A Common Sense Approach to the MAP Price-Fixing Problem

Posted on December 7, 2008. Filed under: eBay, eBayInkBlog | Tags: , , , , |

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While there has been much talk this week of MAP pricing requirements, Price Fixing, eBay’s VERO program, and the American Antitrust Institute, I have a slightly different perspective and some different comments.
 

I have purchased directly from manufacturers who have advertised MAP pricing and I have also been a manufacturer, producing items in China that I distributed in the U.S.  And one thing that I haven’t read about this week in any of the price-fixing articles is the relationship between the supplier and the purchaser and how the relationship between these two business partners is more important than any legal decisions. 

What is the point of having an adversarial relationship with your supplier, if you are a reseller, or with your customer, if your a manufacturer?  If a reseller purchases items from a manufacturer who has a stated MAP policy but then knowingly violates the minimum pricing standards, what kind of relationship could the two parties possibly have with each other?  And if a manufacturer has to spend valuable company resources to police their MAP policy and restrict the selling of their goods whenever they discover that MAP policy has been violated, then the manufacturer obviously has a very poor relationship with their reseller customers.

 

When I manufactured product which I then distributed, I did not have a problem with dealers who sold items below MAP and I didn’t have to spend any resources to monitor and punish any violators.  There are several reasons why:

 

1. I chose my wholesalers carefully.  I turned down as many resellers as I accepted and for awhile I had to carry a great deal of inventory in my warehouse that I could have easily sold had I not cared what would happen to the product once I sold it wholesale.  I checked out the selling practices of every potential wholesaler, what they sold and for what price, and I held an interview with every wholesaler so that I could establish a relationship with each of them.  The advance work of carefully choosing the distribution channels for my product prevented problems from occurring down the road.  Since I only sold to people with whom I felt I could establish a good business relationship, I avoided confrontations later.

 

2. I treated my wholesalers as I wanted to be treated as a wholesaler.  I made sure that wholesalers had access to ALL the product, not just the items that I couldn’t sell easily myself.  Wholesalers had access to my very high margin product in the same proportion as they purchased the regular margin items.  For example, I allowed wholesalers to purchase items from me at $20 which retailed for $60 – $100 (and I sold one of these items for $120 last month) but they could only get these high margin products in the same ratio as the other items they purchased that I sold for 60% off list price.  We all made money together because I shared the best selling product with them.  So, any wholesaler who violated MAP policy for the regular margin products knew they would lose their access to high margin products as well.  In other words, there would be very real economic consequences.

 

Of course I did not want to see the product that I had worked so hard to produce turn out to be de-valued.  I had a relationship with my customers, the resellers who purchased from me, and they had a relationship with me.  And our relationship was a win / win relationship.

 

As a reseller who as purchased from manufacturers, I have had a wide variety of experiences.  I once purchased items from a manufacturer that I was selling all for suggested retail price except one item.  I had ordered the entire line, every sku, through a rep and I was doing very well with the line.  I was not even aware the manufacturer had a MAP policy and my rep had not informed me.  There was one item that was not priced correctly, according to MAP, and that one item was removed on eBay through the VERO program.  Not only that, but several of my items were subsequently removed repeatedly for weeks all because of the one previous MAP violation.  Communications with the company became difficult.  I had an entire warehouse full of product and had lost my ability to sell the items on eBay because I did want to risk having my account suspended over one product line. 

The manufacturer rep asked me to sign a MAP statement, which I did, and once again I began selling the items on eBay thinking that the matter had been resolved.  Yet, a few weeks later my items once again were removed through the abusive VERO program because of the one past mispricing, before I was even aware of the MAP program.  To make a long story really short, I triumphed legally in the end after several weeks of hard work on my part.  I was able to get the VERO takedown reversed so that I could sell the items on eBay but, in reality, what did I win? 

 

At the time, the product was one of the hottest products that everybody wanted to sell and even through I could have continued buying the product I chose to discontinue carrying the line.  It took me almost 3 months but I sold what was in my warehouse and I never went back for more.  One thing I have learned over my many years of being in business and buying from many different manufacturers is that the relationship manufacturers have with their resellers is often a very telling indicator of how they run their business overall.  After my run-in, I predicted that this company itself was not going to do well in the long-term and, at the time, my rep thought I was crazy.  Having the benefit of hindsight, when I stopped selling this particular product line it was at its peak.  It took only a few months before executives began abandoning ship and the product line tanked.  The stock price tumbled when Q4 earnings for 2007 were announced. 

 

I have lots of other experiences with manufacturers who have MAP programs and don’t enforce them or selectively enforce them.  When either party in a supplier – wholesaler relationship needs the other party more than the other party needs them, there could be a problem with this balance of power.  MAP policies only work when the manufacturer has a product that the reseller wants badly enough to follow the rules.  Trying to create a legal solution to the MAP price-fixing problem will not work, in my opinion, because forcing either party to behave in a particular manner will not fix the problem of a broken relationship.  Those manufacturers who choose their reseller partners wisely, who produces a good product in the right quantities and who creates a win / win situation with their wholesalers does not need an artificial legal requirement to force resellers to maintain a certain advertised price.

