Music Trades article #1 - Electro-Harmonix Says No To Amazon

[Mark Wein]

From an email newsletter I occasionaly receive:http://www.musictrades.com/news1.html

 

Electro-Harmonix Says No To Amazon

 

ELECTRO-HARMONIX is discontinuing its sales through Amazon.com. EHX hasn't supplied the online platform since May 5, and on June 1 it announced to its dealers that it expects them to refrain from listing its products on the site within 60 days.

 

 

Electro-Harmonix CEO Mike Matthews at the company's headquarters in New York City.

 

Electro-Harmonix founder and President Mike Matthews acknowledges Amazon's appeal to consumers--free freight, fast shipping, and the lowest price--but points to practices that pose significant obstacles to the competitiveness of the Electro-Harmonix brand. "They keep changing their policies, procedures, and personnel," he contends. "If you don't fill a complete purchase order, they fine you--we can live with that. But if they find any of our sellers advertising below MAP, they'll quickly and aggressively cut their own advertised price without first notifying us or giving us a chance to react."

 

The vicissitudes of MAP policy at Amazon are at the core of several EHX grievances. In addition to the products Amazon buys directly from suppliers and sells on Amazon.com, it also hosts dealer sites as Amazon "stores." Not surprisingly, this model implicitly invites "alias" companies to advertise below MAP. (Ironically, when this happens, Amazon complains to Electro-Harmonix that its products' sellers are disregarding MAP.)

 

Normally, Electro-Harmonix can determine by its products' serial numbers when an alias seller advertises below MAP. However, because sellers can authorize Amazon to comingle their stock with other sellers' stock, and Amazon can choose which fulfillment location is best suited to ship particular orders, it becomes far more difficult for EHX to sleuth out the offenders. (Dealers who don't authorize stock to be fulfilled by Amazon are punished by being demoted in Amazon's search ranking.) "All of this makes it very hard for us to monitor MAP," Matthews laments. "And if advertised prices fluctuate, our dealers won't adequately support our brand."

 

Matthews also has a bone to pick with Amazon's returns policy. Unlike Electro-Harmonix, which issues a return authorization on approved returns, Amazon provides its customers a return label that enables them, for any reason, to return the item to Amazon for instant credit. For items returned to EHX, Amazon levies a flat shipping charge of $3.02 per item, which on larger return orders "can add up to very excessive shipping charges."

 

For Matthews, the final straw was seeing Electro-Harmonix pedals sold by Amazon.com on sister site Amazon U.K., despite his refusal to authorize such extra-territorial sales. After ignoring multiple warnings, an Amazon rep agreed to curtail the activity but admitted that it would soon resume. Exasperated, Matthews explains (more colorfully than these pages can accurately record), "I've got four or five people dealing with excessive shipping charges, returns, and incomplete order fines. Meanwhile, Amazon tries to boost its margins by sucking money back from its vendors. I'm 75 years old; I don't need this [aggravation] anymore!" He adds, "Our new policy is firm: We're not going to support dealers who sell our products on Amazon."

[Phil O'Keefe]

It will be interesting to see how this works out for them as well as whether or not they're able to make their dealers follow suit. I guess THAT will depend on the nature of their dealer agreements.

 

I really can't blame EHX for being unhappy about how Amazon behaves when someone advertises something below MAP. EHX stuff is already priced extremely competitively, and I'm sure they make their money more on volume as opposed to high markups, so when someone undercuts the MAP price, they're probably losing money.

 

BTW, Mark, do you have a link for the original Music Trades article? It might be nice to post that to give them credit and to make it easier in case someone wants to sign up for their (IMHO excellent) industry newsletter.

 

 

[Phil O'Keefe]

Here... it looks like the article is posted in their Current News section:

 

http://www.musictrades.com/news1.html

 

 

[Mark Wein]

It will be interesting to see how this works out for them as well as whether or not they're able to make their dealers follow suit. I guess THAT will depend on the nature of their dealer agreements.

 

I really can't blame EHX for being unhappy about how Amazon behaves when someone advertises something below MAP. EHX stuff is already priced extremely competitively, and I'm sure they make their money more on volume as opposed to high markups, so when someone undercuts the MAP price, they're probably losing money.

