MAP Pricing ... the death of capitalism

[Swerd]

You (or others) might see MAP as corporate socialism. but it allows people to compete when they're 'the little guy…

It's extremely frustrating to be told that I have to buy something I don't want or an amount that would kill my ability to do business if I don't want to finance the equipment…

I understand how it looks from the POV of a consumer…

I never mentioned socialism. Laws regulating business practices and free trade have to strike an appropriate balance among manufacturers, importers, distributors, retailers, and customers. All of them, not just some. That's a job for honestly elected politicians. What we have now is a system where whoever swings the biggest club wins. I'm not surprised that independent retailers are unhappy with it.

 

[highfigh]

So I get how it allows small business to compete as like you I benefit from MAP pricing. I think it does hurt consumers because we have to wait either way. If retailers are stocking these products that would change things but for the most part you have to wait for them to order it and you could have gotten it from the internet just as fast. If you offer the convenience of having the product on hand often people like myself will buy it even if it is more expensive. Right now though we are as audio enthusiast basically paying a premium so the few boutiques out there can offer us listening spaces. That’s how it seems at least to me.

There's not much chance that a B&M dealer will be able to offer the same prices because the overhead must be added. They also can't buy in the same volume as a huge company and cost sheets usually have some end lot pricing that small dealers will never see unless they have worked as a rep, have a friend who's a rep or they got the rep drunk enough to open the books.

Before the internet, large dealers would sometimes go into a nearby city, have an event and undercut the local dealers. That made the consumers happy until they found out that the sale prices weren't as good as they though and when something broke, it had to go back to the original seller or the manufacturer. The outsider had created a feeding frenzy and that was great for everyone else, too.

The thing that got Amazon on the map was making sales on behalf of someone else, holding the money for a few days and earning interest. They didn't need to deal with price violations or anything else- they were just the middle man.

 

[highfigh]

I never mentioned socialism. Laws regulating business practices and free trade have to strike an appropriate balance among manufacturers, importers, distributors, retailers, and customers. All of them, not just some. That's a job for honestly elected politicians. What we have now is a system where whoever swings the biggest club wins. I'm not surprised that independent retailers are unhappy with it.

Sorry, I actually meant 'corporate welfare', as in, giving the ones who can't compete on the same field some help.

It's an unfortunate name, but it's kind of the same effect with the difference that the little guys are trying hard to succeed in a highly competitive business.

As mentioned before, the sale can be made at a lower price than MAP as long as it's not advertised. That's the only way a small dealer can match some prices, but at that point, it may not be worth making the sale. I sell very few TVs because I won't make much, if anything and if I do sell one at cost and have to go out for a service call, I won't expect the customer to be eager to pay for my time when Best Buy will do the same without charge if they sell the TV- that means I lost money. Some items can be bought for less than distributor cost. I do, however, mount and set up TVs that were bought elsewhere but my business is all from repeats and referrals.

 

[R.Elder]

OK, but what if there's an option to the piece you want? I know there are a couple of options to Tormek and if someone just can't afford one, the option has to be explored. If you use hand planes and want a new one, you have Lie-Nielsen, Stanley (now imported from Asia),Wood River, Veritas, Record(now imported from Asia) and a couple of others or you can go with vintage and do the cleaning & setup. Are there sharpening methods that don't require a motorized device


There's not much chance that a B&M dealer will be able to offer the same prices because the overhead must be added. They also can't buy in the same volume as a huge company and cost sheets usually have some end lot pricing that small dealers will never see unless they have worked as a rep, have a friend who's a rep or they got the rep drunk enough to open the books.

Before the internet, large dealers would sometimes go into a nearby city, have an event and undercut the local dealers. That made the consumers happy until they found out that the sale prices weren't as good as they though and when something broke, it had to go back to the original seller or the manufacturer. The outsider had created a feeding frenzy and that was great for everyone else, too.

The thing that got Amazon on the map was making sales on behalf of someone else, holding the money for a few days and earning interest. They didn't need to deal with price violations or anything else- they were just the middle man.

