So many retailers and online vendors carry Festool products and every
one of them sells for the same price.
Same with Leigh jigs and accessories.
Same with Akeda but in this case there's only one vendor and that
vendor sells the jig at a higher price than 'suggested retail'.
What has happened to competitive pricing on these products?
Actually, it would be. I don't think that this is what is happening.
Manufacturers often offer retailers compensation for advertising their
products. It helps to defer the cost and incent the retailer to
include the products in regular advertising. To qualify for this
compensation, an advertisement must usually conform to the
manufacturer's rules - which often include pricing limitations. That's
why you see so many ads which say "too low to advertise" or "call for
today's price". It's not price fixing because the retailer isn't being
restricted from selling or advertising the product - they are just
being given incentives to do it according to the manufacturer's rules.
They can turn down those incentives at any time they like and pay for
100% of the cost of advertising.
Well, it wasn't actually stated in so many words that the manufacturer
"would" cease to supply the retailer, only that it was "free to not
sell us any more product". Not necessarily the same thing but that is
certainly the implication.
I realize that my marketing expertise is far below any level of bare
competent, but I would think the manufacturer would want to sell as
many units of the product as possible. If selling below the MAP helps
do that and it only impacts the retailer's margin, why does the
manufacturer object. Of course that assumes the price to the retailer
for the product is the same in either case.
In my limited understanding of the process, it doesn't make any sense.
On Thu, 02 Nov 2006 17:26:14 -0600, Tom Veatch wrote:
I'll take a shot at this. MAP means all retailers pay the same
wholesale price for the item and sell at the same retail price. This
setup seems to offer some protection to the 'mom and pop' operations.
The Borg down the street or the non brick and mortar internet giant is
brought down to a level playing field. Implication here is that if
wholesale varies according to volume, the retailer now can demend
lower pricing or discontinue selling the product, putting the
manufacturer at the retailer's mercy. Sound logical?
It some retailers start selling a certain product at little margin, it can
and does discourage other retailers who can't operate at those margins from
carrying the product. If they can't be competitive on price, there is no
reason for them to stock the product, therefor overall sales to the
wholesaler go down.
It does make sense but it's not exactly straight forward. The
manufacturer often creates a "pricing structure" that incents resellers
to buy (and sell) more product. In other words, the more you buy the
bigger your discount. So, for the same exact item, big resellers pay
less than little resellers do. This means that big resellers can
afford to offer lower prices to their customers. The lower prices
attract more business, which means buying more product which leads to
greater discounts. This spiral of prosperity for the big reseller is
the spiral of death of the little guys. Whatever business they have
gets stolen away by the ever growing big reseller. So they dump the
product line or don't bother to sign up.
Generally, the total sum of smaller resellers is greater than any one
large reseller. They tend to reach niche markets which the large
resellers don't. And they often provide service and support that saves
the manufacturer a lot of money. So, a manufacturer has some interest
in protecting small resellers. One way to do this is to attach a
minimum advertised price clause to the comps section of the contract.
It doesn't stop the super preditory resellers but it stops most.
Another protective measure is to restrict the big reseller to certain
products. WalMart, Costco, Sam's Club, Home Depot, etc. all have
unique low cost versions of popular brand name products. The little
guys get to sell the higher priced but usually higher quality items.
Some manufacturers just don't care. One of the product lines that I
sell is a good example of this. The manufacturer offers such a huge
discount to the big reseller that their everyday retail price to the
public is *LESS* than my discount price from the manufacturer. So, I
am forced to buy from the big reseller and my price must be
significantly higher to make it worth while. Fortunately, I am selling
to a niche market that the big reseller cannot reach (woodworkers).
Even so, I'm sure that there are some people who know the big
reseller's price. They probably look at my price of the one product
line and think that I'm running a scam - charging outrageous prices for
everything I sell. They think that all resellers - big and small - buy
the product line for the same prices. Ain't so.
Often success can be a bad thing.
Many a small record company has folded after a regional hit because they had
to borrow the money to satisfy the demand for the product, and being small,
the record distributors have them last on the list to get paid from store
sales, after the big boys get theirs ... generally months after the loan is
due and the interest has piled up.
Exact same thing for a small oil company/operator. Everyone wants to drill
and complete an oil/gas well but the minute you do is when the expensive
problems start ... from legal and environmental, to marketing.
IOW, sometimes all you get out of a "successful" business venture is
bragging rights. DAMHIKT.
Because, let's say for example that Woodcraft sells Festool at 10% less
than everyone else. That puts pressure on all the other retailers to
lower their price as well, which means lower margins for them. Means
the other retailers are less happy and might cease ordering Festool
The fixed pricing means that everyone is fat and happy. The consumer is
forced to pay a premium if he really wants it.
Also, part of the whole appeal of high end stuff like Festool is
partially a status symbol.. knowing that you have "the best". If
Festool were priced at the Ryobi level, it wouldn't be as cool or sexy
to have one. Just like if a Mercedes cost as much as a Chevy, some
potential buyers wouldn't think the Mercedes was as good (even if the
quality was identical).
In many cases with other brands/products you would be correct. In most
of Festool's comparisons, you'd be dead wrong. I can't speak for the
entire Festool product line, but the pieces I own are simply superb.
I'm not saying that because I own them, I own them because they are
superior. Same thing goes for Fein. A quality tools costs money.
Mercedes has made some really shitty cars in their day. DAHIKT
Nice troll, btw.
Dude, it wasn't a troll. I'm not saying Fine or Festool isn't worth the
price. I don't own one, but I'm sure it's good quality. I'm just saying
that part of maintaining brand image is the price. It's not a slam on
the tools. Geez. Note I said "PART OF THE APPEAL" is the brand. I know
someone who brought a Delta unisaw. He hardly ever uses it, but loves
taking people down to his basement to show it off. To him, it's like an
antique car he likes to show off. He gets enjoyment and pride out of
it, and can afford it, so it's no big deal.
It does vary from industry to industry. For example, it's quite common
in the retail computer and electronics industry to "comp" for
newspaper, magazine, and TV advertising. Surely you've seen the "Intel
Inside" at the end of a computer ad with the little logo and musical
jingle? Well, they did that so they could get "comped" by Intel. Ever
see a CDW ad that "featured" a particular brand of computers or
printers? They do that to get comped.
Manufacturers also comp stores for shelf space. Even individual sales
people get comped for pushing products. It's usually called a "SPIF"
(I think that's the right spelling. it's amazing you never see these
things in print but talk about them all the time).
I've been asked to comp resellers for placing my products in their
catalog, web site, or yearly flier. If you see a product on the cover
of a woodworking catalog you can be sure that the manufacturer paid
dearly for it. It's why you always see the latest and greatest tools
from large manufacturers but rarely (if ever) from the small guys.
Grocery stores get comped for shelf space with a premium going for "end
caps" (an elaborate display of product at the end of an asile).
Retailers have figured out how to get comped for just about everything.
Any industry where there are low margins you'll find retailers looking
for a lot of comps. And manufacturers use them to manipulate how
product is presented, advertised, and sold (including minimum
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