In the fall of 1999, a group of managers met in Scandinavia forthe first of three negotiations involving four companies from threedifferent countries and a family of products. The situation was acommon one: a buyer tells a supplier it wants prices reduced by 10percent and, “Oh by the way, we’ll also be soliciting quotes fromyour major competitor.” At the heart of the meetings was thebuyer’s corporate agenda to cut costs. Cost-cutting is a commontheme among large corporations. Even in good times, they have beenknown to pressure their vendors to lower prices and to play vendorsoff against each other. This case illustrates what actions asupplier might take in this situation. Other vendors who may findthemselves in similar situations can take these actions as well.BACKGROUND FD is a Dutch manufacturer of filtration products.Rather than selling directly to end customers, throughout the 1970sand 1980s, FD sold oil filters and oil filter cartridges(replacements) to Swedish and Finnish heavy equipment manufacturerswho, in turn, branded and sold the products to their own customers.In the late 1980s the Scandinavian market for oil filters began tochange. The Finnish government consolidated many of the region’sheavy equipment manufacturers into one company, Conquip. About thesame time, FF, a Finnish competitor of FD, began supplying filtersto Conquip that were similar to those supplied by FD. Because theFinnish government had a stake in both FF and Conquip, FF was ableto gain market share quickly. As a result, entire divisions ofConquip began replacing FD as their supplier of filters in favor ofFF. By the late 1990s, only Conquip Truck, a Swedish division ofConquip, remained as a dedicated customer of FD filters in theregion. FD was determined to keep Conquip Truck as a customer.Instructor’s Guide Negotiating Globally IG Appendix 1.2.1 2Copyright © 2014 by Jimena Ramirez-Marin and Jeanne M. Brett In themid-1990s FD had introduced a new filter cartridge design calledLEIF (Low Environmental Impact Filter). FD had hoped that the LEIFproducts would block further FF inroads into the market for oilfilters. The patented LEIF product family, which included LEIFfilter housings and LEIF replacement cartridges, was designed tofill increasing demand for environmentally friendly products and totackle the problem of imitators such as FF. LEIF’s new technologymeant that LEIF cartridges were cheaper to produce than the oldfilters, and so could be offered at a lower price. In theenvironmentally conscious Scandinavian market, LEIF was the productof choice. Conquip Truck started purchasing LEIF replacementcartridges from FD and prepared to begin purchasing LEIF filterhousings as well. But before LEIF could be widely adopted andmarketed, Conquip Corporate launched an initiative aimed atreducing supplier costs within its divisions. In 1999, ConquipCorporate sent FD a list and asked FD to quote its best prices forthese filters. This RFQ (request for quote) seemed like anultimatum. If FD did not quote competitive prices, Conquip mightforce its Conquip Truck division to stop buying from FD. FD hadbeen aware of Conquip’s supplier cost initiative, but the RFQ camerather earlier than FD had hoped, as even within Conquip Truck LEIFstill had not been widely adopted. THE NEGOTIATIONS Marc de Winter,the FD marketing and sales director, studied the product list inthe RFQ and proposed a meeting in Finland to discuss this request.This meeting turned out to be the first in this case’s series ofthree meetings and negotiations. Meeting 1: Information Exchangeand Relationship Building FD’s goals for the first meeting were todevelop a relationship with the Conquip representatives and, in theprocess, find out about Conquip’s objectives, positions, andinterests. Developing personal rapport and trust with Conquip’scorporate office would be extremely important in any futurenegotiations. FD attended the meeting along with FILTECH, itsSwedish distributor. The discussion helped reveal Conquip’s goal:reducing prices on all filtration products supplied by FD and FFInstructor’s Guide Negotiating Globally IG Appendix 1.2.1 3Copyright © 2014 by Jimena Ramirez-Marin and Jeanne M. Brett overthe next three years. At the meeting, Conquip offered to retain FDas a companywide, primary supplier if FD could meet its pricedemands. However, de Winter was suspicious of this offer because ofthe close relationship between Conquip and FF. He thought that itwould be difficult to hold Conquip to its promise. Moreover, manyof FD’s highvolume products were conspicuously missing fromConquip’s RFQ. De Winter concluded that Conquip just wanted quotesfrom FD on products that competed directly with FF products, nodoubt for the purpose of reducing FF’s prices. Despite hissuspicions, de Winter promised to prepare a quotation based on theinformation given, and a second meeting was scheduled for laterthat