December 5, 2008
Retailers Want Minimum Pricing Restraints Removed
Many retailers would
rather bring in fast nickels than wait on slow dimes. Manufacturers,
particularly those with a premium or higher quality positioning, are content
with retailers selling their products one slow dime at a time. It is that
basic difference in philosophies that is behind the call by the likes of
eBay and Costco for new laws that would prevent suppliers from establishing
a minimum advertised price (MAP) on the goods sold through retailer stores,
websites and catalogs.
Merchants are calling
for legislation because, until now, the advantage has gone to the manufacturers.
The Supreme Court ruled last year that minimum pricing policies were legal
and did not represent a violation of U.S. antitrust statutes.
Even
with current MAPs in place, it is not unusual to see retail sellers violating
the terms of the agreements. NetEnforcers,
MAPtrackers Inc., Cyveillance Inc. and Brand Protection Agency are all
engaged in finding merchants offering goods below the MAP and reporting
them to manufacturers.
Tod
Cohen, vice-president of global government relations at eBay, told The
Wall Street Journal that there is a bit of hypocrisy in the way manufacturers
and representatives such as NetEnforcers go after retailers. According
to Mr. Cohen, "They take down the Web sites only of the unauthorized
resellers that are selling at discounts." Other unauthorized resellers
that sell at or above MAP are free to sell as they please.
Maria
Polidoro, president of AceToolonline, said her company was forced to forfeit
some advertising funds from Black & Decker after posting products below
MAP.
Somewhat
surprisingly, Ms. Polidoro supports the MAP system. "I am for having
MAP; it makes it easier to sell my products at a profit. I just wish that
the competition also followed MAP," she told the Journal.
Discussion Questions:
Are you for or against the minimum advertised price (MAP) system? Why?
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Ben is right here, but these are the consequences of living in a free market. The real issue is how “free” a market should be–a version of caveat emptor for sellers and manufacturers both. In a totally free market, people will manipulate to their advantage. In a partially free market they’ll do exactly the same thing.
I agree with the other comments: Manufacturers should be concerned about building and branding their products, not about the final price at which it’s sold. (Yes, I realize that pricing is part of the brand perception.) If they suggest an appropriate regular price and choose their retail distribution wisely, they should be less concerned about an artificial “floor price” when the product is on sale. The marketplace–and the retailer’s ability to make money–should determine what the final price should be.
I’m not a big fan of MAP. If I’m a merchant with stock that is collecting dust, I want the freedom to mark down as I see fit. It really doesn’t matter what the brand is. If it’s not selling, I want to move it.
I don’t see why manufacturers would be so engaged with MAP. Aren’t we built on competition? As long as the supplier gets paid, I don’t see why the retailer has to be constricted in pricing.
We are not talking about Bentley and Rolex here. Black and Decker is not a brand I associate with exclusivity. If I can find their drill at a cheap price, I’m buying it (probably do the same for Bentley and Rolex). Suppliers need to let merchants do their job and market their products accordingly.
I’m all for it. The manufacturers should be primarily concerned with getting paid and leaving the retailing to others. If they don’t like the way a retailer is selling their products, then just pull the line. It’s that simple.
As for retailers, they need to understand that competing on price alone is a quick way to destroying the market for everyone, including themselves. Premium products should be priced higher. It’s what people expect. Would Porsche be a premium brand if it was the same price as a Ford? Of course not.
In the end, retailers that choose to give their merchandise away with little or no profit won’t be around long enough to be real competition.
The laws and regulations for advertised minimum pricing restraints have a good intent and purpose. However, like so many regulations, they are not enforced in a consistent manner, and therefore the end results are erroneous. Better to let the market determine the prices.
I’m not surprised that a smaller retailer would be all for MAP–it helps them stay price competitive with larger retailers that have different cost structures and business models. And that’s why MAP should not be permitted. Seems like a contradiction to me: if retailers “own” the inventory, and all of the risk associated with holding that inventory, then why can’t they set the price? On the flip side, if manufacturers can set a floor price, then shouldn’t they have to bear all of the inventory risk associated with that? But they don’t, really.
And if a program like that in effect subsidizes business models that wouldn’t be competitive, then it’s bad. I’m not saying that all small businesses should be wiped out–just that there have to be other ways to compete than just price. MAP removes a lot of that pressure–which ultimately results in lower service to the consumer.
We are overlooking one of the principle reasons manufacturers support MAP in the first place. To keep certain retailers “A” from coming back at THEM when certain other retailers “B” sell the manufacturers’ brands at prices retailers “A” perceive to be below their net landed cost. This war goes on all the time in all categories and trade classes. But the most egregious example may be the way drug retailer “W” went after mass merchandiser “W” in the OTC drug category a few years back.
