Why Do Vendors Use MAP Pricing?
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After seeing the thread about MAP pricing and reading the MAP policy of a vendor the practice seems insane. Now for very complicated products that can be reasonably sold by a VAR, I could see this potentially making sense. Products of that nature are really sold as service bundles, not boxes of goods. But products like phones cannot be sold by a VAR as there is no "value add" option, it's purely just a store and the only value a store can "add" is by lowering the price or improving the delivery. That's it.
So why would makers of products like phones or other commodity goods where the only quality differentiator between resellers by price set a minimum advertised price? The only possible outcome of that action is to make the products look price-inflated to the customers, and raise the margins for the resellers, but provide no benefit to the vendor. Why would a vendor want to push away customers and lower their own profits? This seems insane.
Some things that don't work well in western business are price haggling and lack of online sales. All viable stores are online, going to a brick and mortar isn't an option in the real world. And haggling only makes sense when dealing with insane volumes of items or when the parties involved have no other use for their time. People on vacation in bazaars can haggle because their are on vacation and their time has no value. But in business, anyone haggling on price is spending company resources on the time to argue over the price - that's time that is just wasted. A MAP seems to represent a disregard for the value of your customer's time (and time is money.)
If you consider that a consultant will cost almost always at least $100/hr, and that most haggling will at best save only a small amount, and that the time required to haggle often causes not just wasted human effort time, but also delays completing a sale and delaying a deployment, it can be very hard to find any way that there is a benefit to the process. The product sells for a lower price, but the customer gets less value. All parties lose when you haggle. Haggling is the resort of the valueless, an attempt to find value when the only thing that there is to trade is time. Successful businesses know that time is money and haggling is a worthless pursuit. It is almost always more cost effective to pay more for a reasonable, but not the lowest price, when it is set and public. Faster transactions, more often, with less overhead provide better profits, and better value. Everyone wins.
Adding the attempt at "value add" by training sales staff increases risk, as well. Sales staff cannot reasonably provide any actual value in a commodity transaction. Any knowledge that they will have is cursory at best, and incorrect information is nearly expected. Anything recommended by a sales person must be suspect. The only way to make a sales person have value is to withhold product details from public research so that by making basic information secret, the sales person can then hold that information hostage (and risk getting it wrong, something very common). Doing so directly lowers the value of the product in question.
https://msretailer.com/map-leads-minimum-advertised-price-helpful-tool-bane-retailers-existence/
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What makes even less sense, is that any customer can publish pricing information publicly. So a reseller need only have someone else mention their lower prices and work around the MAP process quickly and easily. So the MAP doesn't keep the prices up, it just makes the process overly silly.
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In Australia it called price fixing and comes with a huge fine from the ACCC. Even Apple didn't escape from it. As with anything there are ways around it..unless you get caught.
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There is also the problem of running afoul of antitrust laws depending on what jurisdiction you are doing business in.
MAP is basically trying to avoid a free market.
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@360col said in Why Do Vendors Use MAP Pricing?:
In Australia it called price fixing and comes with a huge fine from the ACCC. Even Apple didn't escape from it. As with anything there are ways around it..unless you get caught.
MAP is very specifically not price fixing. It is minimum advertised price.
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@JaredBusch said in Why Do Vendors Use MAP Pricing?:
@360col said in Why Do Vendors Use MAP Pricing?:
In Australia it called price fixing and comes with a huge fine from the ACCC. Even Apple didn't escape from it. As with anything there are ways around it..unless you get caught.
MAP is very specifically not price fixing. It is minimum advertised price.
That is still price fixing in my book. Suppliers cannot force a retailer to "advertise" a certain price.
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@360col said in Why Do Vendors Use MAP Pricing?:
@JaredBusch said in Why Do Vendors Use MAP Pricing?:
@360col said in Why Do Vendors Use MAP Pricing?:
In Australia it called price fixing and comes with a huge fine from the ACCC. Even Apple didn't escape from it. As with anything there are ways around it..unless you get caught.
MAP is very specifically not price fixing. It is minimum advertised price.
That is still price fixing in my book. Suppliers cannot force a retailer to "advertise" a certain price.
First, a supplier is not a manufacturer. MAP are almost exclusively a manufacturer thing.
Second, a manufacturer can absolutely sell their product for any price they want. It is impossible for you to call this price fixing. They may choose a stupid high price that is morally wrong to you or others, but it is 100% their business decision.
Just because you don't know anything about business does not make something a fact.
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@JaredBusch said in Why Do Vendors Use MAP Pricing?:
Second, a manufacturer can absolutely sell their product for any price they want. It is impossible for you to call this price fixing. They may choose a stupid high price that is morally wrong to you or others, but it is 100% their business decision.
