Pacific Oil Company Negotiation Strategy

Overview

Pacific Oil Company was founded in 1902 as the Sweetwater Oil Company of Oklahoma City, Oklahoma. The founder of Sweetwater Oil, E.M. Hutchinson, pioneered a major oil strike in north central Oklahoma that touched off the Oklahoma "black gold" rush of the early 1900s. It developed extensive oil holdings in North Africa and the Middle East, as well as significant coal beds in the western United States.

Analysis

In 1979, Pacific Oil established the first major contract with the Reliant Corporation for the purchase of vinyl chloride monomer. The Reliant Corporation was a major industrial manufacturer of wood and petrochemical products for the construction industry. Reliant was expanding its manufacturing operations in the production of plastic pipe and pipe fittings, particularly in Europe. The 1979 contract between Pacific Oil and Reliant was a fairly standard one for the industry and due to expire in December of 1982. In February 1982, negotiations began to extend the four-year contract beyond the December 31, 1982, expiration date.

Fontaine and Gaudin agreed that the Reliant account had been a very profitable and beneficial one for Pacific and believed that Reliant had, overall, been satisfied with the quality and service under the agreement as well (Lewicki, Saunders, & Barry, 2010). They clearly wanted to work hard to obtain a favorable renegotiation of the existing agreement. Fontaine and Gaudin decided that they would approach Reliant with an offer to renegotiate the current agreement. Their basic strategy would be to ask Reliant for their five-year demand projections on VCM and polyvinyl chloride products. They had a change in the supply-demand situation that would require them to come up with a different strategy on how to keep their current customers and this would mean they have to compete with competitive market prices. Hauptmann replied that Reliant had serious reservations about committing the company to a five-year contract extension (Lewicki, Saunders, & Barry, 2010).

BATNA

The biggest mistake with the Pacific is that they did not even bother to explore and develop any kind of BATNA for their own situation. They did not contemplate any other possibilities and also did not make any effort in exploring other options and establishing at least some sort of alternative for this negotiation. Consequently, the market was tough for them as it was, but they mentally, and then in reality, limited themselves to only one option - keeping Reliant at any cost as their customer. Even though the case is not telling us what was the ultimate outcome of all those maneuvers, the final point described in the case was a very poor prospect for the Pacific when they did not have any control over the negotiation and were at complete mercy of Reliant, which as a company is the worst position