 

BTW, Mark, do you have a link for the original Music Trades article? It might be nice to post that to give them credit and to make it easier in case someone wants to sign up for their (IMHO excellent) industry newsletter.

 

If anyone could make changes like that it I think that it would be Mike Mathews. I've heard a story where he had problems with the Russian Mafia over their product production over there and he told them to "go eff" themselves and got away with it. I'll have to look for the article on that.

 

I got the article in an email but I just discovered that if you click on their logo in the email it takes you to their site: http://www.musictrades.com/news1.html

[Mark Wein]

Ah..here it is. The problems in Russia on on page 3 but its an interesting article all the way through: https://www.forbes.com/sites/karstenstrauss/2014/03/07/rock-and-roll-russian-gangsters-rising-from-the-dead-the-saga-of-electro-harmonix/#7b718f877482

[Phil O'Keefe]

Standing up to the Russian mafia - how rock and roll is that? You've gotta love Mike.

[Grant Harding]

I tried Amazon twice and both times I got overcharged and couldn't get a single response from them. I hope this works out, but I'd be surprised given their aggressive nature.

[AJ6stringsting]

I may have rack effects units, but none of their Flangers are not in the same league as my 1979 EHX Electric Mistress Deluxe Flanger , PB-1 and my 70's Big Muff Deluxe always get taken out for a spin.

I stand with Mike Mathews and his products..... Always have and always will !!!!

I'd love to see EHX build multi effects floor units and rack units. If they did Roland, Axe Fx, Kemper, Digitech and Boss would get knocked down the latter quickly.

I can't wait for EHX to build amps, I will definitely buy one, fast !!!!

[Bucksstudent]

Amazon is basically an online Walmart. They're both companies that are great for consumers, but terrible for the economy. They force manufacturers to lower prices so companies have to outsource. Electro Harmonix can say no to Amazon because they're a niche American company and people who want their product will gladly buy through MusiciansFriend and Guitar Center instead.

 

I've had more successful gear purchases through Amazon, though.

[Bucksstudent]

I may have rack effects units, but none of their Flangers are not in the same league as my 1979 EHX Electric Mistress Deluxe Flanger , PB-1 and my 70's Big Muff Deluxe always get taken out for a spin.

I stand with Mike Mathews and his products..... Always have and always will !!!!

I'd love to see EHX build multi effects floor units and rack units. If they did Roland, Axe Fx, Kemper, Digitech and Boss would get knocked down the latter quickly.

I can't wait for EHX to build amps, I will definitely buy one, fast !!!!

 

EHX has made several multieffects, but none that come close to the numerous and almost infinite options companies like Digitech offer. Companies like Digitech create incredible products too.

[Mark Wein]

I buy a lot of stuff through Amazon, especially since I can get faster and free shipping with Prime. Last month I discovered I needed some LED stage lights for a gig I had at someones house and I was able to get a fair price and shipped free to me within 24 hours.

 

"good for the consumer but bad for the economy" as mentioned above is probably a fair description. Anything that I don't need to try before buying or that I need in a hurry can usually be found there.

[Phil O'Keefe]

Anything that I don't need to try before buying or that I need in a hurry can usually be found there.

 

They've kind of replaced Radio Shack for me in some ways. It's not quite as fast as running across town to RS to get some parts or an adapter, but it's close - and unlike Radio Shack, they're still in business and offering stuff for sale that I want / need.

[Verne Andru]

This is in no way meant to be an endorsement of Amazon or anyone else, but there is another side to this coin.

 

Complaints about re-sellers undercutting MAP are usually caused by too much product in the channel. Some of the problem has to do with business cycles, consumer habits and competition, but I've found the larger problem is usually caused by the companies doing the complaining - usually the manufacturers.

 

In short, they are usually guilty of "channel stuffing."

 

It goes like this - Company says to reseller, "if you want to carry my brand you have to agree to carry it all, whether it sells or not. And when I come out with a new product consumers are hot on, I'll strong-arm you into picking up a few of my products that aren't selling and you can't complain."

