MAP and MSRP practices of online resellers - Page 4

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zin1953
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#31: Post by zin1953 »

Ken Fox wrote:If I had to guess, I would say that the retailers take their cost(s) on an item, then apply the "trade standard" markup, and then quote that as the MSRP. The actual price you will pay will depend on whether or not you choose to negotiate with the retailer; if not, you will pay the asking price.
I can only speak of the alcoholic beverage industry, in which I have 35 years of experience, not for the espresso machine retail trade. I have worked for retailers, for wholesalers, for importers, and for producers (wineries).

The "trade standard" markup on wine is 50 percent markup for a 33 percent profit. That is, as an example, a bottle that a wholesaler sells to the retailer for $20 is marked up 50 percent and carries a price of $30 to the consumer. (This is in contrast to many industries where the "trade standard" is "keystone," or a 100% markup -- the widget costs $20, you sell it to the consumer for $40.) The "50% markup/33% profit" is, in fact, a holdover from the days of Fair Trade, where the winery/wholesaler would post a retail price with the ABC that "institutionalized" this ratio.

As I said above, today, virtually the only place you can be assured of paying WSRP for a bottle of wine is at the US winery.

When California was forced to scrap their Fair Trade system on alcoholic beverages, it was replaced with a law that mandated alcoholic beverages be sold at a minimum of six percent (6%) over cost, unless the selling price had to be lower "for competitive reasons." Simply put, if __________chose to sell Budweiser at cost, someone could undersell him at a loss because they were being "competitive"!

("We lose a nickel on every sale, but we make it up in volume.")

Certainly, Ken, some individuals do negotiate with a retailer as to the price they will, or are willing to, pay. Most Americans, however, do not do this. I dare say, were you to ask the people at Chris' Coffee, 1st-Line, or WLL how many prospective customers say to him, "Well, I see you're offering _________ for $$$, but I'll offer you $$ . . . do we have a deal?" the number (as an overall percentage) would be very small indeed.
A morning without coffee is sleep. -- Anon.

Ken Fox
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#32: Post by Ken Fox »

Hi Jason,

My first Cimbali Jr., the pourover vibe model I bought in 1995, was purchased from the long-defunct Boise Idaho branch of a Portland, Oregon Cimbali dealer who was operating out of a small "rent a warehouse" type center. The salesman (who was there only by appt.) told me at the time that I was the first and only individual who had tried to buy a Cimbali Jr. from him, and that I should instead buy a Domus, which he thought was a more appropriate domestic machine. He insisted that I take a Domus home and try it out, which I did, and subsequently rejected it.

As to pricing this salesman told me that he gave restaurants 20 or 25% off list price and that since he'd never sold to an individual before he would give me the same price, which I accepted. This is before we all became accustomed to using the internet for price comparison shopping. I had to wait two or 3 months before the machine was finally delivered, since in that era dealers didn't stock merchandise like that.

Fast forwarding to my more recent DT1 Junior purchase, from Chris, several years ago; the price had gone up hardly at all in almost 10 years in spite of the fact that the new machine had a rotary pump and was plumbed in. I thought it was a good price and never thought about negotiating. I paid quite a bit less than the current asking price, however the dollar has imploded since and a Big Mac costs as much as a steak dinner used to a few years ago . . . .

When I made my last significant purchase from Chris, a hybrid Max grinder, I did ask him if he could do better on the price and he did.

I'd certainly ask for a better price nowadays; the worst that can happen is that the dealer will say NO.

ken
What, me worry?

Alfred E. Neuman, 1955

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JohnB.
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#33: Post by JohnB. »

zin1953 wrote: Certainly, Ken, some individuals do negotiate with a retailer as to the price they will, or are willing to, pay. Most Americans, however, do not do this. I dare say, were you to ask the people at Chris' Coffee, 1st-Line, or WLL how many prospective customers say to him, "Well, I see you're offering _________ for $$$, but I'll offer you $$ . . . do we have a deal?" the number (as an overall percentage) would be very small indeed.
I guess I'm in the minority then as I always try to get the best deal I can on any purchase, especially a major one. Once I had decided on the machine/grinder combo I wanted I gave the salesperson at CC a list of accessories I would need & asked her to get back to me with a package price. The price I got was good but I felt the grinder price could be better & I told her what I felt was fair. After some back & forth with her supervisor they accepted my price & the deal was done.

