Over-Reaching MAP Price Policies
March 18, 2008 12:22 pm Industry News/CommentaryThe scuba industry has long been ruled by Minimum Advertised Price (MAP) policies. These programs, included by reference in almost all scuba industry dealership agreements, establish the lowest price a retailer may use when advertising a scuba product. Almost all such policies state two primary objectives; 1) to “level the playing field” so that all scuba retailers (local dive stores, primarily) are able to maintain a high profit margin, and 2) to “protect the value” of the brand being controlled. While I have VERY strong opinions of these objectives, I will not argue the ability of these policies to achieve these objectives. I will discuss what happens when a company attempts to go beyond the advertised price, beyond the posted price of the product, and moves to establish an “over-reaching” MAP policy.
In early January, a “price war”, of sorts, broke out among several of the largest scuba Internet retailers. This little “price spat” manifested itself as these merchants offered “whole order discounting” on any order placed in their site, in an attempt to spur website traffic in a slow time of the year. If the site contained scuba products already priced at the MAP price, then the whole order discounts provided by the combatants would result in the resell of the products below the manufacturer’s minimum advertising price.
This war resulted in a great deal of negotiation and discussion among several of the scuba manufacturers and these merchants that were offering whole order discounts. These negotiations, and the discussions involved, were only among the companies and the people causing the infractions; other retailers had no way to know of the discussions and were not involved in any of the “agreements” made as a result. After all agreed to play nice, the whole order discounts were “officially” ended and all was well in the scuba industry. Then, in steps DiveSports.com.
While this little retailer price spat was taking place, we were busy developing the new Divesports.com website. All along, we had planned to offer some purchase incentives as our customers moved from our old site to the new one. One such promotion was to provide a free $10 Gift Card with orders of $100 or more. Another provided other discounts that could be achieved by using the discount code capability of our new website platform. Remember, we WERE NOT INVOLVED in this first little dust-up about whole order discounts, but boy did we hear the news when we launched our new site with the purchase incentives. In fact, one of my early posts on this blog, titled Scuba Industry Price Controls dealt with a little of the blow-back we got from manufacturers and some of our competitors.
We are now several weeks past this initial confrontation about pricing. We are now starting to see manufacturers that are revising their policies to prohibit ANY DISCOUNTS on their products that would bring them below the MAP price. No “club” discounts, no “member” discounts, no “frequent customer” discounts, no “free gift cards” with purchases, no “chat board” discounts…in fact, not advertised discounts at all! While this seems to be an attempt to “level the playing field” for retailers, I personally think the new policies border on RETAIL PRICE CONTROL, a type of control that most consumers reject and that most manufacturers have worked hard to keep at arms length. The text of these new policies we are now seeing create a very complicated set of business rules, rules which are wide open for misunderstanding, and result in policies that will hurt the ability of local and on-line retailers to increase traffic, build business, and provide value to consumers.
Over-reaching MAP policies quickly morph into Retail Price Controls. This is a bad thing for our industry and it is terrible for consumers. Over-reaching MAP policies assume that all retailers WANT and NEED a level playing field. Some of us would prefer to slug it out in the marketplace with competitors. Over-reaching MAP policies interrupt the natural negotiation that occurs when a customer comes to the cash register…which is exactly what our shopping cart includes…a cash register. Over-reaching MAP policies require too much interpretation by the merchant, thereby complicating the business of doing business. Over-reaching MAP policies cause distrust among scuba consumers, who see the exact same price everywhere they go….. something that this industry simply cannot afford, and something we have worked hard to combat.
Over the next few weeks, I am going to be saying more about my personal and business feelings about MAP policies that attempt to encumber the operation of my business. Some of the things I intend to say will not go down like a smooth, sweet pill. They will, however, be the truth of my opinion on the importance of this subject for scuba diving equipment retailers and local scuba stores. Stay tuned for more information about over-reaching minimum advertised price policies in the scuba diving industry.
Phil Ellis
March 18th, 2008 at 12:36 PM
Nice writing style. I will come back to read more posts from you.
Susan Kishner
March 18th, 2008 at 1:00 PM
Hi. I am a long time reader. I wanted to say that I like your blog and the layout.
Peter Quinn
March 18th, 2008 at 1:49 PM
I am in the radio business, and I am getting the same thing from my suppliers. MAP policies don’t help me much. They just prevent me from advertising special promotions, so I can’t compete with the big box stores that have lots of ways to bring customers into their stores.
David
March 18th, 2008 at 2:50 PM
I always enjoy reading your point of view, Phil. Keep it coming.
