Slide 1

NEGOTIATION IN CASE MANNxOTC THE NEW ANALGESIC

The strategy of the pharmaceutical companiesThere are two companies in this case, Northcraft and Northcraft (NN) and Thompson and CompanyThe marketing department of NN can create an OTC product category for the drug that will make it competitive with the other OTC painkillersINTRODUCTIONINFORMATIONSNORTHCRAFT

Strenght:NN has a vast OTC analgesic marketNN has opportunity to reach large market because of its nonprecreption drug

Weakness:NN can not reach large volume of OTC analgesic marketMANNx-OTC is not well received in the market THOMPSON

Strenght:High quality company because they take great pride their research and development success as well as their proessional image They keep the patent

Weakness:They have little capability for reaching a mass market with an OTC productThompson has betaMANNx patent for six years before its expired

ISSUEThe negotiation of pharmaceutical companies in order to share the profit from MANNx-OTC, further thought leads to other important issues, such as Thompsons desire to keep betaMANNx on the market as a prescription drug.OBJECTIVEThe objective is to assess the potential for a successful OTC product joint venture with Thompson that will benefit both firms

Northcraft desire the betaMANNx become nonprescription drug, but Thompson wants to keep the betaMANNx as the prescription drug. However, every prescription filled for betaMANNx is one less potential customer for MANNx-OTCPROBLEMThe StrategyWhat we will do if we don't reach an agreement?Waiting for Thompsons patent expires, so we can can produce and market betaMANNx products, because any firm can produce and market betaMANNx products, but it will dramatically reduce profitability for all companies.We will stay out the OTC painkiller market for the foreseeable future.

What the opponent will do if they do not reach an agreement with us?They will not joint venture with any other firm.Estimate that $12 million is the likely profitability of betaMANNx to Thompson if it remains exclusively a prescription drug.The true issues in the negotiation The Negotiation of pharmaceutical companies in order to share profit from MANNx-OTC , further thought leads to other important issues, such as Thompsons desire to keep betaMANNx on the market as as prescription drug. The potential for a successful OTC product joint venture with Thompson that will benefit both firms

How important the issue to us?Getting thompsons active marketing of betaMANNx, so it can affect MANNc-OTCs profitability.

How important the issue to the opponent?Discovering the opportunity costs and get financial profit from this negotiation.

NNt: NNs target price. We would be delighted to give Thompson and company $5 million (or 1/6) of the profit from joint venture.

Tr: Thompsons reservation price. It will cost them $9 million in lost income to give up their active marketing of betaMANNx. Thus, they will not enter a joint venture if they do not receive this level of benefit.

NNr: NNs reservation point. The product is worth $30 milion to us. We would not pay Thompson more than this and any amount less than this is expected profit.

Tt: Thompsons target price. A high price would love to receive (they may have little idea of the true potential of MANNx-OTC)The bargaining zone (ZOPA)

The trade offsNorthcraft and Northcrafts Payoff Table(in millions)OutcomeLifetime Expected Profit to NNNo joint venture$0Joint venture: Thompson stops activemarketing of betaMANNx immediately$30-PJoint venture: Thompson stops activemarketing of betaMANNx after 1 year$28-PJoint venture: Thompson stops activemarketing of betaMANNx after 2 year$26-PJoint venture: Thompson stops activemarketing of betaMANNx after 3 year$24-PJoint venture: Thompson stops activemarketing of betaMANNx after 4 year$22-PJoint venture: Thompson stops activemarketing of betaMANNx after 5 year$20-PJoint venture: Thompson continues active marketing of betaMANNx throughout the products remaining 6-year life$18-PWhere P is transfer price NN pays to Thompson for the rights to market and sell MANNx-OTCThe trade offsThompsons Payoff Table(in millions)OutcomeLifetime Expected Profit to ThompsonNo joint venture$12Joint venture: Thompson stops activemarketing of betaMANNx immediately$3+PJoint venture: Thompson stops activemarketing of betaMANNx after 1 year$7+PJoint venture: Thompson stops activemarketing of betaMANNx after 2 year$9.5+PJoint venture: Thompson stops activemarketing of betaMANNx after 3 year$10.5+PJoint venture: Thompson stops activemarketing of betaMANNx after 4 year$11+PJoint venture: Thompson stops activemarketing of betaMANNx after 5 year$11.5+-PJoint venture: Thompson continues active marketing of betaMANNx throughout the products remaining 6-year life$12+PThe trade offsJoint Profit Sample Resolution Table(in millions)OutcomeNNTNN+TSynergyNo joint venture$0$12$12$0Joint venture: Thompson stops activemarketing of betaMANNx immediately$30-P$3+P$33$21Joint venture: Thompson stops activemarketing of betaMANNx after 1 year$28-P$7+P$35$23Joint venture: Thompson stops activemarketing of betaMANNx after 2 year$26-P$9.5+P$$35.5$23.5Joint venture: Thompson stops activemarketing of betaMANNx after 3 year$24-P$10.5+P$34.5$22.5Joint venture: Thompson stops activemarketing of betaMANNx after 4 year$22-P$11+P$33$21Joint venture: Thompson stops activemarketing of betaMANNx after 5 year$20-P$11.5+-P$31.5$19.5Joint venture: Thompson continues active marketing of betaMANNx throughout the products remaining 6-year life$18-P$12+P$30$18Thompson agree to take only one third of the profit for the joint venture in exchange for continuing to market betaMANNxThompson would receive $3 million plus one-third of $30 million for a total of $13 millionNorthcraft and Northcraft receive two thirds of $30 million or $20 million. Thompson could also have accepted an agreement that allowed two years of marketing (worth $9.5 million and $4 million of the $26 million available from the joint venture, a better agreement for both sides.Thompson gets $13.5 million instead of $13 million Northcraft and Northcraft gets $22 million instead of $20 million