Guitar Center/NAMM Accused of Price Fixing

[MikeRivers]

Originally Posted by Rabid

MAP is the only thing keeping the few mom and pop stores in business. Before MAP, or at least in the late 70's, I remember Musician's Friend catalog selling stuff cheaper than the wholesale price my local music store was paying.

And they may still be doing so. There's no question that when they order 200 Mackie mixers, they're going to pay less for each one than your local store that orders five. The mail order store can pass some of that saving on to you, but they'll take some of it back by charging you for shipping, and make a profit on that. The local store may charge you sales tax, but they have to give all of that to the county or state. The cost of shipping (to them) is already reflected in the selling price.

The difference is that with MAP, you look at the Musician's Friend web site, see the MAP, and go to your local music store and they quote you the same price. But if you were to take the effort to call MF or put the item in your on-line cart rather than just looking at the "catalog" price, you could find that they sell it for less. But some people won't take that step and just complain that the store can't advertise their real selling price.

[MikeRivers]

Originally Posted by Billster

Manufacturers would offer a MAP so that they don't have retailers at each other's throats about wholesale prices.

No, it's so they won't be at each others' throats about the RETAIL prices.

If you own a store, you know your margins. So if you sell a Mesa amp for $1000 (based on your margin), and then you see some guy down the street selling the same amp for $800, then you believe that your competitor is getting a better wholesale price from the next guy in the food chain. And you call up and say "Where's my price? " So a manufacturer MAP helps the manufacturer maintain multiple retail outlets without resentment among them.

That's entirely wrong. If you call the manufacturer and ask for the same price as the guy down the street is getting, he'll tell you that you can get that price if you order as many as the guy down the street did.

If the guy down the street is mom or pop, just like you, there still may be a reason why he occasionally gets a better price than you do, but it's almost always based on quantity ordering. For example, he may decide to offer a special deal where if you buy a $500 preamp at his (equal to MAP) price, you'll get a free microphone. So he buys a hundred $100 MAP mics that he usually pays $50 for when he orders them ten at a time, and this time around, he gets them for $40. So now, he's able to essentially discount the preamp+mic combination by $40 instead of $50. If you want to buy the mic by itself, he'll probably sell it to you for $79, whether it's one he paid $40 or $50 for, it's just that he makes a little more money if he has some $40 ones on the shelf.

[MikeRivers]

Just be glad you aren't buying a mattress. Aren't you happy that at least (excluding the counterfeits) an SM-57 is an SM-57 wherever you buy it, and you can buy it at any one of hundreds of different dealers and know what you're getting?

The mattress manufacturers sell the same mattress, perhaps with a slightly different quilting pattern on the top, or a different shade of fabric, under a different model name, to the different major dealers. This is so you can't say to Mattress Discounters "Sleepy's has the same thing for $100 less" because Sleepy's doesn't have the same thing. It's a different model from the same manufacturer. Ask Mattress Discounters if they have the same mattress as Sleepy's and they'll tell you that they don't carry that one (but "this one is the same thing" - and they'll usually give you the same price).

The reason why mattress stores always advertise "50% off" isn't because they're giving you 50% off, it's because that's the price the mattress is intended to sell for. I'd hate to have to buy audio gear that way.

[Billster]

 

Originally Posted by MikeRivers

No, it's so they won't be at each others' throats about the RETAIL prices.

That's entirely wrong. If you call the manufacturer and ask for the same price as the guy down the street is getting, he'll tell you that you can get that price if you order as many as the guy down the street did.

If the guy down the street is mom or pop, just like you, there still may be a reason why he occasionally gets a better price than you do, but it's almost always based on quantity ordering. For example, he may decide to offer a special deal where if you buy a $500 preamp at his (equal to MAP) price, you'll get a free microphone. So he buys a hundred $100 MAP mics that he usually pays $50 for when he orders them ten at a time, and this time around, he gets them for $40. So now, he's able to essentially discount the preamp+mic combination by $50 instead of $50. If you want to buy the mic by itself, he'll probably sell it to you for $79, whether it's one he paid $40 or $50 for, it's just that he makes a little more money if he has some $40 ones on the shelf.

