Price erosion

[19ninety]

I know the law prevents price fixing and enforcing MAP policies in the UK.

Are there any ways I can use to try and discourage competitive price erosion amongst my dealers? Are there any ways to encourage maintaining profitable price margins? Any time a new brand is added everything is great for a while, but quickly the discounts begin, etc, and the silly pricing begins. It appears many are all happy to race down to and tiny profit margins, and that's fine in one way as it's their loss to make as I still make my distributor margin, however the brands I supply are becoming unhappy with how pricing is affecting their representation and appearance in the UK market.

The only two ways I can see are to remove dealers who excessively discount or keep undercutting other dealers pricing, or to move over to a B2C model and do away with stockists but still offer B2B pricing when a dealer has a customer who specifically wants one of my brands products.

What are other people thoughts and ideas?

 

[The Byre]

I bought a chainsaw and it cost LESS than the regular wholesale price. In other words, if I was a regular dealer with a regular shop and repair facility, I would have been better off buying from the online competitor than from the manufacturer!

I called the owner and asked him how he managed to sell at those prices - he said "We buy our saws in lots of 1,000 at a time."

The only answer is to restrict supply. Of course, that will lead to the bigger box-shifters trying to go past you if you are just the importer. If on the other hand you are the manufacturer or you have an iron-clad contract with a reputable manufacturer who is not going to 'leak' supplies directly to a box-shifter, you can find yourself having magical shortages that mean that you limit sales to the worst offenders.

That may however lead to legal problems if you offer year-end rebates that will be affected by limiting sales.

 

[Mark T Jones]

Without being able to answer re the legalities and practicalities, there are a few brands that you never see discounted - Apple and Dyson spring to mind I assume they're not blatantly breaking the law?

At a slight tangent, I recall a conversation with a marketing person 10 years ago, specifically referring to Roberts Radios - he said 'when it appears half price In Tescos the brand value has gone'

 

[IanSuth]

Without being able to answer re the legalities and practicalities, there are a few brands that you never see discounted - Apple and Dyson spring to mind I assume they're not blatantly breaking the law?

At a slight tangent, I recall a conversation with a marketing person 10 years ago, specifically referring to Roberts Radios - he said 'when it appears half price In Tescos the brand value has gone'

Curry & Argos are currently discounting the Dyson v8 Animal (but only to the price Dyson sell direct to consumer)

 

[Elliott Coleman]

I know the law prevents price fixing and enforcing MAP policies in the UK.

The law doesn't prevent it. It happens all the time.

 

[SillyBill]

I know the law prevents price fixing and enforcing MAP policies in the UK.

Are there any ways I can use to try and discourage competitive price erosion amongst my dealers? Are there any ways to encourage maintaining profitable price margins? Any time a new brand is added everything is great for a while, but quickly the discounts begin, etc, and the silly pricing begins. It appears many are all happy to race down to and tiny profit margins, and that's fine in one way as it's their loss to make as I still make my distributor margin, however the brands I supply are becoming unhappy with how pricing is affecting their representation and appearance in the UK market.

The only two ways I can see are to remove dealers who excessively discount or keep undercutting other dealers pricing, or to move over to a B2C model and do away with stockists but still offer B2B pricing when a dealer has a customer who specifically wants one of my brands products.

What are other people thoughts and ideas?

