Minimum prices protect retailers and consumers
Last week the U.S. Supreme Court heard arguments in the case PSKS v. Leegin Creative Leather Products. The court’s final decision, due in June, could have long-ranging implications for RV dealers, manufacturers, suppliers and independent parts and accessories stores. At issue is the fairness of a 1911 high court decision that declared minimum price agreements automatically illegal on the grounds that it would lead to Americans paying far more for goods and services. Back then the justices believed that minimum prices would hinder competition by removing market forces that control supply and demand.
Last week, U.S. attorney Theodore Olson argued that the nearly 96-year-old ruling was “outdated, misguided and anti-competitive.” He argued that minimum price deals can be beneficial for consumers because they come with better service and warranties. Opponents argued that minimum price laws protect small mom-and-pop operations that compete with big discounters who have their own market power. Normally, I am all for free enterprise. But, in this case, I support the government’s position in seeking reversal of the rule that prevents manufacturers from setting minimum prices.
Unlike 1911, today we live in a world where a single supplier operating an online cyber store can undercut even mass merchandisers, let alone mom-and-pop stores, with ridiculously low prices. As I have noted in previous blogs, these cyber stores don’t even need to stock inventory. They simply accept an electronic order and pass it on to a warehouse distributor that ships the product directly to the buyer. The cyber store collects a small fee, often below five percent, for orchestrating the transaction without having to pay any overhead. Reversing the 1911 decision will actually protect all business owners from this type of online predatory pricing. By allowing RV manufacturers to set minimum prices for RVs, legitimate RV dealers will no longer have to worry about a single cyber dealer selling a unit as cheaply as possible without completing a pre-delivery inspection, without orientating the customer to its operation and without having to provide even basic customer service. It will result in much fewer orphaned owners and increased customer satisfaction.
Requiring a minimum price would protect all retailers against a hyper-aggressive retailer. Imagine if the RV industry had an overpowering retail chain that sold RV parts and accessories online and in retail outlets throughout the country. Now imagine if that retail chain (we’ll call it Kamping Universe) attempting to strong arm a towing equipment supplier (we’ll call it Red Mule) into providing products to the chain at a razor thin margin. Red Mule Hitch Company balks at the tactics and tells Kamping Universe to take a hike. Now imagine that Kamping Universe is managed by a bully that sought revenge on the uncooperative supplier. It launches an aggressive campaign to put Red Mule out of business by selling a competitive product (perhaps a private-labeled product) at retail prices well below Red Mule’s wholesale price. Other dealers that carry Red Mule products throw up their hands and admit they can’t market the product and either unload existing inventory at unprofitable prices or return it to a wholesale distributor.
Kamping Universe, which also happens to own most of the industry’s consumer publications as well as a major outdoor advertising company, shuts Red Mule out of the ability to advertise its products to consumers. It orchestrates a Google and Yahoo click campaign so that whenever anyone searched for Red Mule products, advertisements for its own branded products and retail stores appear – even before links to Red Mule itself. Unable to retain dealers or attract customers and hindered by a limited distribution channel, Red Mule eventually shuts its doors. That allows Kamping Universe to quickly increase prices for similar products confident they don’t have to worry about a competitor.
RV suppliers and manufacturers should have the ability to protect their business partners, their customers and their reputations by setting minimum prices to prevent domestic or foreign predatory companies from undercutting them, even to the point the predators are willing to lose money in the process. Justice David Souter worried would that big box discount retailers like Wal-mart would face closure if minimum prices were allowed. Hardly. Getting a product in the Wal-mart chain is the crown jewel of merchandising. Few suppliers are stupid enough to kill their golden goose by setting a minimum price that keeps them out of Wal-mart stores.
But, is there anything wrong with the suppliers telling all retail stores they can’t sell the same product at prices lower than the lowest price negotiated with the big box stores. If that price is fair for the big boxes, at least it will give other retailers a fighting chance.
April 23rd, 2007 at 6:04 am
I don’t agree with you Jim. You missed the most important part of my quote; “qualified, professional and customer oriented companies.” That’s what will make the difference in all of these discussions.
Every argument you present can be defended, and beaten, by a company that puts qualified people on the sales floor, trains them in professional selling techniques, and has a business that delivers great customer service while selling quality products they can be proud of.
Your big-box store mentality argument is correct if the consumer is buying a commodity product. There is absolutely no difference between the box of Cheerios you buy at the convenience store and the one you buy at Sam’s Club.
