Solar Cal Case Analysis
Basic Pricing Policy and Concepts
Order ID | 53563633773 |
Type | Essay |
Writer Level | Masters |
Style | APA |
Sources/References | 4 |
Perfect Number of Pages to Order | 5-10 Pages |
BUS315 Week 1 Solar Cal Case Analysis
Basic Pricing Policy and Concepts
Participants:
Sally- Intern
Dominic- CEO of Solar Cal
Luke- Head of Productions
Jake- Head of Accounting/Finance
Melissa- Head of Government Contracting
Sally: Good morning, everyone! I am Sally Smalls, the new Solar Cal intern. I’m very excited to be here and look forward to working with all of you!
Dominic: Good Morning Sally and welcome to Solar Cal! My name is Dominic, and I am the founder and CEO of Solar Cal, I formed Solar Cal five years ago, but before that I served as a Navy pilot and dealt with several military operations.
Luke: Welcome to the team Sally! My name is Luke, and I am the head of productions here at Solar Cal. I have been with Solar Cal for a little over two years and before that I worked for Apple and Microsoft.
Jake: Hi Sally, it’s a pleasure to meet you! My name is Jake, and I’m in charge of the finances and accounting here at Solar Cal. I have been employed with Solar Cal for over three years and I have worked in Europe for several different financial institutions.
Melissa: I guess I am last. I am Melissa and it is my job to deal with all of the governmental contracts that come through Solar Cal. I have been with Solar Cal and Dominic since it has been founded. I served in the US Army and gained a lot of experience with military contracts and audits. We’re all thrilled to have you on our team!
Sally: It is a pleasure to meet all of you! I can’t wait to get started and learn the ins and outs of Solar Cal!
Dominic: Welcome to the team again Sally! To start off, let me tell you a little about what we do. When you came in this morning, I’m sure you noticed that you were greeted by security guards that had to confirm your information before letting you through.
Sally: Yes! I wasn’t expecting to go through a security checkpoint when I first got here.
Dominic: Well, you see the work we do here is covered under a strict non-disclosure agreement (NDA) and our security is not really set-up for visitors. I was concerned they would turn you away before you even had a chance to explain why you were visiting. You will be our first intern and really our very first visitor.
Sally: Wow, I feel very privileged! Based on the security protocol, how did you hire the original employees?
Dominic: That’s a good question! We had an outside agency conduct background checks on all employees and conducted the vetting process. Once candidates were selected, we would conduct interviews at the agency’s office instead of here.
Sally: Did you conduct a background check on me too?
Dominic: Well, yes and this is why you are the first ever intern to be allowed inside of our facilities. Please wear this badge at all times and follow me to my office where we can sit down and discuss what we do here.
Dominic: Welcome to my office! We are not set-up with a lot of offices, so I have created a workstation just outside my office, for you to call home while you are here.
Sally: Thank you so much for your kindness. I am really excited to be here and learning what you do.
Dominic: We are happy to have you here too! We produce the solar panel system for solar power farms. For most if not all of our solar panel systems products our primary contact is directly to General Solar Power Systems.
Dominic: I wanted to tell you as well that we also sell our products directly to the US Government. As a result of this we have to follow all of the federal acquisition regulations that are enforced. This pretty much means that all responsible sources are allowed an opportunity to compete for a product. Keep in mind that the government does not have product or supplier loyalty.
The same can be said for our company as well. Even though we are the only company that can mass produce the solar power systems that doesn’t mean we get any kind of loyalty from the government.
Sally: That is very interesting! So how does the government go about buying different products?
Dominic: That’s a good question. Let’s start off by talking about the advantages, government buyers have when it comes to getting fair and reasonable prices on products.
First, for certain commodities, our government is the only buyer of our products. To see who is willing to pay a higher price, we market our products to other governments.
Secondly, the U.S. government purchases large quantities of our products thus getting prices that are lower due to buying in bulk.
