May 29, 2012, 2:38 PM

A defense against showrooming

New policies from TV manufacturers set minimum prices for retailers.

Allison Enright

Editor

Lead Photo

Two of the leading manufacturers of TV sets, Samsung Electronics Co. and Sony Corp., recently established stricter pricing policies aimed at limiting advertised discounts on their TVs. The policies, if the manufacturers can enforce them, will limit price competition among consumer electronics retailers online and off. That may help stores negate some of the impact of shoppers coming to stores to check out and test a new TV model but purchasing it online where they may find it priced for less, a consumer habit increasingly referred to as “showrooming.”

Samsung says that it has set what it calls “unilateral pricing” for select 2012 models. The manufacturer says the policy will help enable it to invest in research and development on new technologies, while also encouraging retailers to promote its products. “Such policies provide an incentive to retailers to effectively showcase such innovative products and educate consumers about their benefits,” a Samsung spokeswoman says. “Compliance with Samsung’s UP policy is at each dealer’s sole discretion, however non-compliance does trigger certain consequences under the policy.” Samsung provided no further details on what those consequences are, but typically manufacturers refuse to sell to retailers that flout their minimium advertised price, or MAP, policies. Sony, which reportedly also has put stricter pricing policies in place for TV models, did not respond to inquiries.

Manufacturers can legally decide not to do business with retailers that sell below a minimum price set by the manufacturer. Historically, the courts have viewed such MAP policies as legal as long as they are unilateral—that is, there is no negotiation about prices between suppliers and retailers. However, a June 2007 U.S. Supreme Court decision, Leegin Creative Leather Products Inc. vs. PSKS Inc., gave manufacturers greater leeway to impose MAP policies.

Neel Grover, CEO of online marketplace and e-retailer Buy.com, says Buy.com knows of and abides by manufacturers’ MAP guidelines, but he says not all retailers do. “We don’t expect all competitors will necessarily do the same,” he says. “We understand manufacturers are trying to protect and enhance channels, although MAP programs in general are both difficult to manage and police and ultimately can create an imbalance often to those resellers and channels it was originally meant to protect.”

TVs are a prime example of a product category that consumers increasingly are buying online. ComScore Inc. estimates that at least 30% of all U.S. consumer electronics sales, which includes TVs, now take place online, and the web’s share is growing. In the first quarter of 2012, online sales of consumer electronics grew 17% from the same quarter a year earlier, putting the category’s sales growth online at a pace slightly faster than total e-commerce sales growth, comScore says. A recent consumer survey from NPD Group says up to 20% of consumers admit to checking out a product in a store before ultimately purchasing that product online. “The prevalence of smartphones provides customers with the ability to do price comparisons in real time, while still in the store, increasing the challenge retailers are faced with to offer the best price,” says Perry James, president of home and office supplies at NPD Group, of the survey results.

It’s easy to see why consumers showroom. The market is saturated with retailers selling the same products. Once a consumer has decided on particular TV model, the buying decision often comes down to who’s selling it for the lowest price, which leads to price wars among retailers.

Increasingly, the winners of those price wars are online retailers, which usually have lower overhead costs than stores, which means they can price products like TVs for less than a store retailer and still generate a profit. This business advantage, and a glut of overproduction on the part of manufacturers, helped drag TV prices down in recent years. The average sale price for a flat-panel TV in 2011 was $545, down 15% from $644 in 2009, according to the Consumer Electronics Association, a trade group for the consumer electronics industry. Meanwhile, major chain retailers like Best Buy Co. are seeing sales of consumer electronics decline. Best Buy’s sales of consumer electronics declined 4.9% in 2010 and a further 5.9% in 2011.

“I have to imagine that store-based retailers are going to be slightly happier about this [pricing development] than online retailers,” says Nikki Baird, managing partner at research and advisory firm Retail Systems Research LLC. “However, TV's kind of got into a loss-leader position even for store-based retailers, so they will have to reconsider some of their strategy for those traffic builders, especially if they can't feature brands that people particularly covet.” 

MAP requirements aren’t new, but they have largely been issued by manufacturers of differentiated products. Apple Inc., for example, tightly controls the price at which retailers can sell its iPads, iPhones, iPods and computers. Makers of high-end goods, such as premium baby stroller manufacturer Bugaboo Inc., also do so. Bugaboo, whose strollers run from about $600 to more than $1,500, told Internet Retailer last year that it purposely limits the number of resellers it does business with, in part so it can monitor prices. The manufacturer authorizes only about a dozen e-retailers to sell its products, which are also sold at about 500 retail store locations. “We work with retailers and strive to maintain pricing because it benefits everybody and it doesn’t confuse the customer,” says Kari Boiler, president of Bugaboo Americas. She admits that retailers do break the pricing guidelines occasionally and a Bugaboo representative calls retailers on it when they do, adding that since the Bugaboo reseller world is small, everyone keeps an eye on everyone else’s pricing moves.

