Great News for Specialty A/V: Supreme Court OKs Minimum Prices

Poorly written article from a pro-business point of view.

John, I’m not sure what you’re saying—that the blog is too pro-business or not enough? Thanks.

This is actually terrible news for all companies as it will not encourage them to do the very thing that they so desperately need to do to ensure their future survival- that is learn to make profits by cutting costs and expanding market share.  What happens if they don’t- well there is a very sizable country that goes by the name of China that will gladly sell to the customer for a tiny markup.  What makes this all the more ominous for especially technology companies is that in the past as China has developed, it has concentrated mostly on expendable, mass produced consumer goods.  Now however, with its extremely favorable domestic investment opportunities, China is developing and cloning high tech specific products- ie. products like flat panels whose price margins these A/V retailers are hoping to protect.  Unfortunately in the end it will put technology companies whom don’t develop better supply chain, developement and market distribution practices at a tremendous disadvantage.

Sadly for the US Supreme Court, today’s Global Economy does not really care much what they have to say.  As long as there are the China’s (and in the not too distant future- India’s of the world), that along with the incredible retail ability of Wal-Mart (and products that at this point SHOULD NOT be price fixed) all the Supreme Court is doing is perhaps unknowingly accelerating the US’s uncompetitive economic demise even faster.

I disagree with your assessment. I think the ruling is pro-business.

It simply gives manufacturers one more tool in their marketing arsenal. If brand maintenance is important to them, they may want to ensure that their products aren’t sold next to the no-names in the “low low prices” bin.

All the money and effort spent on maintaining a brand’s image goes out the window as soon as resellers start slashing prices.

If resellers don’t like price restrictions established by a certain vendor, they are free to go elsewhere. And if consumers aren’t buying the products because of price, then the manufacturer will change its policies.

There will continue to be plenty of manufacturers who choose to compete on price, which is yet another strategy.

As long as antitrust violations do not occur – The Court established restrictions on price-setting – then it’s just one more freedom granted to businesses, including the vendors and the resellers.

I think this is a stupid decision.  If in a capitalistic society the market should decide, then the market should decide.

If manufacturers, of which I am one, are concerned about the price their product is sold they should sell directly.  If they want to keep the retail price artificially high they should charge a high OEM price to resellers.  Resellers, retailers, and integrators are smart people.  If they want to sell product at a loss they have the right to bundle or the right to lose their business

Here’s the issue: the ruling recognizes that “price” is simply one factor, among others, in the representation of a product.
A retailer agrees to represent a manufacturer’s product with integrity. That means the manufacturer can stop shipments if they feel the product is disparaged in any way. Selling below the manufacturer’s stated price is a form of disparagement.
Prior to the ruling, I could shut off a dealer if I didn’t like the way he talked about my product to his clients, but I couldn’t shut him off if he sold our $1,000 speakers for $500. Both, in my opinion, are a form of disparagement.
Plus, the ruling only applies in cases where the manufacturer and retailer have agreed a priori to a set of selling conditions— including price. Kay’s Kloset agreed to abide by the minimum pricing, but broke its promise.
This ruling is long overdue, and is not a windfall to anyone.
Kay’s Kloset, in the ruling, was not able to successfully sell the products at suggested retail. This speaks to their business practices in general—if they can only succeed by undercutting the competition (competition who obeyed the pricing guidelines) then they aren’t a successful business.
Does the customer suffer? No, because the manufacturer set a price for their products in order to be successful. Customers all over the country are paying that price willingly. You can’t argue that anyone who bought the product at suggested retail “suffered.” They could always buy a competitive product.
And the manufacturer doesn’t gain, either. They won’t sell significantly more units because retailers abide by the pricing guidelines. They just retain some control over their brand.

I applaud the decision. This is something that has been needed. As companies spend lots of time, effort and energy (read: money) in marketing, training, setting up infrastructure, to promote good products, to maintain quality service, etc, it is hard when someone “down the street” or over the internet is able to “slash” the prices on a particular product. It is impossible for business to maintain all the things that matter in business when there is no margin left in the product. In the end, it is the customer who suffers-because when things break, need service or customers need a “person” they can talk to, there will be no quality companies left-has anyone tried to ask the person at the local big box or warehouse store for “actual knowledge” or answers?
Those who say the market should determine that price-well, the market doesnt know what its missing until its too late and by that time, the quality company is gone because they were derided as being too expense and the cheap company is derided for bad service….