But the RV industry is not selling commodity products and their is a difference in the way products are built, sold, and supported after the sale. If we have dealers that can not tell the difference between a good product and bad product, then they are never going to be able to explain the differences to the consumer. If they can’t explain the differences and distinguish their products and services from an Internet discounters then they deserve to lose the sale, and the customer.
This situation will not be reversed until the mind set of the dealer, and the products on their lots and in their parts and accessories store, changes.
You can still sell value today! In fact one could argue, as Sean has, that it is easier now because people are fed up with cheap products, shoddy construction, salesepeople that don’t have a clue as to what they are selling, and companies that don’t support their products. We see this everyday and read about it everyday, so why is it so hard for the RV industry and its dealers to figure it out?
April 11th, 2007 at 9:23 pm
Jim, I’m happy to say that what you describe is not a fact in our business. We sell $3000 hitches year after year with our competitors attempting to compete with $300-$500 sales. The last I looked at the large, public, hitch company selling at low prices they were losing money. We, on the other hand, are profitable.
As I said before, it is the responsibility of the manufacturer to control its business. If the salespeople can’t sell at higher prices they need better training or need a different PROfession. If the manufacturer doesn’t have the brass to control its business it deserves to go under. It’s simple.
From the standpoint of the dealer, the dealer should just stop selling the junk before the brassless manufacturer takes the dealer down the swirling bowl with it.
A lot of manufacturers and dealers are like addicts.
“It’s killing me… Give me more… I hate myself for doing it… I need it… It’s killing me… Give me more… I hate myself for doing it… I need it…”
Where’s the 12-step program?
April 10th, 2007 at 3:13 pm
It would be nice to have the Gov’t give manufacturer’s the right to set minimum prices to protect their product and service network. The only issue is that I believe the RV manufacturers in general would not set these minimums. If we read recent history, RV manufacturers do not enforce their current internet pricing policies. I see great RV manufacturers consistantly let their big dealers get away with murder. It will further erode RV customer satisfaction with this lifestyle as our dealership’s margin gets thinner. We are starting to get into the internet pricing game too, because we are tired of sticking up for the integrity of the manufacturer’s policy while they look away at dealers that could care less about the service for the retail customer after the sale. And the manufacturers let them get away with it.
April 10th, 2007 at 3:06 pm
“Companies like the factitious “Kamping Universe” or those of the real-world Wal-Mart or Home Depot variet are never, ever going to put qualified, professional, and customer oriented companies out of business … period.”
I think you are giving the vast majority of American consumers WAY too much credit Bob. Price does indeed account for far more of the purchasing decision then it should. As I said in an earlier post true value is not defined by price alone. That’s something you can preach until you’re blue in the face, but those words will mostly fall on deaf ears.
One of the primary reasons “super stores” exist is because people can save money on their purchases. For smaller items it’s perhaps nothing more then pocket change. For larger purchases it may be a bit more of a savings (percentage wise), but the bottom line is just that; the bottom line. What can you save for me today.
Jim Jameson mentioned having people use his services to check out potential units before buying them, but then making the actual purchase somewhere else. I’ve personally experienced this exact same phenomenon. Too many people think a commissioned salesmen has nothing better to do then waste time helping them make a purchasing decision that someone else will profit from. Wonder how those same people would feel if I went down to where they worked and wasted their time (and lost them money in the process). Turn about is fair play after all, isn’t it?
Sad to say, but quality and professionalism don’t appear to account for much any more (at least not as much as they shuold). It seems to be price, price, price…
April 9th, 2007 at 8:58 am
Well, Bob, as you might guess from my response, I have strong opinions about this issue.
As a manufacturer I see it as taking personal responsibility for the success of the business. Too many like to hold the industry line and shirk the responsibility they have to their owners (i.e.-stockholders), employees and customers. It shouldn’t be taken so lightly by continuing to let either dealers or price brothels to erode the brand.
April 7th, 2007 at 11:06 am
Great response Sean, you must have had your Wheaties for breakfast this morning. You are right, the problem is in the hands of the manufacturers. They tolerate poor business practices that truly hurt everyone and turn a deaf ear while turning the other way to count their profits and fail to realize the long term damage being done to the RV industry everyday.
April 6th, 2007 at 2:33 pm
Manufacturers can control their retail pricing without government “help.” All the manufacturer has to do is stop selling to the dealer, or internet store, or Kamping Brothel Universe that does not hold near the retail price. It’s easy to do if the manufacturer is managing its brand and not on its back with its legs in the air.