Considering our ever worsening economic climate I think you will find more & more retailers willing to negotiate pricing & more consumers asking.
LMWDP 267

zin1953
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#34: Post by zin1953 »

Ken and John,

Clearly I have no reason to disbelieve you, and I do not. I am sure you were able to "get a break on the price," "put together a package deal," etc. But I will only add that you are both speaking of the same vendor -- one who has repeatedly shown a willingness "go the extra mile," in a variety of different ways.

That said, three things:
  • Try walking into Macy's and asking for a deal on that coat;
  • I still think the overall number of people asking for a "better deal" remains small, relative to the overall total number of customers; and,
  • I have no doubt that, given the current state of the economy, that number is increasing, as are the retailers willing to entertain such discussions.
Cheers,
Jason
A morning without coffee is sleep. -- Anon.

IMAWriter
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#35: Post by IMAWriter »

I also "ask" for the best pricing possible, sometimes resorting to groveling :lol:
Most large multi-store operations have no flexibility due to corporate restraints, but as you mentioned certain independent retailers are more than willing to try and work something out whenever possible, especially on large ticket items.
I think it's wise to always ask if there is bit of price leeway, as long as it's done with politeness.

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Stuggi
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#36: Post by Stuggi »

zin1953 wrote:Me, too. And Fair Trade ruled the the wine industry in California for about 1/3 of my career. I also remember when Fair Trade ended, and everyone predicted the death of the "mom-and-pop" liquor store/wine shop in the face of Liquor Barn . . . guess which one failed?

Stuggi, you think "nothing sells for [MSRP] anyway," but this is far from the truth. Unlike Europe, where the cheapest price on a bottle of wine can often be found at the winery, virtually every winery in North America sells at the MSRP -- or, as I mentioned above, the WSRP. So, too, do MOST "small" items . . . candy bars, toothpaste, paper plates, etc., etc. Remember than nothing prevents a retailer from selling below MSRP, and some do constantly, others do occasionally (think of a store having a sale), and some never do -- it all depends upon the specific retailer, and his/her internal policies. In other words, pricing is up to the retailer. Sometimes, the supplier will offer incentives to lower the retail price (e.g.: a discount for buying 10 cases; a "co-op" allowance that pays the retail $X for every unit sold, thus making up all or part of the difference between the MSRP and the retailer's actual sale price (Note: this is illegal in some states, and on some categories of merchandise -- alcohol, for instance); and so on . . .

When Fair Trade existed, it was illegal to sell below the MSRP. Now, not every item was subject to Fair Trade laws, and not every state. But, for example, alcoholic beverage sales in California were covered by Fair Trade laws for years! And it was illegal to sell below the Fair Trade price that was posted with the California Department of Alcoholic Beverage Control (ABC) by either the producer, the wholesaler, or the importer. Undersell the posted price, and the ABC could fine you, close you down for 30 days, or revoke your license to sell alcoholic beverages permanently (for repeated violations). Eventually, a challenge to the Fair Trade system was successful in court, and all this vanished.

The "replacement," if you will, was the manufacturer attempting to re-impose a sort of Fair Trade restriction, but without government backing or enforcement: the MAP. As you already know, you "cannot" advertise a lower price, but you certainly can sell at a lower price! Most major electronics manufacturers -- Sony, Canon, Panasonic, Phillips, Minolta, and Nokia, to name but a few -- employ MAPs, to a greater or lesser degree: part or all of their line will be covered . . .

The question is whether or not the price you see in an ad is a MAP, and how do you know? Some retailers (both online and at "brick-and-mortar" stores) will flat-out say, "Hey! Consumer! See this price? It's a MAP, and if you want a better price, just call me." Some websites get around MAPs by saying they cannot show you the actual price until you put the item in your "shopping cart" -- but you can always delete it if you don't like the price. (Lots of electronics stores do this.)

Keep in mind, too, that there is little-or-no culture of negotiating a better price with a vendor in the US the way there is in, say, parts of Africa or Asia. The only price regularly "ignored" by Americans is the MSRP of a new car. In that instance, MSRP is simply the point at which one begins negotiating a lower price.

