Fairstar Heavy Transport

Case Objective:
Giving pricing decision for Fairstar Heavy Transport to secure the deal of Gorgon
project.
Case Overview:
Fairstar Heavy Transport operates their business in the heavy marine transport industry.
Out of the four market segments in this industry, offshore drilling rigs and onshore and
offshore modules cover nearly 80% of the market.
Though the second segment has been an elusive one, the Gorgon Project has created
an opportunity for Fairstar to tap in this segment. Fairstar has been facing some
challenges to close the Gorgon project deal.
Core & Peripheral Issues:
Here the core issue for Fairstar Heavy Transport now is proposing optimum price to
secure the deal.
There are two peripheral issues:
a) Penetrating the onshore & offshore module transport segment by securing the
deal.
b) Creating a gateway to be the market leader in the module transport segment by
realizing the billion dollar opportunities prevailing here.

Case Analysis:
Positioning Map:

Fairstar serves premium customers by state of the art vessels and experienced crew
with premium charges. At first it served in offshore drilling rigs which was low-value and

short term contracts as well as very competitive market segment. It did not realize
expected success in that segment. So Fairstar decided to explore the onshore and
offshore module transportation segment where market growth and market value are
high and customers are willing to pay premium price. Fairstar is in the high price, high
quality segment of positioning map.

4C Analysis:

Company: Fairstar serves premium customers with premium price. It has two open
stern and submersible vessel having shallow draft named Fjord and Fjell.
Customer: In this case, Fairstar customer is KBR, a construction company based in
London; Chevron and KJVG. Customers of this industry value relationship with service
provider. For Gorgon project, customer of Fairstar took a different tender and
communication process than the standard one.
Competitor: Fairstars competitor is Interex Mega, COSCOL etc. Interex and COSCOL,
both of them has two vessels. Both of the companys vessels are non-submersible.
Collaborator: Fairstar has collaboration with Guangzhou Shipyard International (GSI). It
will build two ships for Fairstar which are double in size from Fjord. These two ships
vessels will enable Fairstar to grab 11 contracts worth $1.73 billion in upcoming years.

Alternatives:
Fairstar has two options to choose. These are1. Paying discount for closing the deal.
2. Sticking to Fairstars demanded price of $95,000.
Pros and Cons of alternatives:

Alternative 1:
Pros: Giving discount will increase the chance of securing the deal.
Fairstar will still be able to gain considerable profit margin.

Cons: Choosing this alternative, Fairstar will lose a big amount of money in long
term.
Fairstars premium positioning will be hurt.
It will be problematic for Fairstar to justify to shareholders the reasons behind giving
discount.
Alternative 2:
Pros: Fairstar positions itself as the premium service provider. Not giving discount will
reinforce its positioning.
Philip Adkins and the supervisory board were working for the best interest of the
shareholders. By not giving any discount, they will be able to protect shareholders
interest and maximize their return.

Cons: Closing the deal of Gorgon Project will be in jeopardy if Fairstar doesnt give any
discount on their bid price of $95,000.

Big Idea:
After analyzing the case and evaluating the alternatives, the proposed big idea is:
Sticking to the Fairstar price of $95,000 and justifying that Fairstars service worth the
price.
In our big idea, we are suggesting Fairstar to choose the second alternative and stick to
the bid price of $95,000. In this way, Fairstar will be able to work at the best interest of

the shareholders and retain the premium positioning of the company. But choosing this
alternative may lead to the risk of losing the contract. Now Philip Adkins has to convince
the Gorgon project authority that the Fairstar service is worth the price. In the following
sections, the rationale of our big idea for the shareholders and the project authority will
be given.
Rationale:
From this side of the table (company perspective):
If discount is given, the shareholders will lose money in the long run. For $5,000
discount on the bid price, the shareholders will lose over $1.5 million every year. Even if
the discount is narrowed down to $3,000 on the bid price, the shareholders will still lose
over $1 million every year. So, keeping Fairstar price will best serve their interest.
Fairstar Heavy Transport is positioned as a premium service provider in the heavy
marine transportation industry. After not being quite successful in the offshore drilling
rigs (low-value) segment, Fairstar decided to penetrate the onshore and offshore
module segment. So, this Gorgon Project is crucial for Fairstar to penetrate this
segment. And if Fairstar allows discount, this will hurt their premium positioning of the
company.

From the other side of the table (client perspective):

Fjord has shallow draft, it can conveniently load/unload in any shallow port or
rigs. The characteristics of Gorgon project demands these types of benefits.
(c) Another requirement of Gorgon project is that it needs a vessel which can
accommodate the largest module (45 meters) of this project. Only three vessels
are capable of transporting it. Among three competitors Dockwise left the bid.
And the remaining competitor Interex Mega Lines vessel is non- submersible
which limits its capabilities. This vessel isnt an open stern vessel too. On the
other hand, Fjord satisfies all these requirements for transporting the largest
modules.
The Long Term Vision:
Gorgon project is expected to continue for at least 6 months to 3 years. And, the
contract may be extended for 4 months after 1 year. Considering the size of the project,
Gorgon project may need additional vessels. And, if Fairstar can win the contract, they
will be able to start their construction of the ships in China. So, the proposal of providing
more vessels with the required capability in future will also work as a leverage in closing
the deal. And, this will also help Fairstar to achieve its long term strategic goal of
capturing the offshore and onshore module segment.

At the final meeting, the major competitor of Fairstar is Interex Mega Line. From the
above discussion, it can be seen that compared to Interex Mega Line, Fairstar is more
capable to fulfill the unique requirements of Gorgon project. Moreover, the project
manager showed more trust in Fairstars experience and capability. And, client
relationship is one of the major factors in closing deal in this industry. All these facts and
insights rationalize the big idea of sticking to the Fairstars price.
Challenges and Feasibility:
a) Fairstar is planning to charge premium price and give no discount, so there is a
probability that it will have problems closing the deal at its expected price.

Since Fairstar has got an opportunity to talk through the deal in a face-to-face
meeting, it will be able to present its experiences as well as competitive advantages
and convince the authority with its exceptional expertise on negotiations.
b) One-sided control of the project authority after signing the deal will pose a serious
challenge for Fairstar since they are not used to work under such strict, equity
control.
By leveraging the trust that the project authority put on our capabilities, Fairstar can
foster a mutual understanding and curve the one sided control.

Contingency Plan:
Fairstars contingency plan will be giving discount. Both the parties have no other
disagreement in any other clause except price. As this deal is very important for
Fairstar, Philip Adkins has a huge pressure for closing the deal. And the board members
had also given Adkins the liberty to adjust the price. As per the big idea, Adkins will be
giving enough rationale to establish the Fairstars price. If it doesnt work, then Adkins
will allow a discount within the extent of $5,000 to the project manager to close the deal.
Takeaway:
In this case, the core issue is proposing an optimum price to secure the Gorgon Project
deal. Here, Fairstar has options whether to stick to its original biding price or to give a
discount. Fairstar chose to adhere to its biding price of $95,000. It showed justification
for charging premium price to close the deal by presenting rationale from both the
perspectives of its shareholders and its client. If this plan does not work, the
contingency plan is to go back to the other idea of giving a discount.