MAP Pricing Debate – In Depth

1_map_pricing_hand_holding_money Authors Note: As a testament to the contentious nature of this topic it should be noted that over a dozen people were interviewed for this article and only a handful gave permission to use their name or company. More than a dozen others refused comment, which, I believe, is a first for the pond industry. It is not the intention of this article to steer the reader to any conclusion. In fact the information obtained and viewpoints of members of our industry are fairly evenly divided. Both sides make extremely valid points and the readers are challenged to draw their own conclusions.

What Exactly is MAP?
MAP (Minimum Advertised Pricing) is one of the most confusing and controversial issues in the pond and water feature industry. When a manufacturer sets a MAP policy it should not be confused with a mandated selling price. US Anti Trust laws prohibit any manufacturer from setting a fixed retail-selling price with their dealers. The policy instead establishes the minimum price the products can be advertised to the consumer. For example: A pond skimmer may have a MSRP (Manufacturer Suggested Retail Price) of $199.99 but the MAP price may be set at 10%-30% off that price. At a 20% off MAP policy this same item may now be advertised for sale at no lower than $159.99. Pond industry MAP policies looked at for this article are all structured in a “percentage off” format although it is understood that some companies may employ a policy of MAP=MSRP. Each company reviewed has different restrictions and responsibilities that sellers must abide by.

Advertising typically covers, but is not limited to, newspapers, magazines, radio, TV, web sites, and online shopping sites such as Amazon and Ebay. The actual selling price is determined by agreement between the buyer and the retailer but any published price lower than MAP for the item is not allowed.

A Brief History of MAP

MAP policies have been in place in the retail world for many years. The MAP policies existed in many forms but often manufacturers with these policies were hesitant to enforce them due to possible violations of Section 1 of the Sherman Anti Trust Law of 1890 or the 1914 Federal Trade Commission Act, which established the FTC entity. In a landmark Supreme Court Case in June 2007 (Leegin Creative Leather Products Inc. vs. PSKS, Inc.) a divided court overturned 96 years of established case law pertaining to pricing structure which was established by precedent in (Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373 in 1911).

The 2007 Supreme Court decision did not automatically make price maintenance or Minimum Advertised Pricing legal but it did ensure that future cases would be established by the “Rule of Reason.” This means that lawsuits and FTC violations would be judged individually to determine if MAP pricing policies stifled competition or placed an undue burden on the consumer. It should be noted that dissenting Supreme Court Justices felt that reversal of this long established ruling would impact consumers by as much as $1000 per year per family.

Over the last 5 years Attorneys General and state legislators for several states including Maryland, New York, and California have moved forward to curtail the pricing restrictions of the Supreme Court ruling with mixed results. Pending court cases and legislation in consideration now may once again change the landscape of this already confusing issue.

Why MAP Programs?

One may wonder why manufacturers would establish and enforce MAP pricing. On the surface one would assume that the lower the selling price the more units are sold and the more profit a manufacturer would receive. In reality the issue is far more complex that this. If a product is sold too cheaply it can be perceived as having little quality. Popular items that are sold without MAP pricing can also be reduced to a commodity status. This means that the product is carried, not as a valued addition to a retailers offerings, but simply as an unprofitable item that the store is expected to have in stock. In a grocery store that would be milk, bread, and bananas. In the pond industry you can easily make a case for EPDM pond liner being a commodity. To illustrate the point lets consider that 8-10 years ago retail stores and distributors would buy 45 mil EPDM pond liner for 25-35 cents a square foot and would retail for as much as a $1.25 per square foot. Today it is easy to see the problem with retail stores paying between 64 to 70 cents a square foot while pricing was as low as 51 cents a square foot on an extremely popular web site as of late September.

With the advent of the internet, shopping prices on almost all goods have spiraled downward while costs and expenses have continued to climb. These two factors are among the top reasons pond retail stores and contractors are facing an unprecedented decline of profitability. With declining sales and profits many feel that the entire retail sector of our industry is threatened and have encouraged manufacturers to set up and enforce MAP policies.

Water feature manufacturers have several reasons to establish a minimum advertised price for their products.

These include:

1. Preserving the perceived value of their brand name;
2. Maintaining a profitable channel for distributors, retailers, and installers;
3. Prevent retailers from dropping items from inventory that otherwise would have low margins;
4. The higher prices allow for the inclusion of benefits such as superior customer service and extended warranties; and
5. Controls internet resellers and levels the playing field with brick and mortar stores (stores with physical locations).