The headaches caused for manufacturers by these situations are multiple. To name a few, retroactive invoice deductions based on “equitable opportunity in the marketplace,” internal squabbles over whether one account team violated trade funds management policy and, perhaps the most damaging, punitive line deletions by the aggrieved retailer(s).
If only retailers were held accountable for their decisions to price at slim or no margin, that would be fine. Unfortunately, it is the manufacturer who bears much of the blowback.
Some MAP pricing prevents one large store from selling and taking over a market, then once the competitors are all gone, doing whatever they want.
I’m for it. Businesses should be able to make any kind of deal they can without regulatory interference. Retailers are not forced to carry their products. If the catch is that they must sell it for a certain price, then so be it.
We have an annual festival locally where several food vendors and high class restaurants sample their fares. Minimum pricing of about $5 per item had to be established because if they didn’t everyone would just buy food from the hot dog vendor and not bother with the others.
It’s still a free market economy. It’s like sneaking McDonald’s hamburgers into the movie theater. Consumers will find a way to beat the system if they want to.
Retailers should be free to set their pricing in order to generate purchases by consumers, and hopefully an overall profit for the retailers. Consumers LOVE to look for bargains, and with the proliferation of coupon and store deal websites, as well as with the growing recession, they are going to look even harder for deals.
Having and enforcing MPRs will limit sales by conforming retailers and probably lose market share for the manufacturers that require retailers to conform to MPRs. We live in a free market economy, and retailers should be able to price their products as they wish.
MAP, as it is being implemented, constitutes restraint of trade. The court ruling which created the current abuse left an enormous amount of room for manufacturers to slide through. In effect, the ruling allowed that under certain circumstances, MAP was not a restraint of trade, and therefore the existence of a MAP was not prima facie evidence of wrong doing. This placed the burden of proof on those contesting a specific MAP…meaning that until a given MAP had been adjudicated, it was not illegal.
Wrong, wrong, wrong and wrong again. Rulings of this kind in America result in one and only one outcome. Abuse. Look it up.
So what will need to happen is that a retailer or consortium of retailers would have to challenge each and every MAP on a one by one basis. The cost is staggering. The result is an uncontrollable application of a pricing structure with the sole impact of restraining trade.
Price agreements are restraint of trade. Choosing to sell to one retailer and not to another because of their pricing of the product is restraint of trade. Can we move past redefining and rearguing points which have been settled for decades?
MAP works for manufacturers (up to a point) and smaller or less efficient retailers. It does not serve consumers. The argument that MAP sustains the ability to innovate and produce new products is simply wrong. All MAP does is maintain a price point. What the retailer and manufacturer do with the margin produced is an entirely different issue. Investment in new product innovation funded by excess profits on MAP supported merchandise? Please. Nice…but wishful thinking. It’s just restraint of trade.
MAP pricing is not new, and these commentaries and complaints about it are also not new. Typically, the surge against MAP comes during downturns like this in the name of consumer protection and to “help.” However, this ignores the very nature of MAP and why it is employed.
While abuse or neglect of the system is there as noted, that is equally true of a whole host of other practices by vendors, reps or retailers none of which invalidates those things. MAP is critical to the sales of premium goods and is a great tool for both the vendors and resellers of these goods.
Without profit incentive to display, train and sell items of new invention or extra quality, it is often hard for these items to compete as generally they are higher in price. Discounting them usually still leaves them higher priced yet without the margin reward to the retailer selling them. Without that the system collapses, as it rewards discounters who with full respect, generally are not building demand for these items but rather harvesting them.
While large marketers can trump this by marketing, literally tens of thousands of items cannot break through in this way. MAP provides a base for profit and supports the value of the item. Sure, it does not always work. Of course, some vendors are wrong headed about it. However, in both these cases just let the vendor lose or the product fail. There are always plenty of alternatives.
It is interesting to note that examples given of how consumers would benefit tie to successful and often well known items that often get their special place due to marketing programs including MAP. Without these mechanisms there may be less innovative product, less retail diversity and more concentration in both vendors and retailers.
At least in my industry, CE this is not OK. Innovation and profit centers are key to keep going. MAP is just a tool, let those who do it wrong pay the price, not the entire industry.
If you believe in any type of free trade and you have the cash to pay for the product, and the manufacturer is willing to sell it to you or you can buy it someplace on the after market, you should have the right to sell it for any price you want to.