Who is fooled by ‘we beat any dealers advertised price!’ when every advertised price is the same down to the penny. Why does the industry continue to treat scuba divers like they are a bunch of morons?
If the industry invested as much time and effort into serving customers as they invest into bickering with each other, divers would be better off.
March 18th, 2008 at 3:03 PM
Phil,
I look forward to hearing what you have to say.
I hope the industry understands that my equipment usually lasts a long time. Many times I purchase something just because I beleive it’s a good deal not just because I need it, but because I want it.
Cutting the ability to allow capitalism to level the field in the marketplace on it’s own, doesn’t seem to help either the LDS or the suppliers.
Other divers might, like me, buy only when something must be replaced if dealer incentives are abolished through strong arm tactics of the suppliers?
But then, what do I know, I’m just a diver wanting to buy gear at the lowest possible price. If this continues I beleive there will be an even bigger boom in the used gear business for many items.
March 18th, 2008 at 3:10 PM
Rich, I agree completely. Some of our very large online competitors now LOVE MAP pricing. They now have 50, 60 thousand people coming to their websites. Now they LOVE the “level playing field”. I would too, if I already had all of the brand name players. Oh well. I will continue to talk about this issue.
Phil Ellis
http://www.divesports.com
March 18th, 2008 at 5:04 PM
Tony, I agree completely. I will have to continue to purchase from supplier that allow me to run my business, promote my products as I please, and let me rise or fall against my competitors as I see fit.
Phil Ellis
http://www.divesports.com
March 19th, 2008 at 7:24 AM
[...] from consumers, can do more to temper these polices than any other action I can imagine. Thanks. Over-Reaching MAP Policies in Scuba Industry Phil Ellis. Discount Scuba Gear at DiveSports.com - Buy Scuba Diving Equipment & Snorkeling [...]
March 19th, 2008 at 1:01 PM
This article is an unfair slant on what the manufacturers are trying to do. MAP price controls are in place to make sure that all dealers, even the smallest in the widest reaches of the country, have an equal opportunity to compete. Consumers and dive stores often don’t see the big picture.
Concerned Reader
March 19th, 2008 at 2:29 PM
concernedreader, I am going to make a wild guess here….you must work for one of the manufacturers or you own a local scuba store that needs protection. I welcome your comments and would love to hear more from you.
Phil Ellis
http://www.divesports.com
March 20th, 2008 at 2:02 PM
I’ve been unable for several years to understand how the price controls that the manufacturers use don’t violate antitrust or price-fixing laws, but my attorney husband assures me they don’t.
Open competition on price and goods generally results in some pain for less competitive businesses, but tends to create lower prices and better service for consumers overall.
In the day of the internet, none of us is silly enough to assume that there is only one price at which something can be bought. Making it impossible for my LDS to offer goods at competitive prices drives me away from them, which is sad, because I would prefer to give them my business.
Price controls are short-sighted and may rebound in ways manufacturers don’t foresee.
Lynne
March 20th, 2008 at 2:57 PM
Lynne, your husband-lawyer is correct…price controls can be legal and recent court rulings (Leegin v PSKS) seem to lean farther toward legality for such schemes. The issue isn’t legality, it is fairness and consumer confusion. Stay tuned. I will write more.
Phil Ellis
http://www.divesports.com
March 20th, 2008 at 3:40 PM
Hi again Phil,
At your request I’m posting a response on your blog. I thought I would copy the earlier post I had on Scubaboard as I think it pretty much covers my take on the issue.
As I’ve said elsewhere, I don’t think the industry OEMs come close to supporting a free enterprise market standard, and the end result is that the customer is the ultimate loser. The OEMs just talk a big game. FYI - Scubaboard had a reply to my original comment on this issue stating that Zeagle (his example)is one of the good guys concerning MAP issues… I couldn’t believe it. That seems like willful ignorance or maybe just a brother-in-law trying to run interference. I encourage everyone to continue this discussion - I think it’s important.
At any rate here’s my original Scubaboard reply to your comment.
________________________________
Hi Phil,
I thought your “Over-Reaching MAP Policies” commentary was right on target. You obviously have considerable industry experience, which I do not, and I thought your comments reflected a well-reasoned, balanced perspective.
Simply put, I’m just a guy that likes all kinds of sports and has spent considerable time shopping and buying a wide variety of equipment. I’ve got a pretty good sense of how markets should work, and that combined with common sense and a long history of typical purchaser experiences tells me that pricing on most name-recognized scuba equipment is controlled to the extent that the market is functioning like a cartel, and not a free enterprise process.