Where the Controversy Begins

While it is clear that MAP pricing can be a tool of profitability for the pond industry there are those who strongly oppose it. Many who are against MAP pricing are internet retailers but some are distributors, brick and mortar stores, and even manufacturers. Reasons for opposition to MAP often include:

1. It violates the free market principals our country was founded on;
2. MAP is unenforceable and the violators reap added sales and profits;
3. It artificially inflates the prices to consumers;
4. Destroys market by encouraging importation of cheaper versions; and
5. Destroys competition as small retailers cannot compete with advertising budgets of larger companies.

It is with a certain irony that each side’s viewpoints are valid and of great concern. Let’s examine some of these pros and cons in greater detail.

Preserves the Value of Brand Name – OR – Encourages Cheaper Version Imports

PRO: To most manufacturers their brand name is critical to their success in the industry. Outside of the pond world we easily identify premium brands like Sears Craftsman tools, Maytag appliances, or Kraft Cheese. In our industry branding is just as important. Manufacturers such as Atlantic Water Gardens, Aquascapes, EasyPro, and others spend huge sums of money in promoting their brand and their products. The establishment of MAP pricing allows these branded products to be viewed by the public as premier and desirable items. James Lavery of Atlantic Water Gardens states, “Atlantic has made a considerable investment of time and money into its Big Bahama line of products. We expect these products to be sold at a premium to the consumer and do not want them confused with retail grade products.”

CON: Of the many products sold in today’s pond market a great deal are imported from overseas. Most pumps, halogen and LED lighting, foggers, and tubing are imported. Pond pumps in particular are readily available from a myriad of Asian companies to any business with enough capital to import a container full. With many manufacturers offering “Brand” versions of the same pump and keeping the advertised prices high it has opened the door to a flood of cheaper versions in the market. For example, the same 5000 GPH asynchronous pump is offered under at least 4 name brands with varying MAP prices ranging from $294 to $409. This same pump imported in a no name brand is offered online at $129. A typical retail store or online dealer may feel lucky if they sell 1 or 2 of the name brand versions a month but the cheaper generic model sells over 60 units a month during the season. As retail store owner “J.L.” puts it, “I would love to sell 60 of anything a month!” He adds, “With all the cheap knockoffs on the market it’s hard for me to convince a customer to spend 2-3 times the money for the same type pump.” This type of offering is increasing in frequency and the sellers who are flooding the market with these pond products have no ties to the Water Garden Industry.

Free Market Principals – OR – Anti American Lack of Competition

PRO: Backers of MAP policies are quick to point out that retailers are able to sell at any price they choose. That right is protected by Federal law and the FTC. Only the advertising must be maintained at a certain price. What price the buyer and seller negotiate is their own business. Manufacturers initiate MAP policies to promote competition and a level playing field between internet sellers and brick and mortar stores. These policies give everyone an equal chance and the businesses that succeed are those with the best customer service, motivation, and business sense. Product distributor “E.T.” once summed it up neatly with “You need to spread the wealth!”

CON: Opponents to MAP policies are adamant that individual business owners, not some manufacturer, must decide how they run their business. They feel strongly that MAP is an affront to their rights as a US citizen and believe that everyone should succeed or fail according to their abilities. They no more support MAP than they do the government bailout of banks and businesses. The majority of opponents to MAP interviewed for this article felt that the Federal government has enough control over our lives and they do not want pond supply manufacturers dictating what they can and cannot do. “P.G.,” an internet reseller, advised, “MAP Pricing, like Communism, looks good on paper but is horrible in practice.”

Pond installer “M.T.” added, “That’s not what this country was founded on. Pond people need to stop making excuses and learn how to run their businesses profitably.”

Controls Internet Resellers – OR – Is Unenforceable

PRO: Everyone pretty much agrees that in the pond industry, MAP pricing rose primarily to face the onslaught of internet price cutting. Online sellers of products were unfamiliar with the many ways to draw customers to their web sites and unknowingly assumed price was the only way to attract more sales. Once other sellers saw companies with lower prices they adjusted their price even lower to stay competitive. A race to the lowest possible price was begun and all sellers lost profits in the ensuing mayhem. Companies like Ebay and Amazon worsened the problem by encouraging buyers to search for listings by the lowest price offered.

MAP pricing, in the pond industry, was developed primarily to bring order to the chaos and ensure that all businesses could remain profitable. MAP policies have changed over the last few years as both sellers and consumers have evolved. Jeff Payton of Aquascapes, Inc., discussed how their company has changed MAP pricing to reflect an evolving market, “Back in 2007 the first Aquascape MAP price policy was written specifically for internet drop ship customers in mind. That policy did not reflect today’s market with many brick and mortar stores also having an internet presence.” Jeff went on to say, “Aquascapes has recently introduced what we think is the most comprehensive MAP policy in the industry today. It has already eliminated over 95% of MAP violations and we expect the remaining issues to be resolved soon.”

