Price Fixing...?

crunchman

Based on that link that @Whitecat posted, it's pretty clear that there is price fixing going on.

The problem is that the manufacturer/distributor won't be so blatant as to tell you that they are taking away your dealership because you have advertised under the MAP.  The official reason will be that your premises aren't up to scratch, or that they are rationalising their dealerships.  To prove in a court that they had taken away your dealership because you advertised at a price they didn't like would be nigh on impossible, so the dealers toe the line (or put a call for best price on the website).

Whitecat

crunchman said:

Based on that link that @Whitecat posted, it's pretty clear that there is price fixing going on.

The problem is that the manufacturer/distributor won't be so blatant as to tell you that they are taking away your dealership because you have advertised under the MAP.  The official reason will be that your premises aren't up to scratch, or that they are rationalising their dealerships.  To prove in a court that they had taken away your dealership because you advertised at a price they didn't like would be nigh on impossible, so the dealers toe the line (or put a call for best price on the website).

Exactly this... except you wonder if someone did get threatened and then blew the whistle... as I mentioned above, leniency/immunity for whistleblowers is the way these things go.

impmann

crunchman said:

Based on that link that @Whitecat posted, it's pretty clear that there is price fixing going on.

The problem is that the manufacturer/distributor won't be so blatant as to tell you that they are taking away your dealership because you have advertised under the MAP.  The official reason will be that your premises aren't up to scratch, or that they are rationalising their dealerships.  To prove in a court that they had taken away your dealership because you advertised at a price they didn't like would be nigh on impossible, so the dealers toe the line (or put a call for best price on the website).

Actually, its more subtle than that... and I can't think of anyone who has had their dealership taken away in recent times as a result of price discounting beyond 'acceptable' means. But...

I'm not saying that this has gone on, or does but... *hypothetically* speaking...

If dealer 'A' buys x amount of product they get 'y' discount on trade prices. As part of that discount the "agreement" is that dealer 'A' pockets the difference in profit to recognise the significant investment in stocking.

Dealer 'B' buys (x-%age) amount of product they pay full trade price. This reflects the stocking levels and investment made by the dealer.

Customer goes into Dealer A and tries product... likes it and wants "best price" from the dealer. The dealer is down on takings so offers a discount that is significant if he buys today... customer goes away to think about it.

Customer phones dealer B and asks for a price match on product - dealer B gets disgruntled because the price quoted by dealer A is way below what dealer B can 'officially' offer the product but is equally short that month so matches and throws in a cheap Snark tuner as a sweetener.

Customer phones dealer A to see what they can do... dealer A throws toys out of pram. Whilst they match it, they then turn around to the sales person from the supplier and threaten to pull their (significant) business if something isn't done. The supplier cannot afford to lose that dealer. A sweetener deal is sorted with dealer A from the supplier to appease them.

Sales person phones Dealer B to berate them about ruining proper competition and threatens not to supply in future at the same rate unless they ensure they don't discount too much. Due to sales volumes, if they lose dealer B, it doesn't affect the bottom line sales too badly. Dealer B, is forced to tow an invisible line...

And all the while, dealer A is pushing to get ever bigger discounts in return for taking on more stock due to the booming internet sales. To the point that they can then sell stock legitimately online for less than dealer B can buy the product for at trade... and then "everybody" moans that dealer B's prices are outrageous and that when they eventually have to throw the towel in, the general consensus is that its their own fault for being greedy about pricing...


Like I say, it can be subtle... and I'm not suggesting for one moment that this goes on or any particular store/dealer/supplier etc is worse than any other for this. And whilst I'm sure some people can fill in the blanks in the above analogy to suit their own experiences/agenda, it is meant in a hypothetical way...

All I'll say is, there's a good reason why this industry has every right to be concerned about this.

maltingsaudio

The industry’s concern is safeguarding the genuine dealer who invests thousands on a brands products against pseudo trade dealers with no business overheads who just buy the hot product at the time bang it out for a drinks profit

crunchman

maltingsaudio said:

The industry’s concern is safeguarding the genuine dealer who invests thousands on a brands products against pseudo trade dealers with no business overheads who just buy the hot product at the time bang it out for a drinks profit

I don't think it's just that.  Prices have risen by a lot more than inflation over the last 2 or 3 years.  To me that speaks of some kind of collusion.