So Martin Shkreli shouldn't be in prison for raising the price of Daraprim?
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@JaredBusch said in Why Do Vendors Use MAP Pricing?:
Second, a manufacturer can absolutely sell their product for any price they want. It is impossible for you to call this price fixing. They may choose a stupid high price that is morally wrong to you or others, but it is 100% their business decision.
Sure but MAP is about trying to force the retailers and distributors to not show the real price their selling for. With the sole purpose of trying to artificially keep the price higher.
It should be that the manufacturer can sell for any price they want but so can the retailers. With MAP you are trying to walk the fine line of not allowing the retailers to compete while not "forcing" them to a fixed price (which is outright illegal in many places)
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@DustinB3403 said in Why Do Vendors Use MAP Pricing?:
@JaredBusch said in Why Do Vendors Use MAP Pricing?:
Second, a manufacturer can absolutely sell their product for any price they want. It is impossible for you to call this price fixing. They may choose a stupid high price that is morally wrong to you or others, but it is 100% their business decision.
So Martin Shkreli shouldn't be in prison for raising the price of Daraprim?
Absolutely not. That is why he is in prison for Securities fraud.
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@Pete-S said in Why Do Vendors Use MAP Pricing?:
@JaredBusch said in Why Do Vendors Use MAP Pricing?:
Second, a manufacturer can absolutely sell their product for any price they want. It is impossible for you to call this price fixing. They may choose a stupid high price that is morally wrong to you or others, but it is 100% their business decision.
Sure but MAP is about trying to force the retailers and distributors to not show the real price their selling for. With the sole purpose of trying to artificially keep the price higher.
It should be that the manufacturer can sell for any price they want but so can the retailers. With MAP you are trying to walk the fine line of not allowing the retailers to compete while not "forcing" them to a fixed price (which is outright illegal in many places)
I'm not defending MAP, I think it is a stupid reaction to the change in purchasing from Brick & mortar to online.
But MAP is 100% not price fixing.
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@JaredBusch said in Why Do Vendors Use MAP Pricing?:
@360col said in Why Do Vendors Use MAP Pricing?:
@JaredBusch said in Why Do Vendors Use MAP Pricing?:
@360col said in Why Do Vendors Use MAP Pricing?:
In Australia it called price fixing and comes with a huge fine from the ACCC. Even Apple didn't escape from it. As with anything there are ways around it..unless you get caught.
MAP is very specifically not price fixing. It is minimum advertised price.
That is still price fixing in my book. Suppliers cannot force a retailer to "advertise" a certain price.
First, a supplier is not a manufacturer. MAP are almost exclusively a manufacturer thing.
Second, a manufacturer can absolutely sell their product for any price they want. It is impossible for you to call this price fixing. They may choose a stupid high price that is morally wrong to you or others, but it is 100% their business decision.
Just because you don't know anything about business does not make something a fact.
The Australian ACCC want to have a word with you https://www.accc.gov.au/business/anti-competitive-behaviour/imposing-minimum-resale-prices
On the other hand, don’t be tempted to ask your supplier to use its price list to stop your competitors from discounting. You and the supplier who agrees with your suggestion would then be breaking the law - inducing resale price maintenance or a price fix.
...
Resale price maintenanceIt is illegal for suppliers to:
put pressure on businesses to charge their recommended retail price or any other set price, for example by threatening to stop supplying to the reseller
stop resellers from advertising, displaying or selling goods from the supplier below a specified price.It is also illegal for resellers to ask their suppliers to use recommended price lists to stop competitors from discounting. In most cases, a supplier may specify a maximum price for retail.
In this case the manufacturer is effectively forcing you from advertising a lower price to attract business.
Edit: Update the quoted bit from ACCC
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@JaredBusch said in Why Do Vendors Use MAP Pricing?:
@Pete-S said in Why Do Vendors Use MAP Pricing?:
@JaredBusch said in Why Do Vendors Use MAP Pricing?:
Second, a manufacturer can absolutely sell their product for any price they want. It is impossible for you to call this price fixing. They may choose a stupid high price that is morally wrong to you or others, but it is 100% their business decision.
Sure but MAP is about trying to force the retailers and distributors to not show the real price their selling for. With the sole purpose of trying to artificially keep the price higher.
It should be that the manufacturer can sell for any price they want but so can the retailers. With MAP you are trying to walk the fine line of not allowing the retailers to compete while not "forcing" them to a fixed price (which is outright illegal in many places)
I'm not defending MAP, I think it is a stupid reaction to the change in purchasing from Brick & mortar to online.
But MAP is 100% not price fixing.