B&M is dying for a reason. Internet sales offer the opportunity to deal in large volume, cut overhead and increase market size and share. All of this equals better deals / prices for consumers. MAP pricing basically counters this by allowing small boutiques to compete but the only benefit for consumers is they have access to these shops. If you buy something you’ll have to wait for them to receive it from their distributors most of the time. Chewy is shaking up the pet industry in which I reside. They won’t kill brick and mortar stores but it’s going to set them back like catalogues did in the 90s.

 

[highfigh]

I have seen plenty of variations on this. Tormek sharpening systems also involve MAP and I have seen where if you buy a Tormek system at full MSRP (of course) a distributor will give you a $150 item. IOW, bundling with a non-MAP item is a thing. I think it is a good strategy if you have a "giveaway" item that is pretty well sought after. Gift cards are a bit too obvious as a monetary discount.
Generally, I'd expect them to send you a caution/reminder about the terms of the contract, then if you did it again, they would pull their product. However, I know different companies have differing attitudes about how aggressively they want to enforce their policy.

OK, but what if there's an option to the piece you want? I know there are a couple of options to Tormek and if someone just can't afford one, the option has to be explored. If you use hand planes and want a new one, you have Lie-Nielsen, Stanley (now imported from Asia),Wood River, Veritas, Record (now imported from Asia) and a couple of others or you can go with vintage and do the cleaning & setup. Are there sharpening methods that don't require a motorized device? Yup. Are they as fast? Nope.

 

[R.Elder]

[QUOTE="
As mentioned before, the sale can be made at a lower price than MAP as long as it's not advertised. That's the only way a small dealer can match some prices, but at that point, it may not be worth making the sale. [/QUOTE]

I backed up that wasn’t the case with a link to a manufacturer explaining their unilateral minimum price policy. MAP started that way but it’s evolved.

 

[KEW]

Manufacturers limit the demo units, usually to one per year- it'snot possible to sell more demo units than NIB.

How would the manufacturer know? Maybe our confusion is the term "demo". It sounds like maybe companies might provide a free or heavily discounted (from your normal wholesale price) demo unit. But either way, if you are willing to sell an item at a discount, and believe it is beneficial to your business to do so, is there a way the manufacturer would know if you were passing off new inventory as new or cycling through demo unit (taken from new stock). This seems like it would have an appeal as you could discuss the MAP price and if a buyer seems to be stuck on pricing, you could offer the demo unit (which may have only been on the shelf for a week after you sold the last one. IOW, it gives you a graceful way to give a discount to the people who need it and charge MSRP to the people who aren't so concerned about the price.*
Alternately, you could say you have an open box return from a customer who decided to return the item before he even hooked it up. Offer it at a discount - if he wants it, grab a box cutter, quickly cut the tape, and bring the open box out. Does MAP have a way to track returns, etc?

* Everyone wants the best deal they can get, but I know when I was growing up many of the smaller shops would vary prices according to the buyers means. I have seen shop owners even take a loss to help a man who was down on his luck. But I am talking small towns where people know a little of each other's story! I would be inclined to say this isn't really fair, but it is the right thing to do! It is disappointing to see how far things have strayed from that sense of community. For that small town, it is still there. The problem is their economics have generally gone downhill, so generosity is harder to give!

 

[R.Elder]

Thanks guys for bringing this topic back on point. I think it’s an interesting dilemma as MAP obviously has pros and cons.

 

[Trell]

In EU there is also the related issue of price discrimination based upon which member state you live in that EU for some time have tried to abolish. There certainly are improvements, but not on some areas like media where Netflix is obliged to offer different content to different countries.

Price discrimination is not allowed in EU

 

[jliedeka]

You see MAP pricing a lot in music gear. Fender has MAP policies. In the old days you had MSRP which was roughly double the wholesale price and you could easily get 25% off that. MAP is lower than the old MSRP an I usually ask for a deal and get 10% off that. A lot of dealers get around MAP by selling things as "open box." MAP only applies to items sold as new so "open box" is technically not new. Or they just list the items as used.

