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?
It's called MAP. Minimum Advertised Pricing. Since I am involved with a retail company, I am quite familiar with it. We are free to sell below MAP, but the mfg is free to not sell us any more product.
Thanks for the explanation. Would I be far off in my thinking it sounds like price fixing?
shhhhhhhhhhhhhhhhhh!!!! ;)
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 advertis> Thanks for the explanation.
Or they can sell below the MAP..... in which case the manufacturer ceases supplying the retailer. Now we get into restraint of trade. Sounds like a helluva tangled web.
I can't comment on the woodworking supply industry, but in my industry, this happens very rarely.
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 go> > Actually, it would be. I don't think that this is what is happening.
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.
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?
Ed, if you distributed to retailers rather than selling directly to the consumer how would MAP be helpful/profitable to you?
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.
Price fixing is an anticompetitive practice--it takes two to do that tango. Festool doesn't compete with Festool--they're free to charge whatever they want to for their products and to require their dealers to agree to abide by those prices.
If, for example, Festool, Bosch, Porter Cable, and Dewalt got together and agreed that they'd all sell, say jigsaws, for the same price then _that_ would be price-fixing because you wouldn't be able to get a competing product for a lower price.
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.
Ed Bennett snipped-for-privacy@ts-aligner.com
There are incentives for retailers to do this. This is one.
Another part of the equation is tacit collusion. Everyone sells at the same price and everyone makes more money. There is an incentive to cheat in the short-run, but that only creates a price war and everyone loses that game.
The last piece of the puzzle is that there is no obligation for any manufacturer to sell anything to anyone. They cannot set the price the retailer will charge, they can however restrict distribution for a variety of reasons, including the need to maintain a certain image to protect their brand name. This is not restraint of trade.
AM Wood
See my response above. Essentially, it helps to level the playing field between the big and small resellers with regard to what the public sees in advertising. If I sold through resellers and wanted to protect small dealers from large predatory ones then I would probably refuse to comp any advertising that featured prices below a certain point.
I think there's still some confusion about the MAP. The Sherman Act of
1890 specifically prohibits any action taken to restrict fair trade. For details see:MAP is not a price fixing technique. It's an advertising incentive. To bring it full circle to your original question in the thread, all of the dealers who advertise Festool products probably list the same price because they don't want to forfeit the advertising comps. Even if Festool had a flat pricing structure you would still see variations because some dealers can afford lower margins than others.
Ed Bennett snipped-for-privacy@ts-aligner.com
tommyboy wrote: > 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?
Can't comment on anything but Festool.
Local representative, notice I didn't say dealer, here in SoCal has a display but no inventory for sale..
Orders are placed with dealer who places them on Festool.
Equipment is shipped from Festool warehouse in Las Vegas.
Not sure when the money and the hardware change hands, but it borders on an agent/manufacturer relationship which is quite legal.
Lew
Good explanation. Sometimes, more business is not a good thing. Look how increased volume bankrupted Vlasic Pickles.
Don't suppose that to be Maytag with the nautilus units ?
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