June 22, 2000

Dr. Lee Min-gu
Sales Coordinator of the Big Bucks International
Suite 208, Big Bucks International Building
Seoul 110-745
Korea

Reference: your letter, June 15, 2000

SUBJECT: Result and assessment of raincoats transaction

Dear Mr. Lee:

I was glad to hear from you the other day that our company contracted with a manufacturing company which can provide us raincoats at a cheaper production cost than now. I think the contract can be a turning point of our raincoats selling. And I appreciate for your advice to guide me to a better compromise. The advice you gave to me was preciously used in every step of the transactions.

The purpose of the transactions with the buyers was to get a maximized profit in selling the raincoats. In that point, our transactions were not that satisfactory but we could learn some important selling skills that will help us to improve performances in the future transactions.

Background of the transactions

Our team initially planned to add 40% - 45% of high profit rate to the production cost according to the length of the terms the products arrive to the final destination. And we also planned to pay the shipment cost partially without special packaging. At that time we misunderstood the reality of the market so we made that kind of mistake in deciding the price. We assumed that the buyers were willing to buy as many products as they could because they could resell the raincoats to the second buyers at a very high price. Furthermore, we thought the situation - the combined quantity the two buyers wanted to buy was 40,000 but the combined quantity the two sellers could provide was only 30,000 - could work very favorable to us. So we supposed that the buyers might have intentions to buy our products even though they are little more expensive than as they expected. And another our obvious mistake was that we couldn't read our competitors mind. They planned to sell the products at a more competitive price than us.

Significant Developments

In the first negotiation, when we explained our selling conditions, the buyers showed us their great surprise. They said that our price was too high and the other conditions about shipment and packaging were too poor comparing to the Olympic Trading Company. So we had to cut down the price quite much during the negotiation, around five dollars per a unit, from our initial price, and promised to pay for the options like shipping cost in CIF and special packaging. But in the next negotiation we were informed that High Line Inc. already made a contract to buy 15,000 units of raincoats with our competitor at the price of $23.50 under very favorable conditions. This word was spread soon to the other buyer, Bonanza Boutiques Inc., and they insisted that they couldn't buy the same products at a higher price and under poor conditions than High Line Inc. So we had to compromise with them to sell 15,000 units of raincoats at the price of $23.80 and as the Olympic Trade Company did, we also had to contract to pay for the shipment cost in CIF and special packaging. And the arrival date to the destination was October 14, 2000. Our production cost per a raincoat was $20, the shipment cost in CIF per unit was $1.35 and the special packaging cost per unit was $0.55, so from this contract we could earn $28,500 of profit.

(You can refer to the enclosed contract and profit calculation sheets to know exactly the result of our contract with Bonanza Boutiques Inc.)

Assessment of the transactions

Frankly, the result of our transactions wasn't that satisfactory in figures than we expected. However there were quite many things that we could learn from the transactions. Firstly, in our last transactions we didn't know at all about our competitors price strategy - the low price strategy - and didn't have any information about customers general needs. For example, in the customers' position, they were more interested in the fact whether we would pay for the shipment cost in CIF and the special package than whether they should pay little more money for the products, because those options can be big burdens to them if they pay them by themselves which costs much more than when we pay for them, but we didn't know this fact, either. Secondly, we felt guilty about our mistakes in deciding the proper price at first. That kind of feeling made us unwilling to insist our position and eventually accepted buyer's requests too much.

Recommendations

After finishing the negotiations, we learned from a member of the Olympic trading company that their prime cost of a raincoat was one dollar cheaper than our prime cost. That might be one reason why they chose the low price strategy. We recommend you to keep trying to find manufacturing companies which can provide products at a cheaper production cost as you are looking for now. That can be a mighty source to increase our profit. Secondly, we learned that if we wanted to earn much profit in the transactions, we should devote much effort to market researches. We should figure out the proper price and profit range that can be generally accepted to both parties, sellers and buyers, by predicting our competitors strategies and customers general need. So to speak, we should pay some budget for the market researches for better negotiations in the next time. Lastly, through sales training, we should learn more stable and reasonable attitudes that can be adaptable to any situation.

Conclusion

If we can get the products at quite a competitive production cost and can get enough information from market researches, and in addition to that if we can apply what we learned from the last transactions to the next ones, dealing in raincoats can be a profitable business. I believe that our team can improve our performances from next time if all these conditions are equipped.

As always, we appreciate your concern and help. We would appreciate it even more if you provide us some suggestions about the way to improve our performances from the next transactions. And if you need more information about the result of the transactions, please call me without hesitation. Ill stay at this hotel until the end of this week, so you can contact me at this number I gave you the other day.

Sincerely,

Han Su-yeon
Raincoats sales team
Black Star Trading Company