May 22, 2000

Mr.Holstein, Manager
Black Star Inc.
92 Lester Road Boston, MA 01829

Subject: Negotiations with Buyers

Dear Mr.Holstein:

It was good to talk with you over the phone the other day, and I was especially grateful for the encouragement and helpful advice you gave. You asked me to keep you informed of how negotiations with buyers are progressing, and I hope that you find that the following report meets your needs.

The purpose of meetings with buyers-High Line Inc and Bonanza Boutiques inc- has been to negotiate the price and quantity of our raincoats and the delivery schedule to make a contract. It was this team's opinion that we should sell as many as raincoats at the highest profit.

Necessary Background Information about Negotiations

We initially planned to propose prices of raincoats according to the delivery schedule because the factories are now in the process of preparing earlier orders, so the supply of raincoats at the early delivery dates is limited, in which we added 40 45% of the production cost as our profit ( refer to the table ). And we expected buyer's concern about the price; hence, we were prepared to provide and pay for shipping and insurance partially.

Significant Developments in Negotiations

Negotiations developed in a tough way. In the first meeting with buyers, we said our cost before profit to buyers too frankly by mistake and we found that the other seller in the market suggested cheaper prices than us, which made buyer entirely oppose to our proposed prices. So we had to keep discounting our prices to the similar level of the competitor's and in addition, we had to agree to pay for shipping cost including insurance per unit ( $1.35 ) and even the cost of special package per unit ( $0.55 ). Finally, we came to an agreement on the details of the contract with Bonanza (refer to enclosure). Namely, we made a contract with Bonanza Boutique Inc. According to the contract, we will sell $357,000 worth of our raincoats to them and it seems that we can earn $23,500 worth of profit from this contract.

Evaluation of the Contract

Our team's assessment of the agreement is that we haven't accomplished our initial purpose even though we made some profit. According to the profit calculation (refer to the enclosure), we can get some profit-$25,000-from this contract; however, the problem is that the amount is much less than that we expected.

Recommendations for Future Efforts

1. We need to put a thorough market research into operation before a meeting with buyers. One of the problems we faced in meetings with buyers was that we couldn't get any specific information about their expected price and quantity of our raincoats because they thought that it might lead them to a disadvantageous position in the negotiations. In addition to that, we didn't know about the proposal of our competitor in the market. Their production cost per unit was cheaper than us by one dollar, so when we found out the fact that they proposed far cheaper prices than those we suggested to buyers, we had difficulty in negotiating with buyers. Therefore, I feel that we should gather specific information about demand and supply through the market research. And we should find other factories which can provide us with cheaper prime cost.

2. I suggest making a department for training in sales techniques. Another problem in negotiations was that we mistakenly said our production cost before profit to buyers by mistake and I think the reason of that was the lack of knowledge about selling. Moreover, during the negotiations, I realized that we lacked selling techniques for successful sales, so I strongly recommend that we set up a department for training salespeople in the company.

Conclusion

In conclusion, I feel that we continue our raincoat business. Although we made less profit than we expected in this contract, I believe that thanks to the market research and set-up of a department for training in selling techniques will lead us toward the successful raincoat business in the near future.

Everyone on the team hopes that you're doing well and that this report would lessen your apprehension on negotiations. And we'd liked to express our appreciation for your very helpful guidance through these negotiations. If you have any question, please call me. We'll be at the hotel until Sunday.

Sincerely,

Chang Hye Young
Member, Sales Department

Enclosure: Profit Calculation and Contract with Bonanza