 

This tends to cause a glut of underselling product in the various stages of moving from maker to user. Since reseller doesn't want to lose carrying a high-margin brand that drives traffic, they'll agree to take the under performing products which they'll then punt along for a loss (making up the difference on the pieces that do sell).

 

Pedals are pretty easy and cheap to mass-manufacture these days with most companies off-loading the bulk of the work to China (they do just enough in the US to be able to say they are "made" in the US but it's a small part). If political machinations continue going the way they are, expect to see prices rise as builders lose their ability to out-source like they have been.

 

In the interim sales will be hard won and more companies will be adding pressure on the already over-burdened distribution channels to pick up the slack. Where the "little guy" has no leverage with the heavy-handed tactics of some makers, the big-boys do. If you think the complaints EH has about Amazon are bad, you should check out what happens to a supplier who misses a Walmart delivery by 5 minutes (hint: bankruptcy is usually part of the equation).

 

I prefer the business model used by Rickenbacker - build a quality product and build just enough to meet demand.

[Mark Wein]

 

They've kind of replaced Radio Shack for me in some ways. It's not quite as fast as running across town to RS to get some parts or an adapter, but it's close - and unlike Radio Shack, they're still in business and offering stuff for sale that I want / need.

I ordered a Nobels ODR-1 through Amazon this week. I placed my order at 10:21 am and with my Amazon Prime account one of the shipping options was same day delivery. By 6pm I had the pedal at my house. 8 hours from "add to cart" to in my hands. And they shipped it to me from Las Vegas, NV to Orange, Ca in that time. Crazy.

[Mark Wein]

This is in no way meant to be an endorsement of Amazon or anyone else, but there is another side to this coin.

 

Complaints about re-sellers undercutting MAP are usually caused by too much product in the channel. Some of the problem has to do with business cycles, consumer habits and competition, but I've found the larger problem is usually caused by the companies doing the complaining - usually the manufacturers.

 

In short, they are usually guilty of "channel stuffing."

 

It goes like this - Company says to reseller, "if you want to carry my brand you have to agree to carry it all, whether it sells or not. And when I come out with a new product consumers are hot on, I'll strong-arm you into picking up a few of my products that aren't selling and you can't complain."

 

This tends to cause a glut of underselling product in the various stages of moving from maker to user. Since reseller doesn't want to lose carrying a high-margin brand that drives traffic, they'll agree to take the under performing products which they'll then punt along for a loss (making up the difference on the pieces that do sell).

 

Pedals are pretty easy and cheap to mass-manufacture these days with most companies off-loading the bulk of the work to China (they do just enough in the US to be able to say they are "made" in the US but it's a small part). If political machinations continue going the way they are, expect to see prices rise as builders lose their ability to out-source like they have been.

 

In the interim sales will be hard won and more companies will be adding pressure on the already over-burdened distribution channels to pick up the slack. Where the "little guy" has no leverage with the heavy-handed tactics of some makers, the big-boys do. If you think the complaints EH has about Amazon are bad, you should check out what happens to a supplier who misses a Walmart delivery by 5 minutes (hint: bankruptcy is usually part of the equation).

 

I prefer the business model used by Rickenbacker - build a quality product and build just enough to meet demand.

I used to work for a retail Fender dealer in the late 90's early 2000's. For every useful piece of inventory like a MIM strat or a Frontman 25r amp they would pile us full of "Amp Cans" and puke yellow american standard strats and acoustic guitars with horrible graphics they we'd have to sell at cost at some point in the year just to make room for the next pile of DOA inventory.

[Phil O'Keefe]

I ordered a Nobels ODR-1 through Amazon this week. I placed my order at 10:21 am and with my Amazon Prime account one of the shipping options was same day delivery. By 6pm I had the pedal at my house. 8 hours from "add to cart" to in my hands. And they shipped it to me from Las Vegas, NV to Orange, Ca in that time. Crazy.

 

I signed up for Prime, and I get free 2 day shipping, which is usually fast enough... but in many cases I can get it even faster. A lot of the time the stuff comes out of warehouses here in California, so even with an expectation of it taking two days, it will often only take one. I love it when that happens!

