- Manufacturers sell at a wholesale price and they are done with the process. They have already received their price, but they want to maintain a retail value for their items so that they can maintain their wholesale pricing.
- Retailers don't want to be told what they can sell a product for, but if their right to purchase that product depends on selling at an agreed on price they will do it in order to get the product.
- If nobody breaks MAP then the market for those items never sees any discounting and the retailer has a level playing field with their competition, but we all know that in a competitive marketplace some will break the rules forcing others to follow suit or lose out on sales.
- In a competitive environment retailers are always looking for an edge, so the gaming begins. Retailers don't like price fixing but they aren't going to raise a stink about it because they don't want to be cut off by their suppliers.
- eBay wants the lowest prices possible on the marketplace because, they make their money on the sale. Of course they aren't lobbying to repeal this law out of the goodness of their heart; or to help sellers. They are doing it to help their business. In reality, they are just as bad as the manufacturers; asking sellers to offer free shipping and discount heavily to get the sale. It really isn't their concern if the seller makes any money.
- eBay's own VeRO program is being used to target sellers who are breaking MAP and eBay continually falls back on their "service provider" mantra, saying "we are prohibited by law from interfering in the VeRO process" [my paraphrase]
Thursday, December 04, 2008
eBay Lobbies to Stop Price Fixing: Update!
eBay's Vice President of Government Relations Tod Cohen and a contingent of retailers, and antitrust experts are heading to Washington DC tomorrow for a press conference on RPM (retail price maintenance) which is basically about "price fixing". Manufacturers want to keep their retail pricing at levels they deem will properly value their product and are requiring retailers to sell at or above that price.
eBay of course wants the lowest prices possible on the marketplace because that drives sales, and the "lowest prices" has been their competitive advantage for many years (not so much now), so they are lobbying to repeal a law that allows manufacturers to "price fix". I won't go into all the legal details, but you can get a snapshot of it with RBH's post at eBayInk.
Normally this kind of stuff bores me, so I rarely write about it, but I was part of a conference call with eBay VP Tod Cohen yesterday and one of my consulting clients is dealing with this very issue with their vendors, so here is my 15%
It is standard in the retail industry for vendors to base their wholesale price on a % discount from the MAP or MSRP -- for purposes of this post let's say 50%. If sold at MSRP or MAP the retailer gets maximum margin, and the manufacturer maintains the proper value for that product. But we live in the real world and sales velocity doesn't happen until the retailer discounts the product. Manufacturers don't like discounting because it devalues their product over time and forces them to lower their wholesale pricing.
In my case with Glacier Bay, back in the day, I had to discount 25% off the MSRP just to get a buyer to look at my listing. Instantly, my margins were squeezed and when you added in eBay and PayPal at 15% to 17% I was left with very little margin. I basically had to make my money off the S&H fee.
In some categories, retailers are required to sell at MAP or MSRP or they risk losing their rights to purchase that product. This is the price fixing that eBay is lobbying against.
Here's the problem:
I could go on and on. As a seller, I don't want to be told what I can sell an item for; I don't want to be told that I need to offer "Free Shipping"; I don't want to be told I need to discount heavily, so that eBay is a low price leader. All I want to do is sell an item for a price that, after all expenses are accounted for, I get to keep enough to pay my mortgage and feed my kids.
I appreciate that eBay spends the money to lobby for these things, but lets not lose sight of the fact they they do this for their own benefit. Sellers may benefit from their efforts but that is really just a side benefit.
One last thing. If given the option of selling at MAP or selling at a huge discount, most sellers would choose to sell at MAP: If I sell 10 items with a gross profit of $20 each, I make $200, if I discount my price so that I am making only $5 gross profit, I now need to sell 4 times as many items to make that same total Gross Profit. The only reason sellers applaud eBay's efforts on this issue is because of the risk they may be cut off by suppliers if they do try and gain a competitive advantage.
Okay, this time I mean it; one last thing: I don't like "price fixing", because it doesn't allow markets to work, so I am all for eBay's efforts. Sellers need a "big fish" to do that work for them because they don't have the resources to do it themselves, though an organization like PeSA should be lobbying for the seller's benefit.
I just wanted to point out the irony in eBay lobbying to restrict manufacturers rights to set their own rules while they regulate their own marketplace with Best Match. The sellers are all I care about and they are getting hit from both ends. If eBay is successful all they will do is increase the weight of low prices in Best Match -- either way sellers are screwed.
Update: Here is an interesting article on the subject and you can follow RBH's coverage of the press conference here.
Further Update: Probably should have added this link in the first place but if you are interested in the Price Fixing subject here is the case that was brought before the Supreme Court called the Leegin Decision
Just my 15%