Coffee Trade

Coffee Trade

I. Description of Game Results

A. Round 3 

1. Were your negotiations in this round successful?  Why or why not?

Overall, we weren’t as successful as we expected to be in this round. Our total profit was negative $1,038 with negative $192 from business unit 1 and negative $846 from business unit 2. We were focusing more on the price than finding creative way to create value for customers as well as ourselves. For example, to sell our Orange Bourbon beans to a particular customer, we lowered our price again and again, in the end, we sold the beans at a loss, which is not the right thing to do. Also, since couldn’t find the right ZOPA, we lost some customers, our preferred prices were high and not competitive. After deep analysis, we realized this unsuccessful negotiation was caused by a lack of strategy. We did not have a clear strategy in supplier-side.

In Business Unit 2, we placed a 2-round contract in round 2 and we believed that the purchase order for round 3 will automatically be placed. However, the purchase order had to be explicitly placed for round 3 too. Since we were missing one roasted bean, the other roasted bean that we bought were worthless and our loss was equivalent to the cost of these roasted beans - Kona.

2. What did you learn in this round?

We learned that if the price was the only area of focus in a high competitive market, it was very easy to lose our customers and profit. Also, in this round, we started to think of building long-term relationships with our customers after learning our competitors were gaining profits due to long-term contracts. There was a learning curve and clearly, our team was a little bit slow in picking up the “tricks” in the game. Moreover, we learned was that we would not sell our Orange Bourbon beans at a loss even though we really wanted to sell. There was a principle there. In round 1 and 2, we never paid attention to the market information button. In round 3, we started looking at the blue information button more closely.

3. Based on what you learned, what do you plan to do differently in the next round?

One thing we decided to work on was to build relationship with our customers. Additionally, we planned to build long-term contracts with customers and suppliers.  Based on the information from the blue button, we planned to change our negotiation strategy for business unit 2.

B. Round 4 

1. Were your negotiations in this round successful?  Why or why not?

Our negotiations were successful to a certain degree while still not so impressive.  Our total profit was $1,124.4 with $930 came from business unit 1 and $194.4 from business unit 2 in this round. One of our main strategies was building relationship with buyers to work with them in the future rounds. We were successful in this strategy and we managed to have two preferred customers for our roasted bean Orange Bourbon. Another highlight of our negotiations was managing customers complains by adding value to them. Since we had some complaints about delays in our deliveries and the costs that customers faced because of that, we sat with them and calculated a price formula together and shared any potential risks with them in the future deliveries. Even though we were exposed to more potential risk, we could gain trust and build a solid relationship with our customers. Transparency and sharing information was one of the key parameters to build trust and therefore being able to create a win-win situation.

In business unit 2, we transferred part of the risk of lost sales onto the suppliers. For one supplier, we added a clause to charge a certain percentage of purchase order if we lost any sales because of the suppliers. For other supplier, we penalize them at 33% of lost sales because of the suppliers. Because of these clauses, we could recover $1362 from the suppliers.

2. What did you learn in this round?

One of the lessons learned was building a relationship based on mutual trust, that helped the future negotiations to go more smoothly. We did not sell to all the potential customers but the ones that we sold was enough to make our negative profit from the previous round positive. Having a long-term contract with the suppliers paid off as we were getting a good deal from Kona’s supplier.

3. Based on what you learned, what do you plan to do differently in the next round?

We planned to have the same strategy of building and maintaining relationship by expanding the pie with our customers. Also, we planned to add more to our preferred customers list for the next round. When the market is volatile, by creating value to our customers and sharing the risk we could make it more tolerable for customers. We plan to keep the terms and conditions along with the purchase orders as that distributes the risk among the stakeholders.

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