Cheers,
Jason
Two points, if I may;

1) I live in Finland, which is in Europe, so I know very little about incidents like Fair Trade. When I said fair market, I meant an open, un-restricted market.

2) I was born in 1989, which further underlines the above statement... :)

I still stand by the MAP thing, it's useless and pointless, and a waste of time.
As to your final point, I neither rarely haggle, and the times I do it's nearly always when buying second hand stuff or used cars. I do get discounts, but those I get from buying lots of stuff at the time or over a longer time at the same store, or because I'm friends with the owner or something, and these I get without asking. My mothers hometown (a little place where everybody knows everybody) takes this practice a notch higher, there I get discounts for just being related to people the storekeep know, and these discounts are at ridiculous things. Once I went into a diner and ordered a piece of pie and a coffee, and when I was about to pay the barkeep asked me if I knew a person (who happened to be my mothers cousins mother), and he immediately knocked 33% of the price. I know the margins of profits are wide for things like drip coffee, but 33%? If I would have been of a more dishonest nature I would have kept talking to him to see who of my more closer relatives he knew, just to knock the price down further...

The point of the above is that that's the way I want to get discounts; without requesting them.
Sebastian "Stuggi" Storholm
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shadowfax
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#37: Post by shadowfax »

Stuggi wrote:Two points, if I may;

1) I live in Finland, which is in Europe, so I know very little about incidents like Fair Trade. When I said fair market, I meant an open, un-restricted market.
. . .
The point of the above is that that's the way I want to get discounts; without requesting them.
In an open, un-restricted market, manufacturers would be free to require a MAP to their contracted resellers, or not to, at their option (choice = freedom, yes?). In an open, un-restricted market, retailers would be free to give discounts without you requesting them, or with it, or just refuse you altogether. If the MAP is reasonable (the MAP for the Compak K10 was actually less than what Wilco paid for his in Europe), there will be no reason to challenge it. If, on the other hand, this gets ridiculous, people will (a) not buy the product anymore, opting for competing products (of which there are several), or (b) obtain it through other means. I love Jason's story from the wine industry about the importer who bought wine in Europe at retail price, with no agreement with the winemaker, imported it to the US, and sold it for less than the complete idiots that were importing it and marking it up like madmen. That's the free market at work.

Not that I worship the free market completely. Depending on the preponderance of dishonest men in a given industry, monopolies are built and leveraged. But I just want to point out that there is nothing like a monopoly in the espresso machine industry. On the contrary, it's a highly competitive industry. Which is not to say there aren't plenty of SOBs in the business--these importers that Jim's been referring to. If you don't like them/their prices, there are lots of other options, wouldn't you agree? That seems like the free market to me.

I see the term "free market" bandied about all the time by people who claim to espouse it, but in practice seem to think that "free market" means that, in any market, all customers should be free to get the best deal possible on any item they want to acquire, from any reseller. That's backwards: producers set their prices, and consumers decide if they want to pay that price. If they don't, they buy something else. The free market ends when the number of choices drops to (or near) 1. At least, that's my simplified understanding of it.
Nicholas Lundgaard

djmonkeyhater
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#38: Post by djmonkeyhater »

One more slice of this equation is to look at it from the perspective of the retailer and brands.

I work in specialty sporting goods (bikes) and we use MAP pricing and distributor agreements as tools to control the value of our brand and the people who help us sell those products. In a completely uncontrolled environment, it can be very difficult for a premium brand to have a long life.

High end bikes (grinders) can:
- be expensive
- have proprietary small parts
- be sophisticated to new users and need skilled sales staff
- be technical in nature
- frequently need ongoing end-user support
- require warranty provisions
- require domestic insurance
- have long lead times
- high inventory holding costs.

Say I'm a european bike maker (or espresso grinder maker) with a good solid product line, looking to enter the USA as part of a long term growth plan. It's a family business that is 60 years old and we take a lot of pride in what we do. We have 40 employees in a small factory in a small town, some of whom have worked for us for 25 years. Would we be better covered for the above concerns by selling bikes (grinders) haphazardly to vacationers, people who cold call from 8 time zones away, Ebay Power Sellers, craigslisters and rotating assortment of "low overhead" retailers?

