Uncle Coco's Magic Shop: A Negotiation Exercise

Abstract

A toy retailer plans to order a new product from an untested supplier for the winter holiday season. This exercise provides an opportunity for students to construct a model to determine optimal order quantity when demand is not known. Profits are calculated based on wholesale pricing, revenue-sharing, profit-sharing, and buyback contracts. Excerpt UVA-OM-1457 Rev. Aug. 25, 2014 Uncle Coco's Magic Shop: A Negotiation Exercise In preparation for the upcoming holiday season, Uncle Coco's Magic Shop, a local toy retailer, must purchase inventory from various suppliers. One of the items the retailer is planning to stock is the Marble Craze, which has been widely advertised this year and has a fixed retail price of $ 15.00. Because the sole supplier for the product is a new entrant, Uncle Coco's is highly uncertain about demand for this product. In the past, advertised products have had mixed success: some have been quite popular, and supply insufficient, but others have not attracted much interest, leaving Uncle Coco's with excess inventory after the holiday season. These unsold toys are donated to charity, with no salvage value. The Marble Craze is manufactured by an overseas supplier new to the toy industry, Chennai Glass, Ltd. The product needs to be transported from India to Uncle Coco's Magic Shop before Black Friday, the official beginning of holiday shopping season. Similar products in this industry have sold at a price of $ 12.00, using a wholesale pricing contract. This price includes $ 11.00 for the product and $ 1.00 shipping costs. Since this is a standard contract, Chennai Glass must continue to offer this possibility to Uncle Coco's Magic Shop. . . .