Let the market determine what the price will be.
Due to the fact that laws governing retail pricing are not enforced by authorities, manufacturers have moved to Minimum Advertised Price to protect the image of their brands. This presents a basic conflict between free trade and the right of an entity to control its own property.
Brands may be sold by anyone, but the fact of the matter is brands are not owned by the seller. Brands are private property and the owner has the right to manage his property in a manner that is designed to achieve the goals the owner has for the brand. If a brand is strong enough, the owner has the ability to determine who will sell the brand, how it is to be advertised on a local basis (including price). Should a seller not be willing to abide by these contracted rules, then the owner has the right to not provide inventory to a seller and can sue for any damages the seller may have caused.
If the government enforced the Robinson Patman act and/or the Sherman Antitrust Act in the manner intended then this question would be unnecessary. The real problem here has more to do with a government that decides which laws to enforce instead of enforcing the laws that exist.
MAP pricing is collusionary, outdated and artificially maintains high prices in a free market economy. MAP pricing laws stifle competition by not allowing a more aggressive business, that is more efficient to thrive. Instead, it rewards businesses that are less efficient, less competitive and poorly run to compete in the same retail environment at the expense of the consumer (and often innovation).
MAP pricing does not stimulate innovation at retail, nor does it reward companies who have a more efficient business model. It is the consumer who always suffers when MAP prices are enforced, and the retailer sooner or later will also feel this impact. We are in a free market economy. This means that pricing restraints, artificially imposed by manufacturers, impede the flow of dollars in this economy.
MAPS can be a real benefit to smaller manufacturers because it allows them to place and keep their products in larger retail chains. Not all of us on the manufacturing side are producing the hottest items that fly off the shelves. Often they are second tier, peripheral, add-on-type products, or more risky cutting-edge products. Retailers like these products because they round out their assortments, but if those retailers believe that the manufacturer is going to let the online community totally out-price them, they will think twice about bringing them in or keeping them there.
When folks say “let the market decide, etc…” that’s extremely simple and ideological. If it were that simple, we would totally push out all of the smaller companies because they couldn’t afford to compete, and that’s where so much of the great innovation comes from.
MAPs should remain and if the manufacturers MAP their products too high then they should pay the price. But without them, it would change the landscape in a negative way.
While MAP may not be appropriate for all products, it certainly has an important place in the retail landscape. In up market, high ticket, lower volume products that are clearly branded and recognized by the consumer an MAP policy is essential.
As a retailer of high end products, our investment is incredibly capital intensive. We invest in fit out, inventory, advertising and a highly-trained staff. We have to be very careful about which vendors we choose to do business with.
Beyond the basic retail questions, the vendors choices of distribution become paramount. Having an MAP and being selective on distribution are important factors in our decision to do business with a vendor.
Minimum pricing helps retailers make their margins. Better margins sometimes lead to better service. Lower margins don’t. For chain stores that sell their own brands, MAP doesn’t matter. For stores with famous brands or niche brands, MAP protects profits. Discounters can usually find non-MAP competitive merchandise anyway. Concerned that MAP hurts the public? Maybe MAP products should be charged double sales tax and the money should go to college economics scholarships.
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Ben is right here, but these are the consequences of living in a free market. The real issue is how “free” a market should be–a version of caveat emptor for sellers and manufacturers both. In a totally free market, people will manipulate to their advantage. In a partially free market they’ll do exactly the same thing.
I agree with the other comments: Manufacturers should be concerned about building and branding their products, not about the final price at which it’s sold. (Yes, I realize that pricing is part of the brand perception.) If they suggest an appropriate regular price and choose their retail distribution wisely, they should be less concerned about an artificial “floor price” when the product is on sale. The marketplace–and the retailer’s ability to make money–should determine what the final price should be.
I’m not a big fan of MAP. If I’m a merchant with stock that is collecting dust, I want the freedom to mark down as I see fit. It really doesn’t matter what the brand is. If it’s not selling, I want to move it.
I don’t see why manufacturers would be so engaged with MAP. Aren’t we built on competition? As long as the supplier gets paid, I don’t see why the retailer has to be constricted in pricing.
We are not talking about Bentley and Rolex here. Black and Decker is not a brand I associate with exclusivity. If I can find their drill at a cheap price, I’m buying it (probably do the same for Bentley and Rolex). Suppliers need to let merchants do their job and market their products accordingly.
I’m all for it. The manufacturers should be primarily concerned with getting paid and leaving the retailing to others. If they don’t like the way a retailer is selling their products, then just pull the line. It’s that simple.
