Re: MAP Pricing Structure
<div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: RHutch</div><div class="ubbcode-body">If a manufacturer sells a product with a profit margin built into that selling price, why would they care what the selling price to the end user is?</div></div>
This is a valid question, and the answer only gets obvious once you get used to the idea that the "product" a manufacturer sells is way more than a hunk of organised physical matter. A product without a dealer base that stocks and promotes the product and provides customer service isn't going to sell in large enough numbers to support it's production at competitive prices. In order to achieve that, the manufacturer has to take action in order to make enough dealers confident that their efforts in stocking and promoting the product will be rewarded with sales at a reasonable profit down the road.
This is where it gets hard to understand for some here: <span style="font-weight: bold">They</span> as a single person could indeed get the same hunk of organised matter at a better price, preferably directly from the manufacturer, no doubt about that. The problem is, if they could, there would be no dealers invesing in stocking and promoting the product, no widely recognised brand name, no broad customer base, no resale value and ultimately no product that could be economically produced at all, beacuse the sales figures just wouldn't be high enough overall.
The bitter irony is that people are bitching about MAP of <span style="font-weight: bold">products they want to buy really badly</span>, and they want to buy exactly those products so badly because they are widely known brands that surely haven't reached that status by being sold at discounted prices out of the back door of the manufacturer's building, screwing every dealer that has made an effort to convince the customer of the product.
And, even more ironic, they want to buy those products <span style="font-weight: bold">so badly</span> that they even fail to see that they could choose an alternative in the free market that doesn't come with a MAP policy. Oh, there is no comparable product that doesn't come with a MAP policy? Maybe that's because the free market has weeded out those products long ago.
Now for those who will rush to point out that MAP is illegal in other countries, there's other ways to achieve the same thing. I know of distributors that are required by certain manufacturers not to sell to dealers in Germany that don't have a brick and mortar-store, because otherwise there'd always be someone selling almost at dealer price out of his bedroom, completely eroding the brick and mortar-dealer base because they can't make a profit anymore, which ultimately can lead to dropping sales figures and a complete economic faillure because the product is not supported by the majority of dealers any more.
If you haven't understood yet that the dealer base and brand name is an important part of "the product" (in a broader sense), think of the franchise system. If you want to open a McDonalds restaurant, McDonalds is going to tell you exactly how your resaurant should look like, your opening hours, your menue, and they will even tell you what you can sell and of course the price of it. Why can they do that? because they have a strong brand name and customers all over the world know what to expect when they walk into a McDonalds, and they know what to expect because McDonalds enforces their rules, everywhere. The biggest choice you have as the owner is whether or not you want to open a McDonalds restaurant in the first place, but if you do, you play by their rules, because the fact that every restaurant owner plays by their rules is part of their brand, and in the end their brand is all they're selling.
Try calling McDonalds, telling them "Hey, I want to open a restaurant and advertise and sell your burgers, but please stay out of my business as far as pricing and running my restaurant goes!" Chances are all you'll get is epic laughter.
Now MAP isn't even remotely close to that kind of control over a product or brand name, but there also is a deal between the manufacturer and the dealer, and that deal consists of a minimum advertised price that ultimately serves to preserve the value of the product and the brand name of the manufacturer. If a dealer thinks he can't sell enough of that particular product under those conditions, he can move on and sell a competing product, no problem. If too many dealers think that way, the manufacturer will have to re-evaluate his MAP if he wants to stay in business. This is the free market hard at work.
There is absolutely nothing "artificial" or "manipulating" to this process, because whichever way the market price is determined, if it's too high, people will choose a different product. If the manufacturer just wanted to make more money and thinks that the market will bear a higher price, he could just as well raise dealer prices and let the dealers fight for their profit margins, why bother with MAP?
In the end, MAP (or some other way of influencing the modalities of the sale of a product) is a way of trying to maintain a <span style="font-weight: bold">broad dealer basis</span> which is absolutely necessary to even stay in business in many industries.