 

Unfortunately, the MAP policy price-fixing problem is compounded because manufacturers have to produce ever-larger quantities of product to get the per item price lower.  And because manufacturers have a lot of product to sell, they often times have to sell to lots of different people in the distribution channel that they might otherwise not want to conduct business with.  And the manufacturers, rather than taking responsibility for making poor decisions for over-producing and in not choosing their resellers wisely, find it much simpler to use the VERO program to remove items that eBay sellers are offering below MAP.   And, after all, the manufacturer now has their money from the wholesaler so they have not lost the sale when they use the VERO program to remove the low-priced item from the eBay platform.

No matter whether the law allows manufacturers to enforce MAP policy legally or not, there can be no winners in the price-fixing fight between manufacturer, resellers, and venue owner (such as eBay). 

 

For me as a business owner the cost of the fight with a business partner, such as a supplier, is simply too high.  Even if I am declared the winner in a price-fixing war against a manufacturer, I (the reseller) would need the cooperation of the other party (the manufacturer) to reap the rewards of my victory.  If the manufacturer chooses not to sell me all of the various product skus especially the high margin products or hot items, or if I get the product 2 weeks later than everyone else, or if my product always arrives damaged, then what does the legal victory mean to me?  Nothing. 

 

I look at this whole debate about price fixing and I have to shake my head.  If the manufacturer has rules, such as MAP programs, that I do not like then I should look for a different product to sell, from a manufacturer who has terms acceptable to me,  instead of trying to legally force manufacturers whose policies I don’t like to change them.  And I find it ironic that eBay, a company who has created more unpopular policies this year than anyone could have imagined, is leading the fight to force manufacturers to change their policies. 


Other related posts:

eBayInkBlog – eBay Ink in Washington for AAI Press conference – click HERE

eBayInkBlog – Price Fixing Faces Tough Opposition in Washington DC – click HERE

MyBlogUtopia – eBay Lobbies to Stop Price Fixing – click HERE

MyBlogUtopia – Beating Dead Horse Antitrust and Ebay – click HERE

MyBlogUtopia – Vero Primer for Uninformed Like Me – click HERE

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5 Responses to “A Common Sense Approach to the MAP Price-Fixing Problem”

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Excellent Point! I couldn’t agree more!

And I find it ironic that eBay, a company who has created more unpopular policies this year than anyone could have imagined, is leading the fight to force manufacturers to change their policies.

Ebay is impervious to irony. Their habit of mind is that of a bully; MAP is now in the way of JD’s drive to become the discount king of the Internet, so they’ll try to throw their weight around to get rid of it. Whether their new Diamond sellers like it or not. I wonder, has it occurred to eBay yet that eBay needs the Diamonds more than the Diamonds need eBay? I’m hoping that eBay’s foray onto Congressional turf will give Congress a chance to hear just how unpopular eBay has become.

I agree – who does win with MAP? I like the theory of MAP. No, actually – I LOVE the idea of MAP! I believe the idea is to protect the brand and set the price at a good mark-up for all. Yet, often times when I’ve been required to sign a MAP agreement – I see by researching eBay – that larger sellers are offering the same products well below MAP. So, then I start thinking – well, I guess the MAP is to keep me from being competitive with the larger, more established sellers, who the distributors seem to have turned a blind eye on. Again, it goes back to your point about building trust and relationships. I just move on and look for someone I can sell product for that treats me fairly – on eBay or anywhere else I sell.
PS: I was a little surprised this week that eBay was on Capital Hill over this issue – haven’t they looked at their own site/sellers? I can give them at least a dozen items I’ve stopped selling because others are selling below MAP on the site.

Thank you for being of rational mind. I cannot understand how anyone can believe that regulation of the price of goods can be a good thing. Regulation will remove the elasticity of pricing causing a never ending cycle of over pricing consumers. Without competition, which under RPM will be extinguished, the prices will never be a GOOD DEAL.

We all love sales, but RPM does not promote sales it promotes the continuance of the price commanded by the manufacturer or the large account holding retailer of the manufacturer. Sure, if the manufacturer approves a sale a retailer can match their price, but consumers aren’t getting as good of a deal as they could with this form of restraint.

What about a manufacturer who creates different price bands for different retailers? Without this restraint a retailer can compete on price even with large well known retailers. However, if the manufacturer contracts with that large retailer insisting they maintain the price of 10 dollars while contracting with other retailers with a price maintenance of 12 dollars – how will these other retailers ever compete??

They can’t and this is the juncture were consumers lose choice, option, the benefit of competition. They will have very limited options to purchase the controlled goods. Then what happens – that retailer who was able to knock competition out of the way because it benefited from preferential pricing will now enjoy big fat profit from increasing his prices effectively robbing consumers.

Anyway, it is a slippery slope to the bottom of a very costly landing.

[…] an article titled “A Common Sense Approach to the Map Price Fixing Problem”  (Clik HERE for that article) where I stated my opinion that if the manufacturer has rules, such as MAP […]


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