Concerns I might have:
- Would I know how many I sold into North America? Are they the correct voltage? Do they have UK plugs and Spanish language owner's manuals?
- How would they get serviced if they break?
- How could I contact the buyers if there was a true warranty/recall concern? If there was a problem, would any other entity have a stake in my recovery?
- Would any of these people provide forecasts for our production planning?
- Would I get good feedback on what the average North American was looking for so I could make product improvements?
- Would a "good", knowledgeable, committed, full-service, ethical, stocking retailer put up with the constant Ebay and online price chaos and continue to commit to carrying inventory of my products?
- How do I shut off a guy that is running online ads for my premiere product for 25% under MAP only to work a hard sell for my competitors product on the potential buyer who learns he has none in stock?
- Is a financially stable, operationally savvy, well-run distributor going to see value picking up my products for his established base of 250 retailers if he's unsure if he'll ever make money on my stuff?
- Would anyone be accountable for running print ads if I have money available? Would someone run ads on home-barista.com? With the new logo? In the correct color?
- Would there be insurance coverage for situations where it was required?
- Who is conducting PR campaigns on my behalf? Is someone taking steps to mitigate the anger of the unhappy Portland purchaser who has been slagging my products on seven different blogs, social networking sites, message boards and home-barista.com?
- Should I count on someone to expend labor on warranty repairs?
- Could I reasonably establish an MSRP? I'll need it to understand how and where I can position my product line.
- Maybe I want to make sure that the warranty center is well funded to cover the inevitable damage to the intricacies of my new adjustment mechanism so I'll offer the distributor another 2% to cover parts and training. I don't want this just to go to a lower price.
- Will someone go to trade shows? And be nice?
- Who will carry small parts so the guy in Delaware that needs a $4.5 USD part can get it for that and $3.99 in USPS shipping? Will they talk to him on the phone to answer his questions so he gets the right bearing?

I'm not saying it's a perfect system and you can systemically introduce inefficiency to a supply chain. There are bad distributors and bad retailers and bad customers. There are always cracks in the system and the best laid plans can wilt when the paradigm shifts. It can all happen and in a healthy marketplace there will always be dynamic elements to all of the transactions. But Shadowfax was right - it's about choices...for everyone in the chain.

zin1953
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#39: Post by zin1953 »

Thank gawd the wine business is simpler! We just have to deal with 52 sets of government regulations! :wink:
A morning without coffee is sleep. -- Anon.

NoMilkToday (original poster)
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#40: Post by NoMilkToday (original poster) »

A less known saying in Holland is: "Long after the price is forgotten, one still enjoys excellent quality".
So, before you start to negotiate prices, ask yourself what is it your are buying. Is it a product that possibly needs service later on or has a risk that the warranty needs to be used or is .... Then, when you answered these kind of questions for yourself, you decide where to buy it. In a lot of cases, it is wise to buy with a smaller retailer. And everybody knows that in last years a lot of small retailers went out of business. Hard work, long hours, difficult customers, more and more regulations and higher operational costs. These are not the people I negotiate with, generally. I support them by buying with them and paying the price and hope they stay in business. An example is the shop where I bought my espresso equipment. And they pay me back for giving excellent service, information, being honest (!) and select the best possible products. They have earned my business and I stay with them, even when I can buy the same product with an internet dealer or a big department store with a discount of 10%. When the discounts are higher, okay, then I start thinking about negotiating. I'm not a complete fool.

In Holland small retailers are becoming scarce, as more and more people shop for price and not for quality. Also a factor in my country are the taxes. It is the goal of the European Community that all member countries are going to use a common sales tax rate of - yes, you read this correctly - 20%. In Holland this is now 19%. In other West-European countries it can even be higher, like in France, where it is 25%, I think. BTW, for goods as milk and bread the tariff is 6% (to support the less well-heeled).
Income taxes are also relatively high in West-European countries. The highest step tariff in Holland is 52%. And when you think that is high, several years ago the top tariff used to be 72%. The result is of course that Holland constitutes a very large middle class, a low number of really rich people and hardly poor ones. And of course many, many government officials. And for them the credo is: "There are only 17 million Dutchmen to manage. How hard can it be?"