fall to discuss and negotiate pricing options. In a sidediscussion after the first meeting, FD and FILTECH came to theconclusion that Conquip was trying to replace FD with FF throughoutthe company. It was a tough situation: unless FD was able to meetConquip’s demands and convince them to keep FD as a supplier, FDrisked losing all of its business with this major Finnish customer.Meeting 2: The Negotiation Before the second meeting de Winterassessed the situation. There were three main issues to discuss:pricing; product type; and volume of sales to Conquip, including tohow many and which of Conquip’s divisions FD could sell its LEIFproduct range. FD and FILTECH’s highest priorities were to maintainpositive margins and a long-term sales relationship with Conquip.FD also had some sense that Conquip was interested in sales in thehigh-margin aftermarket (the market for filter replacementcartridges) and to ensure low procurement costs from FD. Conquip’sinterest in scope of sales (number of products), however, was notas clear. FD walked into the negotiation with a poor BATNA: noagreement meant FD risked losing all its Conquip business to FF. FDwas aware of this poor BATNA, but did not want to make concessionstoo easily and look weak. Meanwhile, Conquip seemed to have astrong BATNA: the company could easily switch to FF filters.However, if de Winter could convince Conquip of the value of LEIF’sinnovative technology, Conquip’s BATNA would weaken: it would haveno supplier of a product that would be equivalent to the patentedLEIF product. Instructor’s Guide Negotiating Globally IG Appendix1.2.1 4 Copyright © 2014 by Jimena Ramirez-Marin and Jeanne M.Brett Both FD and FILTECH enjoyed sizeable margins on filter salesto Conquip Truck. They knew they could meet Conquip’s 10 percentprice cut demand over three years and still enjoy healthy margins.The negotiation began with an almost exclusive focus on the price.The sides haggled over de Winter’s prices on items in Conquip’sRFQ. As a result of this focus on one issue, negotiations proved tobe difficult. De Winter did offer a series of different proposalsthat incorporated different levels of pricing, different productlines, and so on, but Conquip rejected all these proposals,insisting on a 10 percent discount across all products. Conquipwould not discuss any other issues without an agreement first onprice. It seemed like an impasse until de Winter began to focus onConquip’s aftermarket sales. He guessed that Conquip might bewilling to accept smaller price cuts if it could increaseaftermarket sales. Unknown to de Winter at the time, in theaftermarket for FF replacement cartridges, Conquip was losingmarket share to its competitors. De Winter explained that LEIF’spatents would ensure a strong position for Conquip in theaftermarket. (Customers with LEIF filters would demand LEIFreplacement filters manufactured by FD, which only Conquip couldsupply.) This meeting ended with Conquip agreeing to commit ConquipTruck to LEIF products at prices reduced by 7 to 9 percent(depending on the product) over three years. Conquip also promisedto seriously consider FD as a supplier for its other divisions.Meeting 3: Post-Agreement Negotiations Several days after theagreement resulting from meeting 2, de Winter received a phone callfrom Conquip Corporate indicating that the pricing was notacceptable after all. Conquip Corporate wanted to renegotiateprices before signing the final agreement. De Winter made clearthat he was not coming to Finland or Sweden again to renegotiate adeal in which all parties had already come to a verbal agreement.He invited them to Holland if they wanted to renegotiate.Ultimately a meeting was set up between Conquip Corporate andFILTECH in Sweden. This final negotiation resulted in Instructor’sGuide Negotiating Globally IG Appendix 1.2.1 5 Copyright © 2014 byJimena Ramirez-Marin and Jeanne M. Brett an extra price decreasethat would be shouldered by FILTECH (not FD) and a promise to giveFILTECH more business at another Conquip division in Sweden wherebusiness had been lost previously.
DISCUSSION QUESTIONS 1. Why did Conquip send an RFQ with a 10percent price reduction requirement rather than calling de Winterin for a negotiation? Is there any downside to having run thenegotiation this way?
2. At the first negotiation meeting, Conquip made a threatdisguised within an offer. The offer was to retain FD as acompanywide, primary supplier if FD could meet its price demands.A. What was the threat embedded in this offer? B. Why was thisoffer not credible to de Winter?
3. If FD could have reduced prices by the 10 percent requestedby Conquip and still have a positive and reasonable margin, whynegotiate? Why not just reduce the price to save the business?
4. How did Marc de Winter improve his bargaining position atmeeting 2? What general negotiation principle did he employ? Howwell did it work?