Before anyone trots out Brexit, the pound is only 2 cents lower against the dollar than it was on the day of the referendum.

jpfamps

ICBM said:

The price of Mesa amps has certainly been fixed artificially high by having a restrictive sole-distributor arrangement, backed up by blocking US dealers from selling amps or parts (eg replacement transformers) outside North America. Whether that falls within the remit of the CMA in the UK I'm not sure, but it probably should.

I strongly suspect they aren't the only ones either.

That won't be under the remit.

jpfamps

It is illegal for manufactuers to force dealer to maintain prices.

I actually don't have a problem with manufacturers maintaining prices.

Of course dealers colluding to fix prices is another matter, cf the toy industry.

The problem for dealers is that margins are pretty tight as it is, and so aggressive discounting will (and does) cause casualties.

I've certainly noticed that customers have been more aggressive in recent times about insisting on a discount, and otfen parade the cheapest online price they can find on their iPhones.

It would be interesting to to find out why this investigation has been initiated, and whether whoever did it had the comsumers inerests at heart.

FelineGuitars

There is a problem for the manufacturer if price gouging goes too far: no dealers want to stock their product because you make nothing selling it, and if no shops will stock your product then the factory gets no orders and goes bust.

As a retailer or store owner (online or bricks and mortar) - if the price war between online sellers drives the price down till you are making nothing on a sale, why would you want to sell that brand if you were a retailer. 

You rely upon your business making a profit on what you sell to make money.

What do you pay your staff with if you make no money, what do you pay the rent with? the advertising and website? the heating and lighting?

How do you feel if your boss can't pay you or no longer has a job for you?

How do you pay your rent, feed your kids afford to live?

crunchman

I think part of the problem is what @impmann said about the bigger shops getting a better rate from the manufacturer/distributor.  There should be one price for all dealers.

mart

jpfamps said:

... whether whoever did it had the comsumers inerests at heart.

Indeed, but the key question will be whether it helps the consumers’ short-term interests - being able to buy a new guitar next week for less money - or their long-term interests - having a choice of retailers in 5 years’ time instead of having to buy a guitar from amazon at their monopoly-Inflated prices after all the competition have been driven out of business.

Whitecat

crunchman said:

I think part of the problem is what @impmann said about the bigger shops getting a better rate from the manufacturer/distributor.  There should be one price for all dealers.

Yamaha & their British distributor were investigated for exactly this back in 2006, back when it was under the remit of the OFT. The OFT dropped the investigation when Yamaha fully cooperated and ended the separate discounting program. 

It wasn't bigger shops getting better discounts in that case, it was actually smaller bricks and mortar shops - Yamaha was trying to help them compete by giving them bigger margins. Altruistic, but still illegal.

crunchman

The issue of bricks and mortar shops competing goes much wider than the music industry.  Most high streets these days seem to be full of estate agents, bookies, and charity shops because all the proper shops have shut down.

The business rate system is a massive problem.  There should create designated retail zones (basically high streets) and give shops in those locations a 50% discount on business rates.  I would define shop to exclude bookies and estate agents.  That would help shops compete against internet retailers with big out of town warehouses.  Either that, or reform the business rates system entirely - for example, replace it with a 2% tax on internet sales.  That would help UK manufacturing as well as high street shops, as the manufacturers would no longer have to pay business rates.

impmann

Whitecat said:

crunchman said:

I think part of the problem is what @impmann said about the bigger shops getting a better rate from the manufacturer/distributor.  There should be one price for all dealers.

Yamaha & their British distributor were investigated for exactly this back in 2006, back when it was under the remit of the OFT. The OFT dropped the investigation when Yamaha fully cooperated and ended the separate discounting program. 

It wasn't bigger shops getting better discounts in that case, it was actually smaller bricks and mortar shops - Yamaha was trying to help them compete by giving them bigger margins. Altruistic, but still illegal.

Thing is it *is* fully legal to offer a quantity discount to a store at trade - for example, buy 10 and get the 11th free.

Most small shops would struggle to buy in bulk financially, and wouldn't have the storage either.

Thats an interesting story about Yamaha - I didn't know that one.

I'm not saying it happens but I've heard stories about 'inner circle pricing' for some stores due to volumes. There are all manner of clever accounting methods that can be used to disguise this, apparently...

jpfamps

crunchman said:

The issue of bricks and mortar shops competing goes much wider than the music industry.  Most high streets these days seem to be full of estate agents, bookies, and charity shops because all the proper shops have shut down.

