Phelps, Inc.

You are Philip Manual, the head of sales for an office products firm, Phelps, Inc. Your personnel sell primarily to small businesses in the Los Angeles Metropolitan area. Phelps is doing about average for this rapidly growing market. The firm’s new president, Jose Ortega, is putting a lot of pressure on you to increase sales. You feel that a major obstacle is the firm’s policy on extending credit. Celeste, the head of the credit office, insists that all new customers fill out an extensive credit application. Credit risks must be low; credit terms and collection procedures are tough. You can appreciate her point of view, but you feel it’s unrealistic. Your competitors are much more lenient in their credit examinations; they extend credit to higher credit risks; their credit terms are more favorable; and they are more lenient in collecting overdue payments. Your sales personnel are pushing back on you. They frequently complain that they aren’t playing on a “level field” with their competition. When you brought this concern to Jose, he said he wanted you and Celeste to “work things out”. His instructions didn’t give any clues to his priorities on this matter “Sure, we need to increase sales, but the small business failure in this area is the highest in the country, so we have to be careful that we don’t make bad credit decisions.”

Respond to the following questions in detail:

1. What are the salient situational factors?
2. What is the most appropriate negotiation strategy? Explain in detail.
   
3. What advice would you offer to Jose Ortega? to Celeste? to Philip?