The Journal has an interesting story on retailers hiring “police” to ferret out discounters selling their products below the “minimum advertised price”, which is illegal after a Supreme Court ruling last year.
Basically, retailers don’t want others selling their products for lower prices because it hurts the brand’s image or makes it harder for it to keep its own prices up. But isn’t that what a market is for? If retailers can’t even abide by the marketplace then who can?
Klipsch Audio Technologies Inc., an Indianapolis audio-equipment maker, says in the past it prevented discounting by unauthorized dealers by suing them and terminating contracts with authorized dealer that provided the discounters without Klipsch’s consent. Over the past three years, Klipsch broke off its relationship with nearly 20 authorized dealers following lawsuits like these.
But Mike Klipsch, the company’s president, says he now uses NetEnforcers because it is a less expensive way to go.Mr. Klipsch says so far this year NetEnforcers succeeded in eliminating 1,420 instances of sellers’ listing below MAP online.
“It’s one thing to establish a MAP policy,” Mr. Klipsch says, “but when you go after the bad guys with a company like NetEnforcers you’re showing your retail partners a zero-tolerance policy for any price violations.”
“Bad guys” huh? You sell your product to people then they how are they “bad guys” for selling it at whatever price they want to—even if it’s at a loss? The lower profits hit them, not you—you’ve already got your money!
One thing I’m not quite clear on is whether this affects sellers of used goods. I, for one, am unfortunate enough to own a (temperamental) Klipsch speaker system. If I were to sell it on eBay, does this mean the minimum-price cops could yank my listing?
Tod Cohen, eBay’s vice-president of global government relations, says “manufacturers and agencies like NetEnforcers are increasingly getting more aggressive policing the prices of our sellers.” They routinely use trademark-violation claims when asking eBay to take down sellers’ pages, “but it’s a bit unfairly enforced,” he says. “They take down the Web sites only of the unauthorized resellers that are selling at discounts,” but don’t bother other unauthorized sellers if they’re selling at MAP. This suggests manufacturers are mainly interested in keeping prices up, not preventing trademark violations. Mr. Cohen says.
It’s unclear from this. Still, this is an eye-opening story about a world I’m sure most of us didn’t know existed. Good job by the Journal.
The short answer is no, they will not.
This is such a common business issue that I'm surprised you're surprised. Has no one on the staff been in business for even the cursory length of time required to have seen this issue first hand?
Yikes.
Companies have a distribution channel that sells their goods. That's a 2-way street, because it comes with agreements. Part of those agreements generally involves agreeing not to sell to distributors who do not have an agreement with company X. Instead the goods must be sold to retailers and/or end users. MAP pricing may also be part of that agreement.
Companies who fail to do this will create big problems for themselves.
Say cheating distributor C re-sells widgets they buy for $50 to Shady Unauthorized Distrbutors, Inc. They sell the widgets to stores for $55. But Widgets, Inc. has told distributors that the retail price target (MSRP) is $100 for various reasons (company's desired brand image, positioning, feature set, don't want to conflict with other company products... all the reasons that go into business strategy), and recommends a price of $75 for distributor sales. Valued Partner, Inc., their biggest distributor, agrees.
Now Shady Unauthorized, who has no long-term relationship with Widgets, Inc. to care about (just a one-off buy from Cheater C, remember), is undercutting Valued Partner, Inc., who is a big and important distributor for Widgets, Inc. They may even be undercutting the retail stores themselves. Valued Partner will stop distributing Widgets,Inc. items if they keep acting in good faith and getting undercut, or get too many store complaints of undercutting - and a big part of Widgets Inc's business could be ruined. To say nothing of what happens when Shady decides not to be around to do anything else a distributor normally does for the final customers, just sell them stuff and vanish.
Of course Widgets doesn't want that. Business is about people, relationships, dependability, and trust as much as it is about money. Widgets has a program of authorized distributors and invested money in legal agreements for that very reason.
