Read, Sarah Talley & Frey Farms Produce: Negotiating with Wal-Mart and answer the

following questions regarding ‘Negotiating 4th of July Watermelon prices

1. How do you describe their current negotiation situation?

Watermelons are traditionally 4th of July exclusive product in grocery stores. The growers
harvest watermelon every month but the peak production is in month of May, June and
early July. Because of surplus production in these months, the prices remain low as
compared to other months. After July, the price flattens and further rise in October because
of low production. Surplus availability of Watermelon in July at lower price is extremely
important for Walmart as per profitability perspective.

In 2005, all the key watermelon producing states faced a major blow because of critical
weather conditions. Florida and Georgia are primary production areas for Frey Farms which
were also affected by the same. Hence, the production reduced and price increased. Sarah
Talley’s major concern is that the reduced production will not allow her to cater the need of
the Walmart in volume and also price. If Talley focus on meeting volume requirement of
Walmart, this would incur additional high shipping cost for transporting from west region to
east and south.

In this case, Talley and Wal-Mart are into- “Distributive negotiation” as the only subject of
bargain is the price for 4th of July. There is unbalanced power relationship. Walmart is more
powerful than Frey farms because of market size that Walmart caters. This case of price
negotiation only led to winning of one party. There are high possibilities that Talley provides
Walmart the price they desire but lower volume as required. This will force Walmart to
procure from other places which will lead to high transportation cost for Walmart .

Both, Talley and Walmart want to win the negotiation only on the basis of price which is not
coming to an agreement. Hence, deal is still not sealed after several rounds of discussion.

2. How did they land there?

Primary area of watermelon production for Frey Farms are Florida and Georgia. In 2005,
these areas were blown by extreme weather conditions. Pest attack further aggravated the
condition of the areas which resulted in slackening of production of watermelons. Hence,
lower supply led to price rise. To meet Walmart demand requirement, Frey farms might
have to procure from other producers which would add cost of transportation. Hence,
offering at low price was not profitable for Frey Farms.

Unbalanced power relationship: Walmart is a retail giant while Fresh farm is small. The
supplier connect of Walmart is very strong. Frey farm needs support of Walmart to expand
their reach. Walmart has stronger bargaining power in this context. The market condition is
not analysed by the big player and hence they are being adamant about the price.
Walmart has not analysed their BATNA. If Frey farms deny their proposal, they will have to
purchase from market at high price. If Frey farms agree to meet demand, Talley will have to
incur huge transportation cost. Moreover, in an effort to offer low price Frey farms will have
to deal with other co-managed supplier of Walmart. This will further reduce the profit for
Frey farms. Moreover Walmart will also have to pay more to its other co-managed suppliers.

3. What advice would you offer Sarah Talley?

Before dealing with Walmart, Talley needs to develop clear BATNA to intensify Frey Farm’s
influence. In this deal of 4th of July, Talley’s objective was not clear. She was well versed with
the fact that Walmart follows low price strategy but was not confident enough to put her
proposal forward for being co-managed supplier. Hence, the negotiation only revolved
around price and not the bigger objective of being co-managed supplier.

The challenge of negotiation that Talley is facing is to reach a settlement that is most
favourable for Frey Farm. ZOPA, zone of possible agreements, should be looked upon in this
case. The final settlement of this negotiation should fall above the Frey Farms reservation
point and below the Walmart reservation point.

1. Make the first offer after understanding Walmart :

Sarah should focus on acquiring the business understanding of Walmart and how business
runs for them. She should focus on establishing good relationship to gain trust for further
perusal of offer by buyer. She should also try to develop a very good relationship with
regional buyer. Initially Sarah only had understanding about Walmart bargaining power but
did not explore the opportunity of her firm being co-managed supplier.

Intermediate Solution to reach negotiation is the absence of other co-managed supplier to

avoid unnecessary cost for both Talley and Walmart. Walmart can live up to Everyday Low
price commitment in this case.

Talley need to focus on creative solutions for a mutual beneficial outcome to increase
perceived power of Frey Farms. She can propose to be co-managed supplier. Innovative
ways need to be adopted in this case to manage the inventory and reduce the inventory
holding cost for Walmart also. Talley should focus on communicating strategies on why
Walmart should make her co managed supplier and how it will be profitable for Walmart.

Commitment of Frey Farm being co-managed supplier will be to satisfy the interest of
Walmart.

2) Support offers with facts

Talley should present the rationale of Frey Farm being co-managed supplier and invite the
Walmart to buy into rationale. She could invite the regional team to have situation
inspection of 2005 of the production and reason for slackening supplies with high price.

3) Explore opportunities other than Walmart

Talley should explore opportunity in local retail chains which will help her to expand her
business more. Her dependency on Walmart for business expansion will reduce. Frey farms
can acquire more bargaining power in this case. Moreover, in case of price negotiation, it is
beneficial to wait for better time.

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