I agree with you but it's actually not clear cut at all. Everyone knows that the real intent with MAP is price fixing, it just has to be done so that isn't actually price fixing and you get sued.
This is from an antitrust lawyer:
Importantly, however, if you do add a MAP policy to your agreement with a distributor, you should make it absolutely clear that the distributor and anyone else down the chain can sell at whatever price they’d like. Even then, there are still risks as a court could conclude that a MAP requirement is effectively a pricing requirement, based upon the practicalities of the market. And when the case law is sparse, as is the case with MAP policies, the error factor for court decisions increases. You should not do this without an antitrust attorney. That is how companies get hurt, or sued. -
@Pete-S said in Why Do Vendors Use MAP Pricing?:
@JaredBusch said in Why Do Vendors Use MAP Pricing?:
@Pete-S said in Why Do Vendors Use MAP Pricing?:
@JaredBusch said in Why Do Vendors Use MAP Pricing?:
Second, a manufacturer can absolutely sell their product for any price they want. It is impossible for you to call this price fixing. They may choose a stupid high price that is morally wrong to you or others, but it is 100% their business decision.
Sure but MAP is about trying to force the retailers and distributors to not show the real price their selling for. With the sole purpose of trying to artificially keep the price higher.
It should be that the manufacturer can sell for any price they want but so can the retailers. With MAP you are trying to walk the fine line of not allowing the retailers to compete while not "forcing" them to a fixed price (which is outright illegal in many places)
I'm not defending MAP, I think it is a stupid reaction to the change in purchasing from Brick & mortar to online.
But MAP is 100% not price fixing.
I agree with you but it's actually not clear cut at all. Everyone knows that the real intent with MAP is price fixing, it just has to be done so that isn't actually price fixing and you get sued.
This is from an antitrust lawyer:
Importantly, however, if you do add a MAP policy to your agreement with a distributor, you should make it absolutely clear that the distributor and anyone else down the chain can sell at whatever price they’d like. Even then, there are still risks as a court could conclude that a MAP requirement is effectively a pricing requirement, based upon the practicalities of the market. And when the case law is sparse, as is the case with MAP policies, the error factor for court decisions increases. You should not do this without an antitrust attorney. That is how companies get hurt, or sued.And also laws are different. EU for instance have stronger antitrust laws than the US.
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@360col said in Why Do Vendors Use MAP Pricing?:
In Australia it called price fixing and comes with a huge fine from the ACCC. Even Apple didn't escape from it. As with anything there are ways around it..unless you get caught.
The US has price fixing laws too, but because this is fixing advertised price, not sales price, it is not covered in the US at least.
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@Pete-S said in Why Do Vendors Use MAP Pricing?:
MAP is basically trying to avoid a free market.
Kind of, but mostly just lowing the value of the products. It doesn't raise the final price, it just raising the effort necessary to get to the final price.
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@360col said in Why Do Vendors Use MAP Pricing?:
That is still price fixing in my book. Suppliers cannot force a retailer to "advertise" a certain price.
In the US they absolutely can. They cannot control the final price, only the one advertised. But advertisement "fixing" is legal in the US. Unethical, probably. Stupid, for sure. But legal, yes.
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@JaredBusch said in Why Do Vendors Use MAP Pricing?:
Second, a manufacturer can absolutely sell their product for any price they want. It is impossible for you to call this price fixing.
They can, but what price they sell it at is not in question. It is controlling the price at which others can resell it at that is price fixing.
I told the vendor in question that prompted this question this... if they felt that their prices were too low that they would not be taken seriously they needed to rause their prices, not do MAP. MAP hurts them by making their products list as too expensive to consider versus their competition, while not providing them with any additional profits. It hurts them in every way.
Why would anyone spend time tracking down a new to market product whose selling point is supposed to be that it is cheap, when their advertised prices are all way higher than their established competition?
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@scottalanmiller said in Why Do Vendors Use MAP Pricing?:
@360col said in Why Do Vendors Use MAP Pricing?:
That is still price fixing in my book. Suppliers cannot force a retailer to "advertise" a certain price.
In the US they absolutely can. They cannot control the final price, only the one advertised. But advertisement "fixing" is legal in the US. Unethical, probably. Stupid, for sure. But legal, yes.
And the stores still get around it by advertising things like “includes $50 gift card “ etc.
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@DustinB3403 said in Why Do Vendors Use MAP Pricing?:
@JaredBusch said in Why Do Vendors Use MAP Pricing?:
Second, a manufacturer can absolutely sell their product for any price they want. It is impossible for you to call this price fixing. They may choose a stupid high price that is morally wrong to you or others, but it is 100% their business decision.
So Martin Shkreli shouldn't be in prison for raising the price of Daraprim?
He didn't resell. He raised it directly.
