The Supreme Court ruled in a 5-4
decision to make it easier for manufacturers
to require retailers to honor manufacturer
assigned Minimum Advertised Price
(MAP). Dissenting justices said
that the ruling would likely drive
up retail prices. What will be the
ruling of the consumers?
The high court's decision overrules
an existing anti-trust statute that
made MAP agreements illegal. In
the future, courts will evaluate
each individual case to determine
if it violates anti-trust laws.
With regards to the old anti-trust
statute, Justice Anthony Kennedy
wrote, "It is a flawed anti-trust
doctrine that serves the interests
of the lawyers."
The Consumer Electronics Association
issued the following statement,
"CEA
applauds the Supreme Court decision
today reversing the per se rule
against resale price maintenance.
The Supreme Court holding that the
"rule of reason" should apply to
the legality of manufacturer pricing
decisions, means simply that all
the facts will be examined before
a finding of illegality - replacing
a black and white rule of illegality
in every case. Reasonableness has
come back to the antitrust laws,
and in consumer electronics industry,
where sales training, industry marketing,
and after-sales service are highly
valued by manufacturers and reputable
retailers, it makes perfect sense
to consider these factors when evaluating
a manufacturer's requirement that
threshold prices be maintained."
With this ruling, new lines for
measuring anti-trust will be determined
by judges on a case by case basis.
Each case will document and establish
boundaries for future reference.
Level Playing Field?
One possible outcome of the ruling
is that it creates an opportunity
to level the playing field between
major retail enterprise like Best
Buy,
Circuit
City
and Wal-Mart with the locally owned
independent dealers. If a manufacturer
requires all locations to honor
the manufacturer imposed Minimum
Advertised Price, then it is feasible
that a product may have exactly
the same price regardless of the
sales channel.
For end-user consumers, if there
is sudden consistency in retail
pricing from every location, then
different considerations would become
more important in the decision making
process. If there is no competitive
price advantage between online options
and brick-and-mortar neighborhood
retail stores, then consumers may
be swayed by convenience, installation
options, service or speed of delivery.
Service and Solutions could begin
to take precedence over price and
performance.
Although the move could create competitive
consistency for the Minimum Advertised
Price for consumers, it does not
imply that the same will apply to
the purchasing power of the large
retail chains. Even if the retail
price is the same to consumer, companies
like Costco, Wal-Mart and Best Buy
will still have significantly stronger
purchasing power in comparison to
the smaller chains or resellers.
Although the price to big retail
would not go up, the margin and
profit could benefit from consistent
retail pricing. Increased margin
would enable big buyers to become
more competitive in other areas
of the business.
Derivative Product
A common method of maneuvering between
the desire to maintain a high price
and high value associated with a
particular model compared to the
desire to increase market share
with a burst of low cost product
has been to leverage derivative
models and burst SKU's. By changing
a few features, disabling a component,
modifying the color or the label
on the product, manufacturers have
been able to provide low cost cousins
to high value flagship products
in the past. The new ruling by the
high court would make this practice
even more attractive for manufacturers
and retailers to control price by
product. This type of control may
be a healthy necessity as plummeting
prices have reduced the perception
of some technology in consumer electronics
to commodity status.
Business Finds a Way
The Supreme Court has removed a
large stone from the center or the
rapidly moving stream of Consumer
Electronics business. With time,
there will be a series of smaller
stones placed in the stream as various
advocates challenge and test the
boundaries of reasonableness in
court. Despite the expense of litigation
and the inevitable stones that will
be placed in it's path, business
and commerce will adjust the flow
just as fast flowing water continues
to find a way downstream.
The ruling itself is an acknowledgement
of a significant change in the marketplace
for technology in commerce. The
number of brands and manufacturers
competing on Consumer Electronics
is much larger and more diverse
today than in the past. It is mush
easier to establish new brands with
direct access to dealer channels
for original equipment manufacturers.
How will the up and coming brands
respond to the ability to designate
Minimum Advertised Price in comparison
to the desire for a bigger piece
of the market share pie? Price and
demand can not be dictated locally
in a global market.
The advent of personal media that
can be downloaded from the Internet
and stored on personal devices has
virtually wiped out an entire market
of retail music stores in the blink
of an eye. Record Stores are now
few and far between, primarily relegated
to small sections inside of consumer
electronics retail stores or bookstores.
Online music venues offer easy options
for artists, albums or single tracks.
It was not a Supreme Court ruling
that imposed such a dramatic change
to the industry, but rather the
fast flowing course of business
as determined by consumer demand.
Have you tried to use a public pay
phone lately? Could you find one
now if you needed it? Cell phones
are not free to manufacture, but
they can be free from a carrier
if you sign-up for service. If the
cell phone manufacturers impose
a Minimum Advertised Price for the
product, will it be the carrier
or the consumer who pays the price?
Ultimately, the individual or entity
that pays the price may determine
which product is in stock and which
product sells.
Will it be a court ruling that determines
the future of satellite radio, or
will it ultimately be defined by
consumer demand? Did satellite dishes
replace cable networks or merely
create an alternative in an existing
market that was once ruled by radio
waves and rabbit ear antennas? It
was not necessary for the courts
to require competing alternatives
between VHS and
BETA,
or to interfere with the format
war between Blu-Ray and HD DVD.
Business finds a way.
We salute the Supreme Court for
a ruling that acknowledges a fundamental
rule of business. The Courts will
not determine preservation or pricing,
consumers will.
Distributed by:
Executive Blueprint