 

 

[Bucksstudent]

This is in no way meant to be an endorsement of Amazon or anyone else, but there is another side to this coin.

 

Complaints about re-sellers undercutting MAP are usually caused by too much product in the channel. Some of the problem has to do with business cycles, consumer habits and competition, but I've found the larger problem is usually caused by the companies doing the complaining - usually the manufacturers.

 

In short, they are usually guilty of "channel stuffing."

 

It goes like this - Company says to reseller, "if you want to carry my brand you have to agree to carry it all, whether it sells or not. And when I come out with a new product consumers are hot on, I'll strong-arm you into picking up a few of my products that aren't selling and you can't complain."

 

This tends to cause a glut of underselling product in the various stages of moving from maker to user. Since reseller doesn't want to lose carrying a high-margin brand that drives traffic, they'll agree to take the under performing products which they'll then punt along for a loss (making up the difference on the pieces that do sell).

 

Pedals are pretty easy and cheap to mass-manufacture these days with most companies off-loading the bulk of the work to China (they do just enough in the US to be able to say they are "made" in the US but it's a small part). If political machinations continue going the way they are, expect to see prices rise as builders lose their ability to out-source like they have been.

 

In the interim sales will be hard won and more companies will be adding pressure on the already over-burdened distribution channels to pick up the slack. Where the "little guy" has no leverage with the heavy-handed tactics of some makers, the big-boys do. If you think the complaints EH has about Amazon are bad, you should check out what happens to a supplier who misses a Walmart delivery by 5 minutes (hint: bankruptcy is usually part of the equation).

 

I prefer the business model used by Rickenbacker - build a quality product and build just enough to meet demand.

 

Rickenbacker is another example of a niche company, and they don't build to meet demand. They're still back ordered as far as I know. They raised their prices to deter orders years ago, yet they still come in. You can sell a used Ric for almost as much as new too.

 

They also draw attorneys like guns, so you can't find copies easily. If Musicians Friend or Guitar Center is out of stock or if you want a custom order (like toasters pre-installed into a 360), you're going to wait a while.

[daddymack]

Three swaybacks for every thoroughbred...

the other side of the coin though is places like GC/MF who can cherry-pick because they move enough volume and can handle a 'special' clearance.

[GAS Man]

On the original article:

 

I certainly get that as a manufacturer, Amazon must be a total pain to work with. I applaud Mike Matthews for pulling his product out of Amazon since it will also aid the musical gear dealers. But OTOH, when it comes to pricing below MAP on Amazon, what's the real difference between that and a store like Musician's Friend advertising Store-Wide Deals of 10% to 15% off? I mean, I do know that MF says "on select gear" but there's also their "wink wink" that if you call or chat they'll cut you a similar deal. Amazon OTOH never has site-wide discount sales.

[robertkeeley]

This is in no way meant to be an endorsement of Amazon or anyone else, but there is another side to this coin.

 

Complaints about re-sellers undercutting MAP are usually caused by too much product in the channel. Some of the problem has to do with business cycles, consumer habits and competition, but I've found the larger problem is usually caused by the companies doing the complaining - usually the manufacturers.

 

In short, they are usually guilty of "channel stuffing."

 

It goes like this - Company says to reseller, "if you want to carry my brand you have to agree to carry it all, whether it sells or not. And when I come out with a new product consumers are hot on, I'll strong-arm you into picking up a few of my products that aren't selling and you can't complain."

 

This tends to cause a glut of underselling product in the various stages of moving from maker to user. Since reseller doesn't want to lose carrying a high-margin brand that drives traffic, they'll agree to take the under performing products which they'll then punt along for a loss (making up the difference on the pieces that do sell).

 

Pedals are pretty easy and cheap to mass-manufacture these days with most companies off-loading the bulk of the work to China (they do just enough in the US to be able to say they are "made" in the US but it's a small part). If political machinations continue going the way they are, expect to see prices rise as builders lose their ability to out-source like they have been.

 

In the interim sales will be hard won and more companies will be adding pressure on the already over-burdened distribution channels to pick up the slack. Where the "little guy" has no leverage with the heavy-handed tactics of some makers, the big-boys do. If you think the complaints EH has about Amazon are bad, you should check out what happens to a supplier who misses a Walmart delivery by 5 minutes (hint: bankruptcy is usually part of the equation).