Jim

 

[jliedeka]

Also, in the case of music gear, I think it benefits smaller retailers. I'd rather email my Sweetwater rep and get a deal right away than go to Guitar Center and deal with the red tape to get a lower price. I also buy a lot of stuff from Mom 'n' Pop stores, again, easier to get a deal.

 

[highfigh]

How would the manufacturer know? Maybe our confusion is the term "demo". It sounds like maybe companies might provide a free or heavily discounted (from your normal wholesale price) demo unit. But either way, if you are willing to sell an item at a discount, and believe it is beneficial to your business to do so, is there a way the manufacturer would know if you were passing off new inventory as new or cycling through demo unit (taken from new stock). This seems like it would have an appeal as you could discuss the MAP price and if a buyer seems to be stuck on pricing, you could offer the demo unit (which may have only been on the shelf for a week after you sold the last one. IOW, it gives you a graceful way to give a discount to the people who need it and charge MSRP to the people who aren't so concerned about the price.*
Alternately, you could say you have an open box return from a customer who decided to return the item before he even hooked it up. Offer it at a discount - if he wants it, grab a box cutter, quickly cut the tape, and bring the open box out. Does MAP have a way to track returns, etc?

* Everyone wants the best deal they can get, but I know when I was growing up many of the smaller shops would vary prices according to the buyers means. I have seen shop owners even take a loss to help a man who was down on his luck. But I am talking small towns where people know a little of each other's story! I would be inclined to say this isn't really fair, but it is the right thing to do! It is disappointing to see how far things have strayed from that sense of community. For that small town, it is still there. The problem is their economics have generally gone downhill, so generosity is harder to give!

Demo pricing usually comes from filling out a form and buying direct, even if the reseller normally buys from distributors. Since they allow one piece per person per year, tit's pretty easy to know if someone is trying to scam the manufacturer.

Open a box, call it a demo and give a discount? How many times should someone do that before they realize they're not making money? Selling at cost doesn't equal breaking even, it means money was lost because placing orders and using the phone or internet cost money, as does keeping the lights on and having people working at the store, even if it's just the owner. If anyone does this and doesn't pay themselves, they must really, really love it.

I have posted about an AV business that I considered buying- it would have cost over $145K/year to operate without buying or selling anything- those were fixed costs and payroll. Well, except for the little detail that it wouldn't include ANY pay for me. If the average profit margin is 20% (margin points, not % above cost), it would have to generate $725K/year in sales just to cover that amount and if I wanted to make $50K, it balloons to $975K, assuming the admin doesn't cost anything to employ me. But, it does cost, because the company has to match everyone's FICA, so add $3825 to the $975K.

Rent, was cheap utilities aren't, there was only one full-time employee and he wasn't covering the cost to keep him, but he did repairs, so it was a good way to make money when sales were down, if the owner hadn't decided to stop advertising four years before he started the 'Going Out Of Business' sale. If he had continued the ads, I would have considered it more strongly, but the price would have been significantly higher, so.....

This business is feast or famine- anyone who knowingly turns down profit is a fool. I can see giving a deal, but once that becomes public knowledge, it's time to kiss the regular price goodbye. Also, it's illegal, in Wisconsin, to discount from an advertised price. Do it for one, do it for all.

As far as opening a box and taping it shut, it's also illegal to sell used or demo as new. Boxes are opened by mistake, but if someone wants to be a royal PITA about it, they will.

 

[highfigh]

Also, in the case of music gear, I think it benefits smaller retailers. I'd rather email my Sweetwater rep and get a deal right away than go to Guitar Center and deal with the red tape to get a lower price. I also buy a lot of stuff from Mom 'n' Pop stores, again, easier to get a deal.

You have to deal with red tape at GC? All I ever get is idiots who say "DUDE!" a lot.