The business rate system is a massive problem.  There should create designated retail zones (basically high streets) and give shops in those locations a 50% discount on business rates.  I would define shop to exclude bookies and estate agents.  That would help shops compete against internet retailers with big out of town warehouses.  Either that, or reform the business rates system entirely - for example, replace it with a 2% tax on internet sales.  That would help UK manufacturing as well as high street shops, as the manufacturers would no longer have to pay business rates.

Retail actually attracts much higher rates than offices (!), so charging the same rates would actually be improvement.

I still think a LVT would be answer.

I expect estate agents will be in the firing line soon (shame....).

maltingsaudio

crunchman said:

I think part of the problem is what @impmann said about the bigger shops getting a better rate from the manufacturer/distributor.  There should be one price for all dealers.

Would you expect to pay the same amount if you were buying one guitar or 100? The bigger shops let’s take PMT for example will have centralised buying and therefor buy in larger quantities and get better discounts, that’s business

Rocker

The price of guitars and amps have not kept up with the wages earned by players. A Fender cost many multiples of my weekly wage in the ‘70s. Now anyone with a half decent salary can pay for it in a week or two. 

crunchman

maltingsaudio said:

crunchman said:

I think part of the problem is what @impmann said about the bigger shops getting a better rate from the manufacturer/distributor.  There should be one price for all dealers.

Would you expect to pay the same amount if you were buying one guitar or 100? The bigger shops let’s take PMT for example will have centralised buying and therefor buy in larger quantities and get better discounts, that’s business

If they want to offer discounts to PMT, Andertons, and Guitar Guitar, then the manufacturers will have to accept that the big boys like that will be the only ones left in 10 years time.

At the moment they are using an illegal MAP as a means of keeping margins up and dealers in business. Even with that the smaller dealers could get frozen out.  If they pay less for the instrument, there is nothing to stop one of the big boys doing a "call for price" and undercut the small shopsbecause they can buy cheaper.  People will buy from the big stores, and the small ones will disappear anyway.

The only way to keep a decent dealer network long term is to have one price that all registered dealers pay.

guitars4you

Most/all of the big companies offer the same guitar at the same price to all relevant accounts - Buy 10 USA Strats, or a 100 as part of a chain and the trade price is the same - You adhere to a stocking criteria, which is clearly laid out - Admittedly some larger brands offer a 2/3 or 4 different steps to a dealer program - ie Squier and low end Mex based Fenders as a dealership - To acquire USA Fenders would be a different dealership stocking policy - But if you sign up for the USA program your little shop in Torquay buys at the same price as the superstores

Were the big boys will win is a) when an end of line deal is offered and the supplier wishes to clear out say 1000 Strats of last years model, they will generally go to the big boys first and move all 1000 through less accounts b) like wise when new models are offered, especially at the likes of NAMM, then again the big boys are in first - ditto for special FSR and limited run models

Note I use Strat and/or Fender as a guide line - the principle is the same for Ibanez, Yamaha, Boss, Gibson -  etc etc

In short a level playing field on most brands now, with a dealership program you can sign into if funds allow and of course often a protected area, so in smaller towns/regions you'll have an exclusive territory - this principle applies to most major brands now - But I assure you many times in the past this was not the case - More so when we had privately owned independent suppliers - Now most brands are distributed by their own company - PRS, Fender, Gibson, Roland etc 

maltingsaudio

@Strat54 @guitars4you @TTony this has been an interesting thread so far but one point I feel needs to be raised is that the original link is to the MIA website which is trade only, not that you can’t find it if you know where to look. The or point I’m making is I am very wary of putting links like this up as I believe they should remain trade only and not discussed on a public forum wondered what the collective wisdom is?

Whitecat

maltingsaudio said:

@Strat54 @guitars4you @TTony this has been an interesting thread so far but one point I feel needs to be raised is that the original link is to the MIA website which is trade only, not that you can’t find it if you know where to look. The or point I’m making is I am very wary of putting links like this up as I believe they should remain trade only and not discussed on a public forum wondered what the collective wisdom is?

It’s not “trade only” if it’s on the open internet. The MIA uses their website as a PR channel.