John,

MAP=Manufacturer Advertise Pricing
 

The manufacturer sets the MAP for the resellers. (You know, mainly for the newby resellers who whore out products to gain market share against their established competitors.) Fortunately for us, this (situation) is actually an economic paradox.  The more margin a value added reseller can make spurs growth for a product in an established market. Thus, there is more incentive for a reseller to carry and sell the product.  MAP actually makes it more economically viable for the VAR’s to be and get involved with a MAP protected product.  Wholesalers and installing dealers should be happy.  The price is the price.  (A good corollary example is carmax…You know, the fastest growing used car reseller in the U.S.)

Furthermore, the WTO and other trade policies that have been enacted in recent history are non applicable in this case. 

Swing and a miss on that one, John.

As an internet retailer/wholesaler, I have been in business since 1999. Initially I, too, ran my business out of my home. Then and now, I need a profitable business so I can pay my personal bills and corporate bills, i.e. make a living. And I need to be able to pay my employees well and give them more and more benefits as the years pass. We all want to retire someday and not be burdens to society or our children.

My company stocks 65% of products on site with a warehouse, well paid employees, advertising overhead, etc, I applaud this decision for MAP.

We are a real company just like the stores with store fronts. We have live knowledgeable customer service every weekday. We often discourage sales of products as we know they will not meet our customer’s needs. This does not come free, however. It is disturbing to see a product sold as a loss leader on another website (or heaven forbid the manufacturer’s) and be chastised by a prospective customer that we are raping our customers by charging a fair price for the product and shipping.

I, too, agree that cutting prices to the bone devalues the product. Buying a product via auction on E-Bay is a risk as I learned when I bought an electric shaver, new, Norelco, 2 year guarantee that came without a shaving head or a cord. (The absence of the head was way down the page where no one would see it). The seller’s answer to me was that I could resell it to another sucker. The products I sell are new and have all their parts. IF there is a problem with a defective product or missing parts, we replace the product or pay for return shipping and give a 100% refund.

Free shipping is another issue altogether. With our costs skyrocketing and our margins getting slimmer, free shipping is not a wise economic decision for us. One product’s shipping cost on a Friday was 9.40 priority mail and the next Tuesday would have cost us $24 plus after the rates changed.

Our goals are to provide excellent products with fast shipping, great customer service, happy customers and happy employees who are well-paid for their efforts. We applaud every company that establishes MAP’s and we have encouraged many companies to do just that.

Just one more comment. I was looking for a formaldehyde meter for a customer and learned from a potential master distributor that industrial margins now can be as low as 6% since list prices are now published for the world to see. I cannot afford to sell a product with that margin and I question who can.

This is great news for the entire electronics industry whether you are a big box retailer, specialty audio/video retailer, or strictly custom installer.

A minimum selling price will do good for all.  Just look at what big box retailers have done to themselves - it’s sickening.  For as long as I can remember, the electronics price war has never worked.  Today, Tweeter is going through chapter 11, Circuit City is going through massive layoffs and both are searching for a business model that works.  It seems Best Buy is the only one that is capable of making a profit, as small as that profit may be selling products on low margins.  Internet discount sites make it even worse.  They sell some of the more respected brands in the industry at ridiculously low margins.  I don’t even know how many of these sites even obtain those brands.  As a custom installer without a retail front, I face many difficulties signing on with new vendors or going direct with them.  I have to convince vendors that just because some guy the town next over from where I live has a small specialty AV store, doesn’t mean I shouldn’t be able to carry your product - my jobs take me throughout the state.

The specialty AV retailer and custom installer should praise this decision.  It supports the model that many of us employ in our businesses.  Provide the customer with a solid system that meets their needs, choose your brands wisely, and most important of all provide the customer with an exceptional level of service.

Too bad, so sad, consumers.

I never knew the contempt that some businesses (and business publications) had for their customers.  Jarring, and sad.

And Ira, you could always terminate dealers for violating your MSRP policy.  What you couldn’t do was reach an agreement that they’d do so.

Hi, Chris—yes, that was an unfortunate, misleading choice of words. I didn’t mean it as if *I* were telling the consumers “too bad,” but that the ruling was doing so.

Chris, are you in business? My impression is not that Ira was being contemptuous. I know what it is like to pay $42 plus inbound shipping plus overhead for a month and find out that a competitor is selling that product for 49.95 and free shipping. The manufacturer tells me, too bad, that competitor pays the same as you do. Or too bad, you cannot afford to buy the products by the container load like he can. Or too bad, I am giving you a great price, I could be charging you $80 like I do other wholesale customers.

We offer real knowledgeable customer service people. We pay our bills on time. And if we don’t want all the call centers to go to India and all the on-line merchants, too, we need to have fair pricing. We value our customers. We also have to make a living to be there ten years out for our customers and their children.

I hate to be negative so I am going to state this as positively as I can.  So long as lobbying is legal, this is going to be the direction of our law.  Only support those that want to uphold the values of the constitution.