Vivid manufactures HDTV screens with patent-protected technology and high customer switching costs, yet faces flat revenues despite increasing volumes. Analysis reveals the sales team is systematically discounting near the 40% ceiling due to volume-based quotas, eroding margins despite favorable supply chain economics. The case demonstrates pricing power exists but is being undermined by misaligned incentives.
Key Insights:
- Flat revenue despite growing volume indicates pricing pressure from misaligned sales incentives (volume-based quotas rather than profit-based)
- Exhibit A shows 40% of sales violate the discount ceiling with a peak at the limit, revealing systematic discounting behavior
- Supply chain analysis (Exhibit B) shows Vivid captures only $28 profit per screen at $228 selling price, while capturing significant upside opportunity exists given high customer willingness-to-pay and switching costs
- Customer interviews confirm high switching costs ($1B plant investment specific to Vivid screens) and quality-based willingness-to-pay, validating pricing power
- Sales team rationale (quota pressure, demand dynamics) conflicts with profitability optimization and represents compensation misalignment