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Thread: What would you do or suggest I do

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    What would you do or suggest I do

    Hi everyone.

    I run a manufacturing business servicing several industries - 1 of them being a massive industry in SA. Our company is only 5 years old and we employ under 10 people. We recently dipped our toes into a massive market and were blocked by a player within that industry who insisted that in order to get into the industry we would need to go via them. I will call this company - COMPANY A.

    COMPANY A expressed great interest in promoting our selling our products via an existing client that they have. I will call this client ... CLIENT A.
    COMPANY A explained to us that they have a written contract with CLIENT A who takes 15% of their turnover and that if we want to do business we will be forced to go through COMPANY A who will take 20% plus they will add on CLIENT A's 15%.

    In this same meeting I expressed concerns about the mark ups as we were obviously worried that in giving COMPANY A a volume related price we would not get the volume because of all the mark ups but we still went ahead with the deal and started to get work in.

    COMPANY A further stated that whether it was ourselves or themselves that brought the business in ALL quotes AND invoices would be done by COMPANY A.
    The procedure is thus that if we get an enquiry in we send our quote to COMPANY A who then puts on all the mark ups and who sends the quote to the prospective client.

    This last week we received an enquiry for a R50,000 job. My member of staff in error sent the quote to the prospective client (I will call them PROSPECTIVE CLIENT) and was unable to recall the email. We decided to call the prospective client to ask that they please ignore the email and we followed up by sending the quote to COMPANY A who then in turn put their mark up and emailed the quote to this prospective client.

    The quote jumped from our R50,000 to R73,000 and PROSPECTIVE CLIENT took both quotes to her MD! He knows COMPANY A well as he is also one of their clients and in fact he is their biggest client. He quite rightly so blew his lid at all the mark ups. COMPANY A phoned and discussed this with me and I in turn phoned PROSPECTIVE CLIENT MD and explained to him that we had offered COMPANY A a volume related price and that our normal selling price would have been much more (this is true).

    PROSPECTIVE CLIENT MD told me that he knows COMPANY A for over 20 years and that there is no ways we will ever get the volume from them and insinuated that we have had the wool pulled over our eyes because according to him we are not obliged to go through COMPANY A to service CLIENT A and are allowed to deal direct with anyone and that the contract that COMPANY A has with CLIENT A does not give them the right to force us to go via them!

    Naturally I was astonished but more importantly it seems that we have lost the R50,000 deal. PROSPECTIVE CLIENT has said he would like to meet me face to face when he is next in Cape Town and when I offered to go ahead with the job at the base price of R50,000 he did not reply.

    COMPANY A could lose their contract with CLIENT A and lose all their business with PROSPECTIVE CLIENT if I tell PROSPECTIVE CLIENT the truth. I would love to get PROSPECTIVE CLIENT'S work as they are the biggest player in the industry but it's a tricky situation because CLIENT A is also a massive player in the industry.

    Hopefully the above is not too complicated to understand ..... any suggestions or advice would be much appreciated.

    Do I phone PROSPECTIVE CLIENT on Monday and tell him the truth and thereby lose COMPANY A with no guarantee of gaining PROSPECTIVE CLIENT?
    Do I just keep quiet and await PROSPECTIVE CLIENTS visit to CT and hope for the best and in the interim possibly have lost credibility with both PROSPECTIVE CLIENT and COMPANY A?
    Do I have any other options I could consider?

    Would really love to hear your advice ... thanks for listening everyone!

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    Diamond Member adrianh's Avatar
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    COMPANY A expressed great interest in promoting our selling our products via an existing client that they have. I will call this client ... CLIENT A.
    COMPANY A explained to us that they have a written contract with CLIENT A who takes 15% of their turnover and that if we want to do business we will be forced to go through COMPANY A who will take 20% plus they will add on CLIENT A's 15%.
    Why did you accept this blackmail?
    How easily someone is offended is directly proportional to how stupid they are.
    ~GS Elevator

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    Hello Adrian, thanks for your very valid question. We did not see this as blackmail. There is definitely a contract between CLIENT A and COMPANY A. We are not privy to seeing that contract but we do not for sure that it exists. We did not realise that we could deal direct with POTENTIAL CLIENT and avoid all the mark ups - that is news to us and not how it was explained to us. CLIENT A and COMPANY A are 2 very large, well known and reputable companies and there was no reason for us to question their integrity. They both now stand to lose a MASSIVE client as it is them who have been caught - not us.

    We are a very small company dipping our toes into their market and were guided by them on how to get there. It is POTENTIAL CLIENT who revealed to us that we are being misled as they do realise that we are new to this industry.

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    Site Caretaker Dave A's Avatar
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    The question had me trying to find a previous thread (Adrian, I think you posted one of the definitive responses in that thread on one of the key issues in play here), but I can't find the one I was looking for. The closest I got was this one on recommended retail pricing, which kinda relates too.

    The thread in question dealt rather well with the relationship between manufacturer, wholesaler/distributor, agent/retailer and consumer/end user. The key was to recognise that these are all different roles in the supply chain, each with associated activities and costs, and when the manufacturer starts getting directly involved in the subsequent supply chain roles, they need a strategy that deals with the issues that this may bring.

    Typically this strategy would include a pricing matrix, the simplest of which would be based primarily on volume, but a more complex model would also factor in what stage in the supply chain is being supplied. So I would recommend one of the things you do is develop a pricing matrix if you are going to entertain enquiries from different stages in the supply chain. And as you do so, think long and medium term strategy. In particular don't be tempted to sacrifice a long term relationship with a distributor for a single, once-off "big sale" to a consumer.

    The second thing I suggest you need to do is not give much heed to promises and assurances. Have any prospective client prove their case for preferential pricing, either with a provable purchase history, or by progressing through the preferred pricing structure via actual sales.

    Get this squared away in your mind, and I'm sure you'll be in a far better place to deal with your current challenge.
    The trouble with opportunity is it normally comes dressed up as work.

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    Diamond Member adrianh's Avatar
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    hmmm...interesting topic!
    Last edited by adrianh; 30-Jun-14 at 12:15 PM.
    How easily someone is offended is directly proportional to how stupid they are.
    ~GS Elevator

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    Thank you very much Dave, I appreciate your input. I've given this alot of thought over the week end and do believe I might be able to turn this on its head and into a massive opportunity for my company. Best wishes, Monique

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    Thanks again Adrian for your reply. As mentioned to Dave I have managed to formulate a strategy over the week end which if played out carefully could benefit my company enormously. Thank you for enquiring on what our company does and because of the sensitivity of this matter I will, if you dont mind, send you a pvt email with our company details. Best wishes, Monique

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    Really this is nice.

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