As for retailers, they need to understand that competing on price alone is a quick way to destroying the market for everyone, including themselves. Premium products should be priced higher. It’s what people expect. Would Porsche be a premium brand if it was the same price as a Ford? Of course not.
In the end, retailers that choose to give their merchandise away with little or no profit won’t be around long enough to be real competition.
The laws and regulations for advertised minimum pricing restraints have a good intent and purpose. However, like so many regulations, they are not enforced in a consistent manner, and therefore the end results are erroneous. Better to let the market determine the prices.
I’m not surprised that a smaller retailer would be all for MAP–it helps them stay price competitive with larger retailers that have different cost structures and business models. And that’s why MAP should not be permitted. Seems like a contradiction to me: if retailers “own” the inventory, and all of the risk associated with holding that inventory, then why can’t they set the price? On the flip side, if manufacturers can set a floor price, then shouldn’t they have to bear all of the inventory risk associated with that? But they don’t, really.
And if a program like that in effect subsidizes business models that wouldn’t be competitive, then it’s bad. I’m not saying that all small businesses should be wiped out–just that there have to be other ways to compete than just price. MAP removes a lot of that pressure–which ultimately results in lower service to the consumer.
We are overlooking one of the principle reasons manufacturers support MAP in the first place. To keep certain retailers “A” from coming back at THEM when certain other retailers “B” sell the manufacturers’ brands at prices retailers “A” perceive to be below their net landed cost. This war goes on all the time in all categories and trade classes. But the most egregious example may be the way drug retailer “W” went after mass merchandiser “W” in the OTC drug category a few years back.
The headaches caused for manufacturers by these situations are multiple. To name a few, retroactive invoice deductions based on “equitable opportunity in the marketplace,” internal squabbles over whether one account team violated trade funds management policy and, perhaps the most damaging, punitive line deletions by the aggrieved retailer(s).
If only retailers were held accountable for their decisions to price at slim or no margin, that would be fine. Unfortunately, it is the manufacturer who bears much of the blowback.
Some MAP pricing prevents one large store from selling and taking over a market, then once the competitors are all gone, doing whatever they want.
I’m for it. Businesses should be able to make any kind of deal they can without regulatory interference. Retailers are not forced to carry their products. If the catch is that they must sell it for a certain price, then so be it.
We have an annual festival locally where several food vendors and high class restaurants sample their fares. Minimum pricing of about $5 per item had to be established because if they didn’t everyone would just buy food from the hot dog vendor and not bother with the others.
It’s still a free market economy. It’s like sneaking McDonald’s hamburgers into the movie theater. Consumers will find a way to beat the system if they want to.
Retailers should be free to set their pricing in order to generate purchases by consumers, and hopefully an overall profit for the retailers. Consumers LOVE to look for bargains, and with the proliferation of coupon and store deal websites, as well as with the growing recession, they are going to look even harder for deals.
Having and enforcing MPRs will limit sales by conforming retailers and probably lose market share for the manufacturers that require retailers to conform to MPRs. We live in a free market economy, and retailers should be able to price their products as they wish.
MAP, as it is being implemented, constitutes restraint of trade. The court ruling which created the current abuse left an enormous amount of room for manufacturers to slide through. In effect, the ruling allowed that under certain circumstances, MAP was not a restraint of trade, and therefore the existence of a MAP was not prima facie evidence of wrong doing. This placed the burden of proof on those contesting a specific MAP…meaning that until a given MAP had been adjudicated, it was not illegal.
Wrong, wrong, wrong and wrong again. Rulings of this kind in America result in one and only one outcome. Abuse. Look it up.
So what will need to happen is that a retailer or consortium of retailers would have to challenge each and every MAP on a one by one basis. The cost is staggering. The result is an uncontrollable application of a pricing structure with the sole impact of restraining trade.
Price agreements are restraint of trade. Choosing to sell to one retailer and not to another because of their pricing of the product is restraint of trade. Can we move past redefining and rearguing points which have been settled for decades?
MAP works for manufacturers (up to a point) and smaller or less efficient retailers. It does not serve consumers. The argument that MAP sustains the ability to innovate and produce new products is simply wrong. All MAP does is maintain a price point. What the retailer and manufacturer do with the margin produced is an entirely different issue. Investment in new product innovation funded by excess profits on MAP supported merchandise? Please. Nice…but wishful thinking. It’s just restraint of trade.
MAP pricing is not new, and these commentaries and complaints about it are also not new. Typically, the surge against MAP comes during downturns like this in the name of consumer protection and to “help.” However, this ignores the very nature of MAP and why it is employed.