 

Okay, I see what you mean.

But in the larger picture, the MAP would actually keep prices down for the consumer, because retailers generally offer the same price. It does squeeze the smaller shops on the margin issue, because the markup isn't as large for them.

Now, somebody might say "when all the mom& pops are gone, GC will maintain their larger markup", but that ignores two things:

#1 - The Mom & Pops haven't, and may never disappear,

#2 - In the event that Mom & Pops do disappear, the average wholesale price will go down, and that will force the manufacturer to raise wholesale prices, cutting into the retail margin.

Not disagreeing with you, just anticipating the next comment in this direction.

 

Originally Posted by MikeRivers

Just be glad you aren't buying a mattress. Aren't you happy that at least (excluding the counterfeits) an SM-57 is an SM-57 wherever you buy it, and you can buy it at any one of hundreds of different dealers and know what you're getting?

The mattress manufacturers sell the same mattress, perhaps with a slightly different quilting pattern on the top, or a different shade of fabric, under a different model name, to the different major dealers. This is so you can't say to Mattress Discounters "Sleepy's has the same thing for $100 less" because Sleepy's doesn't have the same thing. It's a different model from the same manufacturer. Ask Mattress Discounters if they have the same mattress as Sleepy's and they'll tell you that they don't carry that one (but "this one is the same thing" - and they'll usually give you the same price).

The reason why mattress stores always advertise "50% off" isn't because they're giving you 50% off, it's because that's the price the mattress is intended to sell for. I'd hate to have to buy audio gear that way.

 

But they DO! I've seen certain guitars in "exclusive colors" in certain catalogs but not others. They change the model # by one and sell the pink ones to GC and the green ones to Sam Ash.

[MikeRivers]

Originally Posted by Billster

But in the larger picture, the MAP would actually keep prices down for the consumer, because retailers generally offer the same price. It does squeeze the smaller shops on the margin issue, because the markup isn't as large for them.

Well, it's rare that a dealer will ask more than MAP unless something is so new or in such great demand that he can sell to the highest bidder. But there aren't many products like that, and chances are the manufacturer would anticipate the feeding frenzy and would not issue an MAP, at least not until it's been out for a while and a market-driven selling price had been established. If that happened (and I can't recall an instance recently where it has) dealers would be in true competition but for one thing. Often it's the big customers that get preference when filling initial orders. For example, when the Mackie 1200F actually started shipping, production quantities were pretty small (now they seem to be zero, so this is just one more "straw" example). Sweetwater got some, but the smaller stores that weren't heavy Mackie dealers couldn't even get one.

In the event that Mom & Pops do disappear, the average wholesale price will go down, and that will force the manufacturer to raise wholesale prices, cutting into the retail margin.

I'm not sure I follow that. Are you suggesting that because there will be fewer sales to shops that have to pay $50 for the mic, more people will be buying from shops who pay $40 for it, so their price will go up to $42? I expect that whether it is or not, any increase in the retail price will be attributed to something else.

I've seen certain guitars in "exclusive colors" in certain catalogs but not others. They change the model # by one and sell the pink ones to GC and the green ones to Sam Ash.

Yeah, there's that. And the pink Blackberry, too. So I suppose if you want a pink guitar badly enough, you have to buy it from Guitar Center. Or wait for one to show up on eBay.

[Billster]

 

Originally Posted by MikeRivers

I'm not sure I follow that. Are you suggesting that because there will be fewer sales to shops that have to pay $50 for the mic, more people will be buying from shops who pay $40 for it, so their price will go up to $42? I expect that whether it is or not, any increase in the retail price will be attributed to something else.

 

Well, say the manufacturer sells something at $100 per unit in lots of 100, and $120 per unit in lots of 50. If they sell a mix of large and small lots, the average wholesale price is somewhere between $100 and $120. If no one buys a lot smaller than 100, then the average wholesale price would go down to $100.

That's a gross oversimplification, but you see how the math works.