April 6th, 2007 at 1:52 pm
Let me say this one more time. No one is asking the Government to step in. The Government ALREADY did that - in 1911 - when they said ” you cannot set minimum prices ”
What most people responding here are saying is that they want the Feds to step out of the picture and allow an organization to set minimum prices if is decided that it would be a good thing to do so. I see no proposal here that minimums be mandatory only available.
The less government is involved in business, the better off we all are. It’s hard to mount a convincing argument against that statement.
Will Rogers once said ” Just be thankfull that you are not getting all the Government you’re paying for.”
April 5th, 2007 at 10:41 am
Why do dealers continue to do business with manufacturers that allow this to happen? Without trying to establish minimum/maximum prices and/or profit margins, the OEM’s can certainly define an explicit set of rules and business practices that govern their dealer relationships and business practices. The key is that they must treat all dealers equally and must enforce their policy equally across the board or it will never hold up in court. In my imaging life we deal with this very same problem everyday and I just don’t sell products from companies that want to screw me and my customers by allowing this type of business practice to exist. There are two companies I deal with that have come up with interesting solutions to address this problem and I think both policies could work in the RV industry but you’ll never see it happen.
The first manufacturer provides us with a PAR (Primary area of responsibility and we can only sell in that area. We do not have an exclusive with the product either and do have other dealers selling the same product in the same PAR, but it addresses the issue of out of territory sales. A second manufacturer requires the dealers to “register” a lead or prospect first, and if they do then they receive an additional discount over and above any other dealer that may still work on the deal but would not have as much profit to play with. This is legal because it is their policy and they uphold it on every deal registration.
Food for thought.
April 5th, 2007 at 8:38 am
I really do not know how this will workout. I do know that I am tired of selling motorhomes for other dealers who have little or no inventory. We do all the selling and showing with our inventory, then the customers pick up the phone and order from a dealer with a sand lot and no inventory. I’ve even had customers who have already ordered, but came by our store to see what they will be getting. I know it sounds like sour grapes and it is.
April 4th, 2007 at 10:46 pm
Companies like the factitious “Kamping Universe” or those of the real-world Wal-Mart or Home Depot variet are never, ever going to put qualified, professional, and customer oriented companies out of business … period. The problem is that many of our qualified, professional and customer oriented companies under charge for their products and services because they percieve that to be the way to challenge the big box mentality of companies that think they can control the pricing in their industry.
People will pay for services rendered, and companies that provide a higher leverl of customer service have every right to charge more for it … and do it produly. Why is it that we are all willing to subscribe to that theory when we are “buying” something of value yet many want to resort to gutter sales techniques when trying to sell their product or service?
The business fact of life here is that many of the small companies that complain perceive themselves to be in the same business as a big-box or Internet retailer and they are not, and they should not want to be considered in that positon and they certainly should not want to be in that position.
If you know you are better than the factitious “kamping Universe” then you should be selling at higher prices and earning higher profits because people will pay you for being that different. If you provide the service, support, hours of operation, quality work, and treat your customers better than your competition then you have earned the right to charge more money … and should.
I am against setting a minimum price for anything, just as I’m against setting a maximum price … which is what the government will want to do next if you support their attempt to set the rules in the game you want to play. i don’t think you want the government intervention many of you are asking for here.
Meet the competition head-on and beat them at their own game. Raise your prices, don’t lower them. Charge more for your services, not less. Tell your prospects and customers that you are more expensive than your perceived competition and then tell them why. You will be surprised to see how many will gladly pay for the products and services you supply because you have earned the right to do business your way, not to be dictated to by the factitious “Kamping University” and any of their factitious subsidiaries, operating units, or affiliated retail rolling stock operations!
April 4th, 2007 at 6:56 pm
I agree as well… as a mobile RV service and aftermarket retailer, some of these online retailers can sell parts online cheaper than I can buy them from suppliers. While I’m all for free enterprise, what’s the limit? I use the same suppliers as 90% of America’s RV dealers. I’m too small to arrange direct manufacturer agreements in most cases, and, frankly, I don’t want to. What’s the answer? Do small operations like mine close up? These RV supercenters are fine and dandy, but they can’t service many of my seasonal customers.
Regular dealers have a bigger problem than I, as they have a large FBO (Fixed Base Operation) to support.How do they remain profitable? Frankly, “Kamping Universe” isn’t the biggest problem at this point… I can offer the same discount on most items.. it hurts, but I can do it. The online “warehouses” are a bigger issue, in my opinion, and they’ll really hurt the industry if they’re allowed to continue. Our customers need and demand service. If the current trend continues, all that’ll be left are the manufacturers.. no dealers or service operations. Is that best for the RV business? I don’t think so. I doubt the manufacturers will be willing to send service personnel to rural New York, or any other state, to provide service on demand, but that’s what it will come down to if we continue in this direction, in my opinion.
