Developing a strategic negotiation plan: Toyota Highlander.

Luthy, Michael R. ; Ryan, Mike H. ; Desselle, Bettye R. 等

CASE DESCRIPTION

The primary subject matter of this case concerns the evaluation of gathered information to develop a negotiation plan prior to a consumer's purchase of a sport utility vehicle. Secondary issues examined include the sales process and the increasing role of the Internet in consumers' information search activities. The case has a difficulty level of one (appropriate for freshman level courses) although it may be used through level five (appropriate for first year graduate level) depending on the amount and complexity of background reading assigned. The case is designed to be taught in as little as one class hour, but may be expanded to as many as three class hours depending on the amount of theoretical material discussed by the instructor, if role-play negotiations are carried out, and whether any out-of-class preparations are assigned. The case is expected to require from zero to approximately four hours of outside preparation by students.

CASE SYNOPSIS

Introducing students to the topic of sales negotiation is always challenging. While it is typically a significant part of business-to-business purchases and many higher-ticket priced consumer goods, negative word-of-mouth and uncomfortable personal experiences leave many students apprehensive. Presenting the topic in the context of purchasing an automobile, or in this case study, negotiating the purchase of two sport utility vehicles, students will draw on their own experiences, those of their friends and family members, and any assigned readings. The overall goals of the case are to defuse the anxiety many students associate with negotiation, underscore the importance of analysis and planning prior to face-to-face encounters, and better prepare students for future business and personal purchase situations where negotiation is a factor. Specifically, in this case students examine collected price and non-price information, and develop a negotiation plan. Through this task the instructor may explore various fundamental aspects of negotiation (e.g., agenda analysis, concession strategies) and the distributive bargaining model (e.g., aspiration targets, reservation points, buyer and seller surplus).

INTRODUCTION

As Michelle Tipton read through the brochure for what seemed the tenth time she found herself nodding in agreement. "The new Highlander. An unexpected bit of comfort in the rugged world of the SUV. Breaking new ground is nothing new to Toyota, but this time around, we've built a vehicle that boldly redefines everything you've come to expect from a sport utility vehicle. Highlander gives you uncommon comfort and unparalleled smoothness in an unmistakable form. It's designed for those drivers who crave the versatility and space of an SUV, but aren't willing to sacrifice a refined, comfortable ride. With exceptionally smooth handling, clean, unique styling and a spacious interior, Highlander is the civilized ride you've been looking for." (Toyota Internet Website and Highlander brochure).

After months of investigating, Michelle knew that this was the vehicle she wanted. Sifting through piles of Car and Driver, Auto Week, and Consumer Reports magazines, visiting websites for Acura, Subaru, BMW, and Honda brands among others, convinced her that this was the vehicle for her. Now the question was how to get the best deal from one of the local Toyota dealerships in the Louisville metropolitan area. Located in the city were Toyota of Louisville and Oxmoor Toyota. Just across the river in Southern Indiana was Green Tree Toyota. Because of negative comments and stories she had heard about Oxmoor Toyota, Michelle decided to limit her dealership choice to either Toyota of Louisville or Green Tree Toyota.

An unexpected twist in Michelle's deliberations came when one of her colleagues at work, Ashley Lacey, dropped by her office one day and told her that she and her husband Robert were also looking for a new sport utility vehicle for their family, which included their nine year-old daughter Alex and one good size Labrador retriever. After talking for a while concerning what Michelle had discovered in her research, and about a week after she loaned Ashley all of the information she had collected on various models, Ashley came back and told her that she and Robert were convinced the Highlander was the vehicle that was right for them.

Further discussions between the two parties discovered that with the exception of the choice of exterior color, they both wanted virtually identical models and accessories. Both Michelle and the Lacey family wanted the 6-cylinder, four wheel drive model, with a significant number of options. In Michelle's case she would be able to purchase the vehicle outright, trading in her low mileage 1992 Honda Accord LX. With the Lacey's however, they would be keeping their current car and financing the purchase beyond a $5,000 down payment.

Both Ms. Tipton and the Lacey's knew that if they went to the dealerships together with the intent of buying two vehicles as a package deal, it would be a different, or at least unusual, situation that the salespeople didn't see too often. They hoped that it would allow them to get a better overall price.

Through various online sources, Michelle has been able to find not only the Manufacturer's Suggested Retail Price (MSRP), which typically served as the high end or full price benchmark for consumers, but also wholesale prices. These wholesale prices represent the amount the car dealership paid for the vehicle, excluding any givebacks or other incentives provided by the manufacturer. Michelle's further investigation indicated that there were no other incentives provided to the dealerships for sales of the Highlander model. As she sat at the kitchen table with the Lacey's and with the financial information spread out before them, they knew they had a number of decisions to make and questions to answer in putting together their negotiation plan before they approached the dealerships.

QUESTIONS TO ANSWER

1. What should Michelle and the Laceys' negotiation strategy be? (e.g. how much information to share concerning where they are in the buying process, that there is a vehicle trade-in, that they are looking at other dealerships as well, that they have wholesale price information from Internet sources, whether and how much deception is ethical/allowable, etc.)

2. What do you expect the behavior of the sales people to be when Michelle and the Laceys visit the Toyota dealerships?

3. Develop a negotiation plan (i.e. characteristics of opening offer, reservation price, tactics, tradeoffs they should make, how to react if the seller brings up issues before you are ready to discuss them, e.g. whether you have a trade in vehicle, etc.). What would your Plan B be if your original plan becomes untenable?

4. What do you believe the salespersons' negotiation plan will be? How can you determine what their plan is?

Exhibit 1
Used car information for 1992 Honda Accord LX

Source Trade-in to dealer Retail price sold by dealer

Kelley Blue Book $4,575 $7,600
Edmunds $4,977 $6,708
Consumer Reports $4,775 $7,365

Exhibit 2
Toyota Highlander--Base Vehicle Costs and Options

 Model and Engineering Michelle Lacey
MSRP Wholesale Options Tipton Family

$24,390 $21,761 4 door sport utility with No No
 base engine
25,790 $23,007 4 door, 4 wheel drive sport Yes Yes
 utility with base engine
1,580 1,407 3.0 Liter, 6 cylinder 220 hp Yes Yes
650 559 Vehicle skid control Yes Yes
MSRP Wholesale Exterior Options Michelle Lacey
 Tipton Family
$699 $455 Fender Flares No No
310 248 Glass, deep tinted No No
102 61 Hood protector Yes Yes
220 176 Luggage rack Yes Yes
80 64 Mud guards Yes Yes
625 405 Running boards No Yes
334 200 Rear spoiler Yes Yes
MSRP Wholesale Model and Engineering Michelle Lacey
 Options Tipton Family
900 720 Power sunroof Yes Yes
MSRP Wholesale Interior, Security, Safety, Michelle Lacey
 and Miscellaneous Options Tipton Family
$379 $235 Molded wood dash No No
90 58 All weather floor mats Yes Yes
$147 88 Glass breakage sensor No No
309 185 VIP security system No No
250 215 Side impact air bags Yes Yes
40 32 Daytime running lights Yes Yes
30 24 Outside heated mirrors Yes Yes
400 352 Heated seats Yes Yes
200 150 Premium sound package with Yes Yes
 CD changer
520 416 16" aluminum wheels Yes Yes

Michael R. Luthy, Bellarmine University Mike H. Ryan, Bellarmine University Bettye R. Desselle, Prairie View A&M University John T. Byrd, Bellarmine University