decent Essays

I. Who should take the blame for getting Standard Machines Corp into the crisis it faces vis-à-vis closing on a major sale with an established account?

The blame for Standard Machine Corp can be directed in one of three ways:

Industry: One could argue that innovation in the machine tool equipment industry has been stagnant and resulting caused customers to view machines as commodities and compete on price. Another thought is that the industry allowed a low cost player to enter and therefore put the premium priced equipment manufactures in a position of having to rationalize their price. Unfortunately, competition on price erodes industry margins and profits.

Standard Machine Corp Management: The fact that a major account has …show more content…

Although we do not believe that it is wise for Standard Machine Corp to lower their prices, essentially commoditizing their products, it is important for them to manage their customer relationships on an individual basis. By this we mean that Standard should find ways to justify their price premium. This may be done by offering packages uniquely customized to retain their long-term clients. Specifically, for long-term customers like Occidental, Standard must justify their $22,000 premium over their competitors within the market.

One way to address this issue would be through rebates. Standard could offer customized rebate packages to its premium customers, like Occidental. Although they are, in effect, lowering their prices for Occidental, they are not sending a negative signal to the market. An outright price decrease could create a price war, where their competitors continue to drive down their own prices, further commoditizing Standard’s line of products. A rebate would offer an incentive for Occidental to purchase, because the company knows that they will be rewarded on the back end.

Another way for Standard to remedy this pricing situation is to offer additional services along with its milling machine in order to further differentiate themselves from their competitors. Standard’s package could include an unlimited warrantee for a specified amount of time greater than that of its competitor, and an increase in on site

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