It’s unclear whether Sony or Samsung, which sell TVs through thousands of retail outlets, will be able to effectively enforce the pricing measures. Grover says the effectiveness of minimum advertised pricing measures are “generally apparent soon after the policy is put into action.”

It probably won’t help that competitors in the TV space like LG and Panasonic haven’t instituted similar guidelines, which will leave retailers free to discount those sets as they see fit.

Comments | 3 Responses

  • BRAVO... to the suppliers who will begin to establish a predictable method of delivering their products to market. On the contrary to some sentiment included in the article; policing and enforcing business policies established by a supplier is not a difficult process. Indeed consumers can find the price and the source with a smartphone on the floor of a retailer in about 30 seconds. The decision to to police and enforce is what is difficult. That decision requires a business plan to deal with genuine sales to genuine customers and the business chops to refrain from accepting a purchase order from a "customer" who is not conducting business in a fashion consistent with the supplier's plan for genuine sales. Too many of us are eager to accept a purchase order today from where ever it comes regardless of it negative impact on tomorrow's business with our genuine customers. German Maestro is a small brand with a significant heritage in business. We adopted and have been enforcing a Minimum Resale Price (MRP) policy from the beginning. It is perceived as an effective policy by all of our customers and does not have a negative impact on our ability to conduct business. I'll be happy to share our written policy with any business person who is serious about implementing such a policy in their business. Call Ray Windsor at German Maestro: 949-600-8195

  • We are an internet retailer with a love/hate relationship with MAP policies. Since we spend a lot of time educating our customers on new technologies, how our products work, etc. it is frustrating to see so many people leave our site to go buy from a retailer with virtually no overhead who undercuts us by a few bucks. It is even worse when the customer comes back to us later asking for tech support (and yes, this has happened several times over the years) since they know we will answer the phone. Of course we can't give them full support, but we will usually try to give them a little helpful information in hopes that they will come back to us next time. In this case MAP policies help us a bit. My problem with MAP policies lie with enforcement. Companies who institute policies without giving a lot of thought to enforcing them typically drive sales from good honest companies (like us) to companies willing to bend the rules to pick up a lot of sales with virtually no competition. Shutting these rogue retailers down is extremely difficult, especially for those who work through distribution channels. The company that sells the unit to the end user isn't usually the company who bought directly from the manufacturer. How do you figure out which distributors are selling to these rogue retailers? What is your products are passing through a couple of middle men first? My final issue is whether MAP policies really are good for consumers. I understand how they benefit retailers (particularly those with higher overhead costs), but at the end of the day they are designed to make sure customers are paying more for their products than they would in a truly competitive market. Manufacturers try to justify this by saying that the buying experience is better for consumers, but really it is not about consumers who prefer to get their products at the best price available. It has no effect on consumers who don't mind paying a little more for better service since they always have the option of paying a little more for a premium retailer.

  • Our industry problem is in the distribution design of the manufacturer. Consumers want to see, touch, try, analyze new products in person. It takes showrooms for that, knowledgeable sales people who SELL, convince, explain, demonstrate products and sell up to better merchandise for the manufacturer. Everyone wins!! The Consumer is purchasing with great education, better products are sold, everyone makes more money. The dealer has to pay for rent, insurance, commission, payroll taxes, SALES TAXES, workers comp, 401K plans, etc. HOWEVER, if the manufacturer still loves to have their products maintained in beautiful displays to execute all of this, they have to be willing to NOT SELL TO INTERNET RETAILERS! If 100 customers need to buy a product/brand today, they will buy it where they can. If the Internet went away today, tomorrow the manufacturer will still only sell 100 products to the consumer, but his dealer showroom will be allowed to make a fair profit to stay in business. It is TIME to for the manufacturer to realize the importance of relationships with dealers with showrooms, service etc. GREED should stop, and manufacturers should change their distribution of the products. STOP the internet PROFIT MARGIN THEFT of our business. In the long run the manufacturer will be the one who loses.

Sign In to Make a Comment

Comments are moderated by Internet Retailer and can be removed.

Not a member? Signup for free today!

Advertisement

Advertisement

Advertisement

Relevant Commentary

FPO

Jason Squardo / Mobile Commerce

Five tips for achieving high mobile search rankings

Searches on mobile devices will soon exceed those on computers, Google says. Retailers that keep ...

FPO

Sergio Pereira / B2B E-Commerce

Quill turns to its B2B customers for new ideas

Coming in April is a new section of Quill.com that will let customers and Quill ...

Advertisement