 

[highfigh]

You see MAP pricing a lot in music gear. Fender has MAP policies. In the old days you had MSRP which was roughly double the wholesale price and you could easily get 25% off that. MAP is lower than the old MSRP an I usually ask for a deal and get 10% off that. A lot of dealers get around MAP by selling things as "open box." MAP only applies to items sold as new so "open box" is technically not new. Or they just list the items as used.

Jim

Full price was only double the cost for some brands and traditionally, Fender wasn't one of them. That's the reason the music store where I worked didn't carry Fender and other brands. While nobody sells at full blast, knocking 25% off of a 40 point line costs more than doing it with a 50 point line.

 

[Phase 2]

There's not much chance that a B&M dealer will be able to offer the same prices because the overhead must be added. They also can't buy in the same volume as a huge company and cost sheets usually have some end lot pricing that small dealers will never see unless they have worked as a rep, have a friend who's a rep or they got the rep drunk enough to open the books.

Before the internet, large dealers would sometimes go into a nearby city, have an event and undercut the local dealers. That made the consumers happy until they found out that the sale prices weren't as good as they though and when something broke, it had to go back to the original seller or the manufacturer. The outsider had created a feeding frenzy and that was great for everyone else, too.

The thing that got Amazon on the map was making sales on behalf of someone else, holding the money for a few days and earning interest. They didn't need to deal with price violations or anything else- they were just the middle man.

Nice, Banks do the same thing, they make all their money off of other people's money. Capitalism is alive and well.

 

[highfigh]

Nice, Banks do the same thing, they make all their money off of other people's money. Capitalism is alive and well.

The end lot pricing is for incentive- if someone has great credit and/or a bunch of cash and they think they can sell a buttload of something in a short time, they may even be able to have the goods shipped to them, to be sold on consignment. I haven't heard of this happening since the Pioneer Truckload Sales, but they did it and it was one of the ways our store was able to gain a lot of new customers, increase our working capital and it really helped the store. My first weekend was during one of these sales and it was a real case of trial by fire- I learned a lot, incredibly quickly.

 

[KEW]

Open a box, call it a demo and give a discount? How many times should someone do that before they realize they're not making money?

I'm not addressing the wisdom of doing it, just the feasibility!
If a seller thinks he is losing business because of having to sell at MSRP, it may be beneficial. For example if a customer is ready to buy a complete system with multiple speakers and subwoofers, and the last item is the AVR with MAP constraints, and he realizes the AVR is going to exceed his fixed budget (good example is a student with a tax refund check) it may be worth pulling the "open box" trick to close the deal.
But I am pretty sure I can give you a better example:
https://www.ebay.com/itm/Denon-AVR-X4400H-Black-9-2-Channel-Network-A-V-Receiver-OPEN-BOX-PERFECT/312218588465?hash=item48b1ad9531:g:TbUAAOSwFvZbojWQ&frcectupt=true

So these guys are selling "open box" X4400H's at $800 each. That is no super deal since it is last years model, but I recall $900 as the going price for these NIB after the 4500 came out.
However, if you look above the "Buy It Now" button they show 8 available and 319 sold. How does someone end up with 327 open box AVR's? I could be wrong, but it seems likely these guys are going for high volume sales to cover the losses in profit. You have a better idea of how the numbers might work, but at 320+ units sold I bet they are making money.
Obviously, Sound_Distributors is not a brick and mortar operation and I appreciate that a B&M operation is not likely to see the volumes to readily justify doing this. However, I believe one of the original poster's messages involved his asking someone up the chain about offering the items at a discount as if he had occasion to want to do that!

 

[lovinthehd]

Isn't price fixing rather an ultimate goal of capitalism?

 

[R.Elder]

It seems like a number of people could do with some Hayek and Friedman. Why would you think that capitalism is about price fixing? The invisible hand is the opposite of price fixing.

 

[lovinthehd]

It seems like a number of people could do with some Hayek and Friedman. Why would you think that capitalism is about price fixing? The invisible hand is the opposite of price fixing.

Ultimate goal is to dominate, no? Monopolize and screw the hell out of anyone you can! True capitalism to my mind.