 

I prefer the business model used by Rickenbacker - build a quality product and build just enough to meet demand.

 

The other side of the coin, isn't always the case...

 

While I can see that happening in some cases, my experience is slightly different. I have problems with Amazon and a few dealers that insist on selling product below MAP. So I wrote Mike Mathews an email and asked if we could talk. He called me and I asked about his reasoning for the Amazon thing and I was delighted to get some information from him as to his feelings about the market.

 

We make about 3000 pedals a month. We do not outsource to China. Everything from the boards to the cases, to the printing, everything is made here in Oklahoma or some parts are made in Missouri. I have tried China. Quality was not there and it caused me a ton of problems getting the boards ready for the units (bad parts in general, very poor characteristics or just plain bad. So we are NOT like what you describe, and that I agree happens, in many, many cases. (Come by my show or watch videos of us making it all.) Other companies I consider peers, like JHS, EQD, Mr. Black, Cusack, all make their product entirely in the U.S. Outsourcing at this "mid level" is actually rare I think, to my understanding.

 

We do not force the entire product line on dealers. In fact, they can by what they want, no minimums even. Yes, you can buy one. And, we have never had a salesman (in 16 years...Am I crazy or What?!?!?!) ...so we don't force product on people. And we just recently doubled our production with new employees and a 3rd CNC machine....and our back orders rose to over 1000 units. (just about Rickenbacker in supply/demand curve I suppose...)

 

Here's the REAL PROBLEM. SOME dealers just refuse to sell it for the correct price. They will do ANYTHING but follow the intent of the MAP policy. They will discount until they are ALMOST....out of business. They just get addicted to cash flow and then mark everything on sale. I know because I've been there and felt that way! Sales graphs that look like a crown...you only sell things when on sale or discounted....

 

Now, you add the complications of Amazon and the way products can be sold behind a curtain...and you have real problems. Pricing bots go after the lone wolf that has dropped price to sell 3 units and Amazon lowers their price. Musicians Friend bots see it and lower their price, then Sweetwater people see the price and lower their price then call me mad that some dealer is not selling it at the right price and I spend hours tracking down a person that sells paper towels that has a buddy that has a online music store that wanted to dump some product.

 

So I say, Keeley quits Amazon. I am in the process of drafting my own policy about Amazon because it is not the way I want my brand supported. And it's Amazon's policy to continue doing what makes sense for them. I understand and don't fault them about the type of products they sell. Our market is outside that in my opinion.

 

It has NOTHING to do with my stuff being made here of there, or with us pushing products on dealers, too much product, or channel surfing. Oh, and there is nothing easy (for long) about manufacturing. I call it "something IS broken, or is ABOUT TO break"! The only Mass, is mass confusion at times! Ahahaha!

 

Bottom line, yes I agree that you are correct about the way some business may run and find them selves having dealers that price things at a discount, but not all for certain.

 

Robert Keeley

[Grant Harding]

Using Amazon has been pretty much like puking for me, but without the good parts. I don't like getting raped by gigantic mega-corps, even if they are using dumping behaviour to kill their competition and keep growing.

 

So yeah - good on EHX for making a stand. The cheap crap that's loaded with their IP will eventually kill them too.

[Verne Andru]

 

The other side of the coin, isn't always the case...

 

While I can see that happening in some cases, my experience is slightly different. I have problems with Amazon and a few dealers that insist on selling product below MAP. So I wrote Mike Mathews an email and asked if we could talk. He called me and I asked about his reasoning for the Amazon thing and I was delighted to get some information from him as to his feelings about the market.

 

We make about 3000 pedals a month. We do not outsource to China. Everything from the boards to the cases, to the printing, everything is made here in Oklahoma or some parts are made in Missouri. I have tried China. Quality was not there and it caused me a ton of problems getting the boards ready for the units (bad parts in general, very poor characteristics or just plain bad. So we are NOT like what you describe, and that I agree happens, in many, many cases. (Come by my show or watch videos of us making it all.) Other companies I consider peers, like JHS, EQD, Mr. Black, Cusack, all make their product entirely in the U.S. Outsourcing at this "mid level" is actually rare I think, to my understanding.