I understand the frustration. For the first time in about 40 years we're actively considering taking a whole portfolio of our products direct to consumer and cutting out our partners in this area altogether. Not much of a risk to us given the state of what it has been reduced to. We're an out-and-out manufacturer. Big change in our business model as we're a very B2B orientated affair. We're increasingly of the opinion that a large % of the resellers are damaging ourselves as well as themselves by offering little differentiation (beyond price), limited marketing, limited effort to build branding and therefore engaging us all collectively in a race-to-the-bottom to retail the same products for pennies less than the next reseller. The end prices being sold at have been getting sillier for 5-10 years, this year with the latest slowdown and the resulting desperate drive for sales is the straw that is breaking the camel's back. We've got a good chunk of a niche market tied up in terms of market share and therefore our resellers are effectively competing among themselves with us as the producer. Getting phone calls and emails from Customer A that they can't live with our prices because Customer B is selling at X price is the usual practice. When they're both paying approx. the same...it is now wasting our time and becoming very frustrating. There is one in particular who has gone into almost car boot mode that we're about to drop altogether (managing credit before we do so, ensuring we're paid in full before we pull the plug), flogging on Amazon and Ebay at silly prices - we just don't need it. No doubt it'll be a surprise to them that we're not interested in poorer and poorer margins on high volumes courtesy of their discounting tactics. If we're going to that level we may as well the picking ourselves and take back a respectable margin. I think you will find now that the remaining manufacturers, like my company, that have resisted opening up direct routes now increasingly look to do so. In so many other areas of our business we have great partnerships with customers who generate a lot of value for us, open new markets for us both and create strong brands which mean we can all make a margin. These are the ones you have to focus on and strip out those who add nothing. Discounters don't change, their only response is to discount more when things aren't working. Until it doesn't work at all IMO.

 

[The Byre]

The

Getting phone calls and emails from Customer A that they can't live with our prices because Customer B is selling at X price is the usual practice. When they're both paying approx. the same...it is now wasting our time and becoming very frustrating. There is one in particular who has gone into almost car boot mode that we're about to drop altogether (managing credit before we do so, ensuring we're paid in full before we pull the plug), flogging on Amazon and Ebay at silly prices - we just don't need it. No doubt it'll be a surprise to them that we're not interested in poorer and poorer margins on high volumes courtesy of their discounting tactics.

Germany in the early 80s - the music retail market and Yamaha. The tactic was shelf-squatting by offering year-end rebates or credit notes. 1% for DM10k, 2% for DM20k, up to 10% for DM1m and so on. So Box-Shifter Boris sold at wholesale plus 0% and relied on his year-end credit note for profit.

Then Boris was copied by Box-Shifter Bernhardt and others until every major town had just one shop selling only Yamaha musical instruments. And they all sold at absurdly low margins.

At that time, I had a music shop and avoided Yamaha like the plague. Once you go down that path, you are forced to do two things - (1) Only stock Yamaha and (2) sell at silly prices and advertise like nuts in the music press to get the volumes that give you those year-end credit notes. When that happens, you can shut up shop. Every business that went for that strategy failed.

And with each failure, Yamaha lost market share.

Guitarists want Fenders and Gibsons. Rock drummers want DWs and jazz drummers want Gretch and Ludwig. Keyboard players want Korg and Roland. And so on.

Don't get me wrong - Yamaha still sells a shed-load of instruments in Germany, but nothing like the volumes they used to command.

I am seeing the same with Stihl and garden machinery in the UK. There was a time when our local dealer had all kinds of machines from almost every brand. Now they only stock Stihl - BUT (and here's the kicker) they still can't make the prices that the big box-shifters make. As they sell all kinds of machinery and tools, etc. and have a turnover of over £17m, the time may come when they will have to drop Stihl altogether. As they have several retail outlets across a large part of rural UK, that would make a serious dent in Stihl's market share.

Here's another story - Lexicon in the UK. Lexicon makes musical effects, ranging from guitar effects pedals to large reverb units costing ten thousand and more. When they were independent, they signed their pro-audio division over to a specialist dealer who sold to film and recording studios and big rock stars. Lexicon was bought by Harman who was buying any pro-audio brand they could get their hands on.

The UK dealer was in difficulties and started acting like a box shifter. He was discounting like Billy-O. I bought a Lexicon 960L reverb listed at £18,000 net for less than half that! But he was falling behind in his payments to Lexicon - soon he was nearly £400,000 behind. Harman cracked the whip and pulled the plug. The dealer went all Spongebob and the money was gone.

So as a manufacturer, beware the box-shifter! You may be inadvertently financing those rebates without realising it!

The happy end - The dealer phoenixed the company and carried on, Harman was sold to Samsung for $8bn and I got a cheap 7.1 reverb and FX box.

 

[Lucan Unlordly]

We are in a situation where supplier RRP's have exceeded the logical expenditure level of our customers. Subsequently we continue to discount heavily, the alternative being for them to purchase a lesser value product with significantly lower margins.