April 4th, 2007 at 10:14 am
Greg, I could not agree more. The government should allow manufacturers to establish mininmum pricing. Powehouse retailers like Wal-Mart and Home depot have always been able to sell for less because of their volume, and have driven many small dealers out of business. In our business, the RV internet retailer has taken discounting to a new level. RV manufactures can address this problem now, with an internet pricing policy that is written into their sales agreement.
April 4th, 2007 at 9:32 am
Looks like our president did not fire enough U.S. attorneys or possibly Mr. Olson’s view is that of Mr. Bush’s. In any case usually replacing the rule of law with the rule of reason is not a good idea and I hope that the Supreme Court does not reverse the Dr. Miles decision and overturn the Sherman Act or at least part of it. Nor as a Christian am I impressed with modern economic therory. At issue is do we as dealers need someone telling us how to run our business by dictating what our minimum profit can be? How about our maximum profit. I often am accused of being an Internet company and it is true I do use all forms of national media to advertise my products. The last time I checked they were mine, and I paid for them which in my opinion means that I control them I decide if I will accept or decline any and all offers to purchace as well as what I advertise them for. It amazes me when business persons freely give up control over their capital so easily. You will also note that Leegin lost when they were sued by PSKS and are now trying to use the court system to change law that was legislated in a constitutionaly approperate manner. I might add that my dealership is only a few miles from the first “Kamping universe” and that their incredibly high overhead has played perfectly into my business plan.
April 3rd, 2007 at 6:18 pm
I do not want to be prevented, as a dealer, from clearing old inventory by lowering prices on particular units. I would prefer to leave things as they are except be able to refuse service to e-buyers.
April 3rd, 2007 at 4:55 pm
I am a Airstream dealer in Oregon. A few years ago I found myself stocking units, staffing people, paying insurance and advertising all to draw in customers who would then go to Yakima and buy from a Cyber guy. He didn’t stock much and had little over head. To him it seemed $500 - $1,0000 gross on a $40,000 unit was acceptable. I lost several deals to this guy until Airstream finally put a stop to it. I won’t name names, but he is a major camper manufacturer’s lead outlet and they let him get away with that. It doesn’t serve the customer well or anybody who is legitimate to let Cyber Rv places exist that cheap sell good Rv products.
April 3rd, 2007 at 4:46 pm
If I’m reading this story right, the Government has already instilled it’s will in this matter by declaring that there could be NO minimum. I think the Feds should bow out and let manufacturers set the course. If it’s not in the best interest of the product, there will still be no minimum.
April 3rd, 2007 at 3:49 pm
I’m not certain government intervention is the correct way to resolve this particular issue. While I do tend to agree that something needs to be done about the online dealers who are solely price-focused (and perhaps not customer service oriented nearly to the degree they should be) I can’t imagine such broad legislative action is the solution.
More often then not, when the government get’s involved regulating business the consequences associated to their actions are worse then the actual problem itself. While it does appear that the online dealers are getting the upper hand, that may not necessarily be as much of a problem as it may appear.
True, the traditional dealer is losing business, and that’s certainly unfortunate. But as more and more consumers learn the cold hard facts of buying online — having no local method of getting after-sale service is certainly one of the biggest problems they ultimately confront — the word might get out that what you save initially is not worth the hassle you’ll inevitably encounter in the future. The more people who purchase online the more potential voices of dissension you create.
And let’s be honest; at SOME point you’ll need the dealer for service or support. As a consumer if you haven’t established a relationship with one you’ll more then likely regret it. When those people start to tell their friends about the problems they’ve encountered — or posting about them on any of the myriad forums on the internet — it might sink in to some of the buying public that value, true value, is not determined by price alone. That may go a long way towards reversing the current trends.
April 3rd, 2007 at 2:47 pm
I’m having a logic problem. If “Red Mule” wasn’t willing to lower its price to “Kamping Universe”, how would the reversal in law help Red Mule? At the point at which Red Mule can’t/won’t lower its prices to Kamping Universe, Kamping Universe (in your example) creates a competitive brand. It seems to me, and I could be wrong, that Red Mule’s only recourse would be to drop Kamping Universe as a customer, or offer a similar value proposition. Did I miss something?