[Rabid]

I know one developer that really hurt his standing with merchants after making a deal with GC. He sold them a large amount of an item at a cheap price without a MAP. When GC put the new price on the web they were selling it to the public for a price less than what other online stores were buying it for. That meant that price matching would cause them to lose money. He does not do his own distributing anymore.

[Jon Gnash]

 

Originally Posted by Jon Hiller

No, the FTC found no grounds to pursue Fender, because Fender had not conspired with NAMM or anyone else. It doesn't imply anything. If you read through the FTC ruling regarding Fender, they dropped pursuit because they found nothing there. If there is nothing there, then yes, that means they were found innocent. If it were anything else, the FTC would have pursued charges against Fender. Nothing misleading about it at all.

 

Oops. You're absolutely right. You got me there. I thought Fender was talking about the FTC

[dgarman]

 

Originally Posted by Rabid

I know one developer that really hurt his standing with merchants after making a deal with GC. He sold them a large amount of an item at a cheap price without a MAP. When GC put the new price on the web they were selling it to the public for a price less than what other online stores were buying it for. That meant that price matching would cause them to lose money. He does not do his own distributing anymore.

 

You might be suprised how many products GC carries that don't have MAP requirements.

[Jon Gnash]

 

Originally Posted by Billster

Manufacturers would offer a MAP so that they don't have retailers at each other's throats about wholesale prices.

 

If manufacturers would offer a MAP anyhow then why make it mandatory?

They have MAPS so they can get their products into GC.

[Jon Gnash]

 

Originally Posted by MikeRivers

 

Originally Posted by Jon Gnash

Retail prices already do that. Read amplayer

[Jon Gnash]

 

Originally Posted by Jon Hiller

It seems that a good number of people seem to think that manufacturers ought to sell a product at what they have to pay to produce it, not counting cost to promote the item via advertising and what they give out in endorsement deals, and not counting any administrative costs such as paying their workers and health insurance, and building rent/lease, and office supplies, and oh, let's not forget some profit so the company can maintain and do r&d for new products.

 

I hope your not talking about me. My livelihood depends on the manufacturer

[Jon Gnash]

 

Originally Posted by MikeRivers

If you call the manufacturer and ask for the same price as the guy down the street is getting, he'll tell you that you can get that price if you order as many as the guy down the street did.

 

+1

[Jon Gnash]

 

Originally Posted by dgarman

You might be suprised how many products GC carries that don't have MAP requirements.

 

I would. Got an example?

[MikeRivers]

 

Originally Posted by Rabid

I know one developer that really hurt his standing with merchants after making a deal with GC. He sold them a large amount of an item at a cheap price without a MAP. When GC put the new price on the web they were selling it to the public for a price less than what other online stores were buying it for. That meant that price matching would cause them to lose money.

 

So? Not every dealer has to sell everything. There are a lot of things that nobody but Guitar Center sells. The smaller dealers should have just returned their stock for a refund and let the company sell it to Guitar Center. I don't suppose the company was Digidesign or Yamaha, was it?

[Zooey]

 

Originally Posted by MikeRivers

MAP is not, by definition, the selling price, so it can't be called "price fixing." It's to give you a ballpark idea of what you'll have to pay.

 

Most manufacturers shy away from overt price fixing. Some, however, are very aggressive about requiring dealers to sell (not just advertise) at MAP. Those companies rely on a bit of established US law called the "Colgate Doctrine."

[MikeRivers]

 

Originally Posted by Jon Gnash

MAP took away amplayer

[MikeRivers]

Originally Posted by Zooey

Most manufacturers shy away from overt price fixing. Some, however, are very aggressive about requiring dealers to sell (not just advertise) at MAP.

I can understand that. If a dealer sells a product at, say 1% below MAP, it will only serve to attract those shopping only for the lowest price no matter what. If he sells at 20% below MAP, he may not have enough money coming in from the sale to adequately support the customer and the product he bought if something goes wrong, and this will put more of a burden on the manufacturer. If I buy something that dies a few months later, I know that my friendly local dealer (to whom I paid a fair price) will give me another one and take care of getting the dud back to the manufacturer under the warranty. If I had shaved the dealer's profit to the bone, he might tell me to call the manufacturer, get an RMA, pack it up, and send it off for repair (at my expense, of course). Did I save the box and receipt?

