Maryland Puts End to Minimum Pricing Requirement

Discussion
May 01, 2009

By George Anderson

The state of Maryland has passed a law that prohibits product manufacturers from setting minimum prices at which retailers can sell their products. Under the new law, which goes into effect on Oct. 1, retailers or the state can sue any manufacturer that attempts to impose minimum pricing on product resellers.

According to a Wall Street Journal article, the practice of establishing minimum retails has become more pronounced since a 2007 ruling by the U.S. Supreme Court decided that such deals were not always illegal under the nation’s antitrust laws.

"Today there are an estimated 5,000 companies that have implemented minimum-pricing policies, much of it happening in the wake of the Supreme Court decision," Christopher Finnerty, an attorney who works with manufacturers on pricing issues, told the Journal.

Charles Shafer, a University of Baltimore law professor and president of the Maryland Consumer Rights Coalition, said the court’s ruling in "basically abandoned the consumer" forcing states and the federal government to establish new laws that would eliminate minimum pricing requirements.

Retailers opposed to minimum pricing have argued it reduces competition and results in consumers being forced to pay higher prices for goods. The Maryland Retailers Association supports the new legislation.

Discussion Questions: Should manufacturers be able to set a minimum price that retailers can advertise or sell a product for? Is there a legitimate argument that retailer’s pricing policies can hurt a brand’s equity?

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10 Comments on "Maryland Puts End to Minimum Pricing Requirement"


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Bill Bittner
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Bill Bittner
13 years 26 days ago

There are always multiple sides to this question and there are valid reasons for both perspectives. On one hand, consumers are hurt when minimum pricing rules prevent purchasing of commodity products at the lowest cost. Manufacturers and retailers are hurt when high-service products are discounted and full-service retailers are “cherry picked” for their support while the final purchase is made at a discounter. I believe there are valid reasons to have minimum pricing rules in various categories where either the type of product or the consumer support requirements dictate a lot of retailer investment. Without minimum pricing, you are going to see more of those red warnings when you open a package which say “don’t contact the retailer if you have a problem, instead call this 800 number” (which will put you in touch with our foreign support staff).

Max Goldberg
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13 years 26 days ago

There is a difference between minimum advertised price and actual price. MAP does not stop retailers from lowering prices…just advertising prices that are below a level set by the manufacturers.

As a brand marketer, I see little wrong with manufacturers setting minimum prices. While at Disney Home Entertainment, we set MAP. This did not prevent retailers from using hit titles as loss leaders once consumers came to stores. Both Disney and retailers “won.” Disney could preserve the the idea of a fair price for videos and DVDs and consumers could have lower prices and those retailers that chose to take a loss on each unit sold.

It’s a game, but it seems to work.

Ben Sprecher
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Ben Sprecher
13 years 26 days ago

Fundamentally, this issue is about the balance of power between retailers and brands. Minimum pricing allows brands more power over their image. Pricing flexibility gives retailers the power to use discounts as leverage against their competitors. Your answer to whether or not minimum pricing should be allowed will depend on who you think should have the power.

Ultimately, I favor pricing flexibility. Brands have enough tools to manage their image through marketing and wholesale pricing, and price is a key arrow in retailers’ competitive quiver. And as a consumer, I appreciate the lower prices that competition produces.

David Morse
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David Morse
13 years 26 days ago

Pricing is a big part of branding. A more expensive price tag is going to make a product seem to be of more premium quality. So it’s in a supplier’s interest to be able to control pricing.

That being said, our economy is based on a free market philosophy, and I think that retailers, having purchased the goods, should have the right to re-sell them at whatever price they please.

The reality is, in the current economic situation, we are going to see a lot more government intervention of this sort, motivated by politics, not economic theory.

My two cents as a die-hard liberal (on most things)!

Ralph Jacobson
Guest
13 years 26 days ago

“Fair trade” products, like Tumi Luggage, etc, have helped stabilize the brand value reputation, however I think a retailer has the right to set their own pricing. This is THEIR business. The manufacturer can have a “MSRP” as in the automotive industry, however that industry has learned to move the actual retail price with the market. Lower or even higher than the manufacturer recommends in some cases.

The other question is pricing that is advertised. There are many arguments for and against the advertising of specific prices that are lower than the normally “accepted” price for any product. I believe that retailers have the same right to advertise whatever price they wish. THEY are the ones responsible to turn a profit at the retail level. The mfr. should only be concerned about their own profit. The market has always determined the price for any product in the end. Manufacturers can recommend, but should not dictate how the retailers run their business.

Linda Bustos
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Linda Bustos
13 years 26 days ago

I think MAP pricing is fair, but difficult to enforce and may not be in the best interest of the manufacturer–especially in this economy. When retailers sit on inventory, so do manufacturers.

It’s easy for retailers to get around MAP with store coupons (% discount off purchase rather than markdown), gift card with purchase, gift with purchase etc, and online retailers with “view price in cart” tactics. Manufacturers should embrace this, as it allows for sales velocity while protecting the brand image.

Carol Spieckerman
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Carol Spieckerman
13 years 26 days ago

If you want to make a retailer sweat, ask them how they remain authentic to consumers when multi-channel retailing and localization inherently conspire against it (I have and I’ve seen the beads). The inability to maintain price consistency is retail’s dirty little secret as retailers strive to tell a seamless value story to shoppers across all channels and as they seek to differentiate and compete not just regionally, but at the neighborhood level. As difficult as retail price-point integrity is to achieve, MAP further hobbles retailers’ ability to compete while widening the supplier/retailer cooperation chasm. Throw in the administrative and legal clutter and you have a fine mess that does little to drive business forward.

Heather Dawson
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Heather Dawson
13 years 26 days ago

In the current economy where all I see is ‘Going out of Business’ signs on retail storefronts, MAP policies seem outdated. Consumers are in control, and if they can’t buy an item for the price they are looking for, they will just shift. Putting pressure on a retailer to risk their own business to protect a brand is squeezing the middleman, and will have long-term negative consequences on both the retailer who goes out of business and the brand who is hurting their own distribution.

Brands can’t respond quickly to a changing marketplace and they are disabling their own distribution by holding them hostage under these term-oriented contractual obligations.

Retailers need more solutions that let them sell at multiple print points, optimizing their own price demand curve. Basic market economics.

Ed Dennis
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Ed Dennis
13 years 26 days ago

Manufacturers do not have an obligation to sell their products to every retailer in the marketplace. Some, for very good reasons, choose to restrict the sales of their products to certain retailers. Many of these manufacturers also require a retailer to abide by rules, in exchange for the privilege of selling the manufacturers’ product lines. I cannot imagine any situation in which a government has the right to interfere in the relationship between a manufacturer/marketer and a retailer who has contracted with the manufacturer.

Barton A. Weitz
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Barton A. Weitz
13 years 26 days ago
Most of these comments focus on MAP restricting the retailer’s desire for pricing flexibility. Consider the vendor’s rationale for setting an MAP. Vendors get the wholesale price for the product no matter what the retail price is and the vendor will sell more products if the retailers charge lower than the MAP. Why would a manufacturer care what the retailer sets the price at? Vendors set a MAP because they want to protect the image of their products and shift the competition among retailers from price to service provided to customers. Vendors want to protect the retailer’s margin so the retailer will provide the customer service needed to sell its complex products. Vendors use MAP to prevent free riding–having a customer learn about a complex product’s benefits from a service-oriented retailer and then going to buy the product from a retailer than has lower cost because it does not provide the service. If there was no MAP, no retailers would provide the service needed to sell the vendor’s product.
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