 

We do not force the entire product line on dealers. In fact, they can by what they want, no minimums even. Yes, you can buy one. And, we have never had a salesman (in 16 years...Am I crazy or What?!?!?!) ...so we don't force product on people. And we just recently doubled our production with new employees and a 3rd CNC machine....and our back orders rose to over 1000 units. (just about Rickenbacker in supply/demand curve I suppose...)

 

Here's the REAL PROBLEM. SOME dealers just refuse to sell it for the correct price. They will do ANYTHING but follow the intent of the MAP policy. They will discount until they are ALMOST....out of business. They just get addicted to cash flow and then mark everything on sale. I know because I've been there and felt that way! Sales graphs that look like a crown...you only sell things when on sale or discounted....

 

Now, you add the complications of Amazon and the way products can be sold behind a curtain...and you have real problems. Pricing bots go after the lone wolf that has dropped price to sell 3 units and Amazon lowers their price. Musicians Friend bots see it and lower their price, then Sweetwater people see the price and lower their price then call me mad that some dealer is not selling it at the right price and I spend hours tracking down a person that sells paper towels that has a buddy that has a online music store that wanted to dump some product.

 

So I say, Keeley quits Amazon. I am in the process of drafting my own policy about Amazon because it is not the way I want my brand supported. And it's Amazon's policy to continue doing what makes sense for them. I understand and don't fault them about the type of products they sell. Our market is outside that in my opinion.

 

It has NOTHING to do with my stuff being made here of there, or with us pushing products on dealers, too much product, or channel surfing. Oh, and there is nothing easy (for long) about manufacturing. I call it "something IS broken, or is ABOUT TO break"! The only Mass, is mass confusion at times! Ahahaha!

 

Bottom line, yes I agree that you are correct about the way some business may run and find them selves having dealers that price things at a discount, but not all for certain.

 

Robert Keeley

 

Agreed. No one-size-fits-all, but I've seen too many problems caused by channel suffers across various industries to not raise this as a point of discussion.

 

"Show-rooming" is another major issue that isn't often acknowledged. I pity those mom-and-pops trying to move inventory at map against the big on-liners. They pay the overhead to stock and demo the product only to have customers walk out and order it cheaper from big-box on-liners.

[Grant Harding]

Yeah - I get really angry when I hear people talking about trying stuff out in stores and then ordering it cheaply online. That's selfish and callous. There's always a "justification" for it, but it's just greed.

[bookumdano4]

wah wah wah. The main problem is Electro Harmonix attempted to do a sell-direct thing via Amazon (side by side with their dealers and the paper-towel distributor who also occasionally slips in a wah wah pedal ad)..... that's ehx' fault. Live with it.

 

You really gonna monitor Amazon and track down the renegade guy here and there who goes below map? C'mon. When you find him... what are you gonna do? Cut him off from his current buy-in commitment with ehx which may already only be 5 pedals a year.

 

Not enough return on the investment of headache time imo.

 

Ehx... you have a new crc machine.... your sales are up by 1000 units (or whatever you said). Just stay out of retail...... keep collecting your dealer-cost to those resellers you sell to..... make a good profit.... don't try to be a retail store yourself on Amazon.... and.....well.......life is then good.

 

If Amazon is no longer being fulfilled by you for their own attempts to sign up prime members.... what do you care? Let the Mary's Fish and Whammy Pedal store etc do all the work. With Amazon direct out of the picture, maybe Mary will order 10-20 additional pedals from you each month.

 

I'm not in to the map police thing. I've objected to it since the 1960s. Now, if ehx dealer structures were written contracts where MusicStoreYummy is one of an elite few and has to buy fifteen BAZILLION pedals from you yearly.... that's different. As a manufacturer, I may also become a map police guy too in order to protect that contracted fifteen bazillion guarantee of sales I get every year.

 

But this ain't that. Chasing map offenders is silly to me for 99% of music products.

 

Anyway, ehx apparently already made the decision to step off the direct-sale-internet train. So that's good. Stress is already probably down 110%.