A war is made up of a number of battles. A single battle may be lost. But to win a war a large number of battles has to be won.
We could think of undercutting as a single battle. But if one resorts to undercutting in all the time, then the war will be lost.
Some years back, a large insulator company in Chennai was in the market to purchase five window air-conditioners. My purchase price for one air-conditioner was Rs.20,500.
I for one was determined to get the order, come what may!
This company was known for some delay in payment. So I worked out a strategy. I should get the payment within a day or two of delivery of goods. There were already many companies in the fray to supply the machines.
I bulldozed myself into the General Manager's cabin and told him that I wanted to supply the units and at what price he can issue me the order. Pat came the reply: Rs.20,000. Without any hesitation and without batting an eyelid I said, Yes I will and I want the payment immediately upon delivery (of course, I was prepared to wait for a day or two). I had won the battle. I lost a sum of Rs.2,500 in the deal but that did not make a big dent to my overall profit for the month in question.
Now coming back to Shafi's issue which I spoke about yesterday. I could have undercut the price by 200 to 300 rupees per machine. I might have ended up losing a couple of thousands. But one has to think of the aftermath in this strategy.
(1) ABC company is regularly purchasing machines and I will end up losing time and again.
(2) ABC company may feel cheated and think that they have been paying a higher price all along (which is not the case).
(3) Think about Shafi. He is already not making much margin in this supply and he will feel sorry.
One should go by the maxim United we stand, divided we fall. We should beware of undercutting, since it is a double edged sword.
But of late we find that in some instances undercutting has gone to ridiculous levels...
Let us see about this tomorrow...