This is a bigger and bigger problem the more products depend on the customer's computer in order to work correctly. If you buy a Firewire audio interface from, say, Sweetwater, if you have trouble with it, they have a tech support department who will help you determine if the unit is defective, if you have a bad cable, if you need a new driver, or you have something odd with your computer.

A dealer who can sell for less because he doesn't offer this level of expertise will just blow you off to the manufacturer's support forum or tech support for help. I'm not saying that Sweetwater or whoever can solve every problem, nor that ever customer will need that level of support. But that's part of what they use to determine their retail price. I wouldn't be surprised if a reasonably determined MAP includes some money for support, but I suspect that some MAPs are determined with a dart board, or with a target dealer (with known expenses and margin) in mind.

Is the Colgate Doctrine the thing that allows a supplier to decide who he will and won't sell to? I suppose it wouldn't be unreasonable for a manufacturer to choose not to sell to a retailer who doesn't have enough money to be the first level of support for his products.

[Zooey]

 

Originally Posted by MikeRivers

Is the Colgate Doctrine the thing that allows a supplier to decide who he will and won't sell to? I suppose it wouldn't be unreasonable for a manufacturer to choose not to sell to a retailer who doesn't have enough money to be the first level of support for his products.

 

IMO, the manufacturer in that scenario had no business signing up the dealer in the first place if support was so important.

You've described the Colgate Doctrine correctly. It allows a supplier to terminate an agreement unilaterally without discussion. But it's not supposed to be a tool for coercing or threatening resellers to adhere to a certain price.

[maiki]

I've noticed for a few years, that there is much less price variation on instruments and other musical equipment than there used to be. It used to be possible to shop around online for the best price, and one would find much price variation.

Now, for any musical item one looks for, every retailer offers it for the exact same price. There is no price competition any more. Sure looks like price-fixing to me.

Not only guitars, but on all musical equipment.

Do people realize also, that in the past decade, Guitar Center has bought out most of its online competitors--such as Musician's Friend, Music 1-2-3, Woodwind and Brasswind, and I forget who else offhand. Those look like different companies when one shops online, but they are all really one company--Guitar Center, Westlake Village, CA.

In fact, Harmony Central was also bought out by Guitar Center. (So I don't know if this post will be deleted?)

How did that happen? What ever happened to anti-trust in this country? The government is supposed to keep competition going, and not allow one company to stifle competition by buying up all the others!

I hope this lawsuit helps, although I doubt it.

Just wait until GC also buys out Sam Ash, American Music, and any other remaining online competitors. Guess what will happen to prices then, with no remaining competition?

[rasputin1963]

Okay, I'm an idjit: What does "price fixing within a retail environment" mean?

[Anderton]

The whole suit was thrown out a couple weeks ago. There was a story in the Music Trades, I need to see if I can find it.

The impression I got was the judge basically said "don't waste my time," because there really wasn't anything to back up the complaint.

[philbo]

 

Originally Posted by Ayrton

Bain Capital bought Guitar Center, and all it brands in 2007.

 

Hmmm... does this mean I should quit buying stuff there as a measure of opposition to Romney?

[Anderton]

 

Originally Posted by philbo

Hmmm... does this mean I should quit buying stuff there as a measure of opposition to Romney?

 

Well, you can either quit buying stuff because you oppose Romney, or buy lots of stuff because you support Harmony Central.

Mitt called me up the other day and wanted to know if 0.010 or 0.009 strings were better for electric guitar. Okay, not really. Actually we have almost nothing to do with GC, except take advantage of their leverage to get us products for review before anyone else

[Anderton]

And how do you fix prices anyway? If they're broken, do you use Elmer's Glue-All or do you need something stronger, like epoxy? Can duct tape provide a temporary fix?