Most physical store locations agree with manufacturers. They feel that their stores cannot compete on price with internet sellers and are very happy to see policies in place to restrict low advertised pricing.

CON: Time will tell if the recently released Aquascape MAP price policy will be the sorely needed solution to across- the- board profitability. Some naysayers feel that it will be just another one of the many policies that debut to great fanfare then quickly fade away as reality sets in. Many internet sellers have long been a fan of the idea of MAP policy while lamenting the ill effects of the poorly administered existing policies they view as unenforceable. No one interviewed for this article stated that they wanted to make LESS money. The problem they indicate with existing MAP policies is that they favor the cheaters.

The theory is that if a manufacturer has a MAP policy in place and they have 90% off all sellers following it then the 10% who violate the policy have a unique competitive advantage and can gain the lion’s share of the market. Distributor and internet retailer “E.G” notes, “Just take a particular skimmer for example. We used to sell 30-40 a month of this one unit until the manufacturer instituted MAP price on it. We followed MAP price and now we sell 2-3 units a month! Where did those sales go?” Answering the question, “E.G” continues, “ I lost all my sales to other businesses who decided not to follow the MAP price. You can look on the internet and in seconds find a dozen people selling it for less.”

An internet seller, “B.C.,” states, “I can tell when a manufacturer finally gets around to enforcing MAP policy. I see my sales pick up for a week or two until those who were violating it before start doing it again.” He adds, “My entire business and my family are dependant upon whether or not some faceless employee at the manufacturer will actually be doing their job.”

Higher Prices Allow Benefits and Service – OR – Price Gouging Customers

PRO: Few people would argue that a typical in store experience can provide a pond customer with detailed information about the product and a sense of comfort about the merchant who supplied it. In our industry, service is king and physical stores have the best chance to bestow product knowledge upon the consumer and guide them towards the purchase of the products that are best for their application. This level of high customer service comes with added labor costs— something few internet sellers have to contend with. In order to provide excellent customer service to the consumer and ensure someone is there for them when things go wrong a higher price must be charged for the product. As Keith Steele of Savio Engineering puts it, “Our retailers are selling a service, not just a product. Enforcing MAP policy is a constant battle that we undertake to allow our retailers to make a suitable profit for the services they provide.”

Higher prices allow for better service and speedy resolutions to warranty issues. MAP pricing helps stabilize things so that retail stores can continue to perform a level of service that is simply not available on the internet. James Lavery of Atlantic Water Gardens points out, “Store owners must sell on service. Customers looking for price only are sure to find it somewhere. Our dealer’s goal should be to win the sale by exceeding the customer’s expectations on service and reliability.” Store owner “R.M” said, “Those internet guys have zero overhead and can afford to sell cheap. None of them can match our service and relationship with our customer. Running a real store costs money and that means a higher price to the consumer.”

Contractor “F.C.” states, “I tell customers that I will match an internet price when they match my service! If that internet company will come out here and install the pump, if they will come back if there is a problem, if they will be there to replace it for you immediately if it fails AND they can offer you that low a price then that is who you should buy it from.” Another solution “F.C.” suggests is, “Contractors should not be installing consumer purchases or at the very least they should clearly state they will not warranty or replace them if they fail.”

CON: No one likes to pay too much for an item. Most people now search online for cars and know exactly how much they will pay before they head to the dealer. At Christmas and birthdays consumers go online to find the right gifts at the lowest possible prices. People certainly don’t choose to buy a $100 gift from one merchant when another is offering the exact same item at $80. In this economic climate we certainly understand the desire of people to save every cent possible. After all, most of us know that corner near us that has 3 different gas stations. Take a look next time at the one with the lowest posted price and notice how many more customers they have compared to the others.

If we, as pond industry professionals, don’t like to pay any more than we have to for our daily purchases, how is it that we feel so strongly about keeping the prices as high as possible for the pond products we sell? Is a brand name pump really worth $200 more than the same pump in a generic box? A pump that costs $20-30 to produce can end up under MAP price with a retail of more than $300.