Lastly, the Prompt Payments Act can also help the government get more reasonable prices on products. Here, we are paid somewhere around thirty days after the submission of a proper invoice for a product we sold.
Sally: This is pretty interesting! It seems that the government has a pretty tight control on the buying of goods from suppliers. I had no idea this was how the government bought products!
Dominic: Very interesting indeed! To summarize what I have described to you keep in mind that the government is often in a good position to be given preferential customer treatment from vendors because of its high-dollar value buying practices. We see that it is common practice in the commercial sector for suppliers to grant special price concessions to customers who are favored because they buy in very large quantities, pay rapidly, or provide other benefits to the supplier.
Sally: Thanks for the overview of government buying Dominic! My next question is, who are your other “competitors” in the contracting process?
Dominic: To be honest Sally…No one else, as of yet, has been able to develop a lightweight solar panel system that can meet the specifications for both General Solar Power Systems and the Environmental Protection Agency (EPA). We do, however, know of a few companies that are trying to gain a foothold in this growing industry.
Sally: Is this why background checks are run on everyone in this building, including myself?
Dominic: That is exactly right! Since we more or less control the industry with our solar panel systems we don’t want any of research or document espionage.
Sally: I definitely understand the need for security now! Since Solar Cal has control of the solar panel system market, how do you determine the price for each unit you sell?
Dominic: Excellent question Sally! Well, we define price to be the sum of the components costs and profits. Our profit is whatever monies are left after all costs have been paid.
Sally: I think I see how this works now. Dominic, do you think the price you charge the government for your solar panel system is too much or do you feel it’s fair? What are your thoughts on this?
Dominic: Well, the government prefers market-based pricing over cost-based pricing. There are several approaches normally identified to establish a fair and reasonable price. Some of these approaches rely on the marketplace to determine a fair and reasonable price and consist of the following: competitive offers, established catalog prices, established market prices, and are established by laws or regulations.
Sally: That is very interesting! I do have one question though… What happens when there is only one company that is producing a product? How will this affect the market?
Dominic: That is a great question! Well Sally, we need to keep in mind that when there are no competing sources or the competing sources are ineffective, the marketplace cannot be relied on to produce a fair and reasonable price. This means that cost-based pricing serves as a surrogate to the market in determining a fair and reasonable price. Since we are the only company producing the solar power systems, the government is allowing us to use the cost-plus-profit approach, which is used by many manufacturers.
Sally: Hmmm… now that we’re talking about costs and pricing, I remember that while I was attending Strayer University, one of my professors talked about the differences between price and cost analysis. How does this apply to your contract work with the government?
Dominic: This is great that you have a foundation for these concepts! To refresh your memory, price analysis is a set of methods for determining whether an asking price is reasonable without examining the details of the cost or profit included in the price. Every time we make a purchase, we consciously or unconsciously make a price analysis, which satisfies our requirement that what we are paying for the product is indeed reasonable.
Sally, please make note that the government does a significant amount of contracting based on only getting a price for a product, without any information on how much cost and profit is included in the final price of the product. We see that contracting like this will result in the award of a fixed-price type contract.
First, we defined price to be the sum of components cost and profit. Then we went on to define and explain these two components.
Next, we explained how fair and reasonable price is established and we learned that the government prefers market-based pricing over cost-based pricing. We also talked about different approaches to utilize to establish fair and reasonable prices.
Then, we covered the cost-plus-profit approach, which is used by many manufacturers. Followed by later talking about various ways of price setting, including adapting to established prices, product differentiation, and price leadership.
Sally: Thanks for the review, Dominic! I feel that this was a great first week as a Solar Cal intern! I learned a lot and can’t wait to see what next week brings!
Dominic: It has been a pleasure having you with us Sally! I look forward to seeing you next week.
Sally: Thanks Dominic and I will see you next week as well!
Solar Cal Case Analysis
Basic Pricing Policy and Concepts
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