While abuse or neglect of the system is there as noted, that is equally true of a whole host of other practices by vendors, reps or retailers none of which invalidates those things. MAP is critical to the sales of premium goods and is a great tool for both the vendors and resellers of these goods.
Without profit incentive to display, train and sell items of new invention or extra quality, it is often hard for these items to compete as generally they are higher in price. Discounting them usually still leaves them higher priced yet without the margin reward to the retailer selling them. Without that the system collapses, as it rewards discounters who with full respect, generally are not building demand for these items but rather harvesting them.
While large marketers can trump this by marketing, literally tens of thousands of items cannot break through in this way. MAP provides a base for profit and supports the value of the item. Sure, it does not always work. Of course, some vendors are wrong headed about it. However, in both these cases just let the vendor lose or the product fail. There are always plenty of alternatives.
It is interesting to note that examples given of how consumers would benefit tie to successful and often well known items that often get their special place due to marketing programs including MAP. Without these mechanisms there may be less innovative product, less retail diversity and more concentration in both vendors and retailers.
At least in my industry, CE this is not OK. Innovation and profit centers are key to keep going. MAP is just a tool, let those who do it wrong pay the price, not the entire industry.
If you believe in any type of free trade and you have the cash to pay for the product, and the manufacturer is willing to sell it to you or you can buy it someplace on the after market, you should have the right to sell it for any price you want to.
Let the market determine what the price will be.
Due to the fact that laws governing retail pricing are not enforced by authorities, manufacturers have moved to Minimum Advertised Price to protect the image of their brands. This presents a basic conflict between free trade and the right of an entity to control its own property.
Brands may be sold by anyone, but the fact of the matter is brands are not owned by the seller. Brands are private property and the owner has the right to manage his property in a manner that is designed to achieve the goals the owner has for the brand. If a brand is strong enough, the owner has the ability to determine who will sell the brand, how it is to be advertised on a local basis (including price). Should a seller not be willing to abide by these contracted rules, then the owner has the right to not provide inventory to a seller and can sue for any damages the seller may have caused.
If the government enforced the Robinson Patman act and/or the Sherman Antitrust Act in the manner intended then this question would be unnecessary. The real problem here has more to do with a government that decides which laws to enforce instead of enforcing the laws that exist.
MAP pricing is collusionary, outdated and artificially maintains high prices in a free market economy. MAP pricing laws stifle competition by not allowing a more aggressive business, that is more efficient to thrive. Instead, it rewards businesses that are less efficient, less competitive and poorly run to compete in the same retail environment at the expense of the consumer (and often innovation).
MAP pricing does not stimulate innovation at retail, nor does it reward companies who have a more efficient business model. It is the consumer who always suffers when MAP prices are enforced, and the retailer sooner or later will also feel this impact. We are in a free market economy. This means that pricing restraints, artificially imposed by manufacturers, impede the flow of dollars in this economy.
MAPS can be a real benefit to smaller manufacturers because it allows them to place and keep their products in larger retail chains. Not all of us on the manufacturing side are producing the hottest items that fly off the shelves. Often they are second tier, peripheral, add-on-type products, or more risky cutting-edge products. Retailers like these products because they round out their assortments, but if those retailers believe that the manufacturer is going to let the online community totally out-price them, they will think twice about bringing them in or keeping them there.
When folks say “let the market decide, etc…” that’s extremely simple and ideological. If it were that simple, we would totally push out all of the smaller companies because they couldn’t afford to compete, and that’s where so much of the great innovation comes from.
MAPs should remain and if the manufacturers MAP their products too high then they should pay the price. But without them, it would change the landscape in a negative way.
While MAP may not be appropriate for all products, it certainly has an important place in the retail landscape. In up market, high ticket, lower volume products that are clearly branded and recognized by the consumer an MAP policy is essential.
As a retailer of high end products, our investment is incredibly capital intensive. We invest in fit out, inventory, advertising and a highly-trained staff. We have to be very careful about which vendors we choose to do business with.
Beyond the basic retail questions, the vendors choices of distribution become paramount. Having an MAP and being selective on distribution are important factors in our decision to do business with a vendor.
Minimum pricing helps retailers make their margins. Better margins sometimes lead to better service. Lower margins don’t. For chain stores that sell their own brands, MAP doesn’t matter. For stores with famous brands or niche brands, MAP protects profits. Discounters can usually find non-MAP competitive merchandise anyway. Concerned that MAP hurts the public? Maybe MAP products should be charged double sales tax and the money should go to college economics scholarships.