You are correct in stating that internet retailers struggle under this arrangement. Just as one example, major OEMs sell their products to established internet retailers, and then refuse to honor their own warranties under the claim that the seller isn’t an authorized dealer. I spent several hours yesterday trying to get prices on a custom, color-paneled Zeagle BC. I went through an LDS, and then tried e-mail links on the Zeagle website (none of which worked), then called Zeagle and got directed first to their recommended LDS (which happened to be the one that I had been trying to get prices from), then directed to their regional sales rep (the phone wasn’t answered, left message), tried to e-mail them as well and couldn’t get the e-mails delivered, called back to Zeagle and found out the entire Zeagle server system is suffering from problems. What a hassle….
My point is only that too much control doesn’t serve the marketplace well, it just creates problems which manifest themselves in peculiar ways. Every LDS, OEM or internet retailer wants to make a reasonable profit on quality goods and services - fine. I’m a commited capitalist and all for supporting the process, but what I’ve observed is overly controlling and protective, thereby creating unfair market advantage… its certainly not free enterprise at work.
I’ll look forward to continued input from you and others on this subject. I think it’s an important topic, and warrants substantial discussion. I’m always willing to learn, and even to eat some crow if I need to. I’m more than a little surprised that the issue hasn’t been more fully exposed already.
March 20th, 2008 at 3:48 PM
You are dead on. This is a fight that been going on since the days of the ScubaPro / Bailey Suit / NASDS conspiracy to price fix and it continues today. Thanks for fighting the good fight.
March 22nd, 2008 at 9:42 AM
Thanks Thal. I fear that many of the things done in this industry to “help” actually end up doing the opposite in the long run…dealer restriction is just one example.
Phil Ellis
http://www.divesports.com
March 25th, 2008 at 1:38 PM
concernedreader :
Could you explain your post in detail?
Especially “Consumers and dive stores often don’t see the big picture.”
At face value, and I may be wrong, I’m just an uninformed consumer, but it seems to be simple economics.
Create a great product, offer it at a profit margin you can live with and see if it flys with the consumer.
March 29th, 2008 at 7:50 AM
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March 30th, 2008 at 12:38 PM
Great post phil, enjoyed reading it. I feel the same pain/anger you do. Hopefully someday we can do something about this, and make the sport more afforadble/enjoyable for everyone.
On a side note how are those H10 SlimLine Canisters? Look very tempting ;).
Talk to you soon,
Dave Distel
April 1st, 2008 at 9:57 AM
Dave, thanks for your comments. I don’t oppose MAP price policies in and of themselves…I understand the need to have some order. It is the add-ons to the policies that I am starting to see that damage our ability to “run our own business”. Again, thank for your comments.
Phil Ellis
http://www.divesports.com
May 6th, 2008 at 4:45 AM
Insightful article Phil. As someone on the fence between consumer and retailer, I see the pros and cons of the MAP policies. It seems to be a good idea in theory, but only until it inhibits the retailers ability to provide the best customer service/deals to the consumer. Especially when others aren’t playing “fair” and getting away with it.
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June 3rd, 2009 at 7:47 AM
I am a Web master for several online retail stores. I was very frustrated when one of my clients’ main distributor of furniture set up MAP pricing. My client was the #1 retailer in the world, and other clients were complaining that he was undercutting their deals. He advertised quite plainly that his prices did not include shipping (which, when added to the advertised prices met or exceeded MAP pricing). Other online retailers touted FREE shipping, but in reality were advertising MAP prices and taking a hit on the shipping. Since going to MAP pricing, my clients’ business has come to a screeching halt and he faces going from the number one internet retailer to giving up his business after 10 years of success in the industry. The complaints came from brick and mortar store owners and other online retailers saying he was undercutting them, when in reality he was selling at the same price, and quite openly admitting that his prices did not include shipping, that it was extra and could exceed local pricing. He also was very good about pointing callers to their local dealer if there was one.
I am upset because if his business goes away, so does mine. I see the MAP pricing as a deal breaker and a business killer. My client was the first to use the internet to sell the products and has a 10-year history of very fair business practices, good customer service and low overhead to pass on to consumers.
When his business goes away, so does mine. This is bad for everyone (except the late-comers to selling the same products who want instant gratification and to destroy the ‘big guy’ who has invested the time and money into building and maintaining his Web site, and offering personal customer service).
I believe in MSRP, but MAP is just BAD business!