The market will still work - because widgets isn't the only manufacturer, distributors have leverage too, you better believe Wal-Mart who Valued Partner sells to has leverage. And of course, the final buyer has a huge say in what they do and do not choose. Widgets may not get to set its price exactly where it wants - but that will work itself out through a set of stable, trusted relationships that are invested to some degree in each other's continued existence and success.
The Internet complicated all of this, of course. It became very easy to become an unauthorized distributor in bulk. The Internet's size makes building enforcement groups in each individual company impractical, and probably futile for any but the biggest firms.
Now, if you hire enforcers, they're going to do the minimum required to keep their customer happy. Doing more just makes them less money. If that means they tell Widgets that they zapped people selling below MAP, then Widgets no longer has a problem with its other distributors - because nobody is being undercut. Widgets, Inc. may have a brand/service issue thanks to unauthroized fly by nights, depending on how it's structured to deal with that, and what the volume is. Unless the volume is large, however, that's a far lesser issue than having the people responsible for getting your product onto store shelves, or into customers' hands, mad at you.
Gotta say, I'm disappointed with the question - and price fixing, a term of law? The CJR should be a quality level that can provide the answer, not ask the question in a stupidly inflammatory way,
I'm a journalist, too. Why don't you know this stuff? It's so basic, and not grasping it it kind of hard to cover anything business-related on an intelligent, professional level.
Posted by Joe Katzman on Thu 4 Dec 2008 at 09:17 PM
Joe, while I'm no expert on MAP, I understand the concept just fine, thanks.
Though I must confess I haven't worked in retail since this became legal a year and a half ago.
It still seems to me--and many others, apparently--that MAP is anti-competitive and leads to higher prices for consumers by, yes, putting prices at an artificial level. I'll stand by what I wrote.
After all, the practice was illegal under a Supreme Court ruling for a century.
Posted by Ryan Chittum on Fri 5 Dec 2008 at 07:03 PM
Thank you for your reply. Clearly, Mr. Chittum, we agree to disagree. In a number of areas.
Pereira's article never seriously discusses the manufacturer's point of view, or the dynamics and considerations underneath this web of relationships and processes that make up "business." Lots of stuff about what NetEnforcers does and its growth, but no real context for it. nothing about the web of relationships and contracts that gets items from the manufacturer to the store, or their nature re: permission to make defined and limited use of a brand. But without those things, the story makes little sense.
To me, it's an excellent example of advocacy journalism disguised as news reporting. One that displays the arrogance of "I have the pen, so I'll write to support my beliefs," rather than trying to illuminate a slice of reality. One that doesn't trust the reader's intelligence enough to explain what's going on in a fair way, help them understand more about how the world really works and why, and let them come to their own conclusions.
Writing on a site that's affiliated with the Columbia School of Journalism, you seem to think this article is:
(a) Good journalism work, and
(b) Some kind of big revelation, rather than a simple outgrowth of the way the system has worked for some time.
I think both of those notions are a deeply mistaken - (a) even more so than (b). The quality of the job isn't determined by your personal opinion of the opinion expressed in the news piece, and your personal stance re: the Supreme Court's ruling. Or should not be.
To me, all of this is doubly worrisome at a place that purports to set standards for journalism. But perhaps it is all for the best, in the end. Each of us has now made our case, and stands by it. This is now available as fodder discussion among the students and/or the classes. Let that discussion begin.
Posted by Joe Katzman on Fri 5 Dec 2008 at 08:56 PM
Contracts are a given and needed in retail markets. A century of refinement has given it the protection needed; On the other side; the supreme court is seen as a protector of the legal constitutional rights of the people. With decades of legal positioning by the corporate world; mainly the 14th amendment; the corporate legal system have skewed the playing field. There are many things to comment about with these two journalist; each has drawn a line in the sand; I on the other hand will take the side of the PEOPLE. Thank you both for expressing your side.
Posted by carlos on Mon 8 Dec 2008 at 09:19 AM