The Price We Pay

Oct 28, 2012

Much like this year’s election, pricing policies divide our industry down the middle, with polarized views on the topic of price restrictions and pricing policies.

The most common in our industry is the ever popular MAP (minimum advertised price) policy, as well as the Unilateral pricing policy. There are many versions of both of these, but for the most part they are the two types we see most often.

The manufacturers tend to endorse these policies, and the jobbers and retailers tend to despise them. I believe that both sides have some valuable and legitimate arguments for or against any type of pricing policy. But for my own sanity and yours, I will stay away from the questionable legality of these policies and focus mainly on their intended purpose.

The Price War Is On

In an industry based primarily on want, rather than on need, we will always be susceptible to economic changes that affect people’s expendable income. With a decreased amount of potential customers, retailers and jobbers are forced to compete for a smaller, and often less profitable, slice of the pie.

This means that the war is on. Price slashing and questionable selling techniques become commonplace, and this affects our industry in many ways, not the least of which is the devaluing of products that we rely on to keep our businesses profitable.

Ecommerce and the power of the Internet have dramatically changed the landscape in the last decade. Not only are you forced to compete with the businesses across the street, you now have to compete with businesses across the country as well-many of which may or may not be based on the same business model as you are.

So, in some ways, the game isn’t exactly fair anymore.

Many manufacturers in our industry have taken note of the trends, and quite a few of them are doing what they can to help level the field. This is where pricing policies come into play.

What We’re Protecting

Pricing policies are intended to serve a few distinct purposes. First and foremost they are to protect the brand so the manufacturer can remain profitable and maintain its product’s value. Secondly, believe it or not, they are intended to help their resellers be profitable.

With an effective pricing policy, everyone can make the same profit, regardless of your business model. This means that you can be profitable when these policies actually work.

Too many people have come to the conclusion that these policies are all “doom and gloom,” without fully evaluating the big picture. However, the people who are typically up in arms about these policies are the ones who are driving the prices down in the first place.

But if you step back and look at these policies with an open mind, you can see that business-wise they can benefit our industry as a whole. The purpose of any business is to make money, and for all of us to do that, we need to agree that we won’t be able to be profitable if we are just racing each other to the bottom.

Price is only one piece of the puzzle. A small percentage of sales will be based solely on price, and there is no way to change that. But most sales will be based on more factors than price alone.

So, as a business owner, you need to look at the other components that contribute to a buyer’s decisions and find ways to tip the scales in your favor. If you give it some thought, there are many ways to differentiate yourself, offer more value and win the sale without resorting to price slashing to close the deal.