As for sellers with zero overhead there is a great many people who would disagree with that. One internet seller who did not wish to be named even by initials indicated, “My websites alone cost me $100-$300 per page and I have about nearly 1000 pages on line. Advertising to bring people to the sites is even more. Last year my overhead was higher than $400,000 not counting products. How many stores do you know who have that kind of investment?” Internet seller “P.G.” also has a different view. “I am so sick of uninformed pond store people crying that I have zero overhead.” He continues, “Have you paid for a web page lately? Do you have any idea how much it costs to build, advertise, and maintain a web site in a way that will provide a living to your family?” I spend tens of thousands of dollars a year just to stay online. I would like to see how much that guy with the little store on the corner of his yard spends each year.”

Maintains an Even Playing Field – OR – Gives Large Companies the Advantage

PRO: Map pricing evens the field for all sellers. It keeps internet companies from lowering prices where physical stores cannot compete. MAP allows distributors, retailers, and installers to make profit on the sale of items. This keeps everyone employed, prevents the commoditization of products, and keeps the pond industry growing and profitable for future generations.

CON: Map pricing favors big business. Chain stores, distributors who retail, and garden stores with pond sections all have more advertising power than independent stores and smaller internet sellers. If products are all advertised at the same price then consumers will buy from companies who have the biggest advertising budget and the most exposure. MAP policy defeats its own purpose and takes sales from the small guys and hands them directly to larger companies.

Enforcing MAP Policy

As mentioned, many manufacturers chose not to be interviewed for this article. Those who did agree readily admit that MAP policy enforcement has been hit and miss in the past but they are trying harder. Keith Steele from Savio explains, “We work constantly on MAP enforcement. We are working with Amazon right now on the use of our images and property rights.” James Lavery contends, “I work on MAP every moment I possibly can. Our company is always looking at different ways to bring and keep sellers in compliance.” Anthony Marola of Aquascape Designs indicates, “With our new MAP policy I spend about an hour a day monitoring the web. When we identify a violation of our policy I spend extra time making sure the sellers are aware of policy and to help bring them back up to compliance.”

PRO: If Aquascapes is correct and the research they did both in and out of the pond industry has resulted in an effective MAP policy that will continue to be abided by, then other manufacturers may wish to emulate. In studying the MAP policies of various companies one can easily identify the good intentions of the manufacturers. Enforcing MAP is a challenging task and some companies do better than others. Certain computer programs are available and are being implemented to crawl the millions of pond web site pages and help identify MAP violations. Diligence on the part of the manufacturer is key to the success of these programs. Jeff Payton, of Aquascapes suggests, “It is the responsibility of the manufacturer, not the distributor, to monitor and enforce MAP policy. We have the resources to do this more effectively.”

CON: Enforcement of many MAP policies is sporadic at best and at worst is ruining honorable companies that follow the rules while rewarding those that don’t. Many enforcement policies rely upon distributors, retailers, and internet resellers to report violations to the manufacturers. Some manufacturers dictate to their customers that they must police their customers. Many distributors and retailers find this distasteful and impractical. A distributor may have hundreds of customers and if they carry multiple lines of pond products they may have a thousand or more items covered by various MAP policies. It is absurd to think that they have the time and resources to constantly check pricing on 100,000 potential issues. As distributor and retailer “E.O.” puts it, “I could not even tell you more than a dozen of the web sites owned by my customers. I certainly cannot tell you what prices they are selling at. I have neither the time nor will to babysit them.”

Conclusion

The amount of information on MAP policies and theory is overwhelming in its totality and is far too much for any one article. We have, however, explored many points and counterpoints of the opposing views about MAP. Like in politics, there are many different opinions and people often feel very strongly that theirs is the correct one. Given the polarizing views of this subject it is important to remember that people on each side approach the topic from their own perspective. The views expressed by the people and companies above were given readily with the best interest of the pond community in mind. Our industry, while being small compared to some, is the business in which we have chosen to dedicate our lives. It is the business that we feed our families by and it is the business that we must nurture and grow so that future generations can follow in our footsteps. MAP pricing may or may not be the best answer to our current concerns. The complexity of today’s retail environment is in an ever-changing flux. What works and sells today may be obsolete by next season. We, as an industry, must keep moving forward and work together towards best practices that will ensure our success now, and in the future.

Thank you to the many people I interviewed for this article -

James Lavery, Inside Sales Manager
Atlantic Water Gardens

Anthony Marola, Customer Care Manager
Aquascape Designs

Jeff Payton, Executive Vice President
Aquascape, Inc.

Keith Steele, Owner
Savio Engineering

and the dozen people who would only talk to me anonymously.

One Response to MAP Pricing Debate – In Depth

  1. Tom January 5, 2017 at 12:29 PM #

    Great article, helpful for seeing the dilemma from both points of view. How this doesn’t have any comments since it was written is beyond explanation. Many Many Many thanks for putting your thought and energy into it!

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