The Unauthorized Dealer Scam Over?

The Supreme Court today overturned an 87 year-old anti-trust law that prevented manufacturers and distributors from setting minimum pricing for products. This change is going to dramatically affect online retailers and give consumer electronics manufacturers the ammunition they need to finally "come out of the closet" about the whole "unauthorized dealers" who sell their products at below SRP. In fact, one would wonder if the term MSRP (Manufacturer's Suggested Retail Price) will go away and instead be replaced with something akin to MMRP or (Manufacturer's Minimum Retail Price).

Over the years we've seen a lot of crazy manipulation of pricing, products and policies to get around this issue of minimum retail pricing.

Here are just some of the scenarios that we've personally witnessed brought about by attempting to circumvent this law over the past several years:

The "We Have No Idea How That Got There" Scenario

Many manufacturers have a policy that they will not support or warranty products that are not sold through "authorized dealers". Here's the idea - manufacturers have product lines that sell particularly well through retailer, dealer and installer networks and companies. If an online company were to simply order tons of products and sell them online, all of these retailers and installers would be left with inventory that is priced much higher than the "going rate".

Competition, in this sense, is awesome for the consumer but creates absolute havok for dealers.

The solution to date seems to be a policy whereby manufacturers deny warranty coverage to consumers who purchase the products through unauthorized dealers. But HOW does this happen? Do manufacturers truly lose tens of thousands of products (each month) out the back doors of warehouses to the likes of online Internet companies everywhere? Why aren't these companies shut down? Why aren't manufacturers absolutely incensed enough to track down these violators or, (gasp) pick up the phone or order cease and desists?

Rest assured, manufacturers are most certainly NOT losing inventory on a large scale like this. They simply don't enforce the rules and turn a blind eye to what goes on - until it becomes so obvious that it draws the ire of custom installers or larger retail chains. Why are they turning a blind eye? Because the manufacturer makes a profit on ANY product sold at dealer cost or higher. Remember, it's the retailer that makes money above that point. As a result, manufacturers allow the practice to continue because... they LIKE the sales they get from the Internet - they just can't admit it.

Of course, that also means that these companies should warranty all of their products, not just those sold by "authorized" dealers. Under the current law, I believe that unless a manufacturer is actively in lawsuits again unauthorized dealers they should be required to warranty a product the same as they would for an installer or warrantied product. If they are letting it go unpunished then certainly the consumer shouldn't bear the brunt of their desire to keep the profit machine running.

One positive thing that just might come out of this overturned law is the restoration of warranties on unauthorized sales and better management and control of inventory through price controls that are legal. Since there is a trade-off (potentially higher prices) this may not be a welcome change to all.

Hocking Fake "A/B-Stock" Through Esoteric Audio Classifieds Website

For years now companies we will not mention (just start doing searches, you'll find them) have been allowing their dealers to sell products at below MSRP through one of the esoteric audio classifieds sites. At one point we realized that this esoteric audio classified site was selling so much of certain manufacturers' equipment that it MUST be the largest dealer for these companies period. This was also confirmed by several industry insiders as an accepted practice of certain companies in order to get around the "we don't sell online" mantra that they hand out to their dealers.

Here's the problem: Either these companies are selling online on purpose, or they have no problem with the fact that their b-stock inventories from particular dealers outnumber their new, retail products. Folks, there just ain't that many 9/10 and 10/10 b-stock products out there - it's simply a business model - but one they won't admit.

Sell It at MSRP or We Break Your Legs

Some companies, like Apple Computer, seem to consistently (and successfully) circumvent the old rule entirely. Anyone who sells Apple equipment at less than the suggested or approved Apple rates gets to meet Steve Jobs... in a dark alley... alone... Seriously, just try to find new Apple products at less than Apple Store prices. Bose is another company who is just as efficient at "legal" price-fixing.

How do they do it? Simple. They limit their dealers so dramatically that anyone who violates their suggested retail pricing models gets cut - never to sell another iPod or $750 clock radio ever again. Harsh consequences + high demand + good inventory management = the ability to maintain high prices and keep the perceived value high as well I might add.

What Will Happen Next?

So will all these business models go away? Are discounted Internet sales doomed? And, more importantly, will I be strung up by a lynch mob for revealing these little-known secrets of AV manufacturers?

No, No, and gosh I hope not.

One thing that has to factor in to all of this is market forces and the current pricing trends within the industry. If there is anything we've learned it's that the CE industry moves pretty slowly when it comes to sweeping changes. Prices on consumer electronics may rise, but consumers can simply determine - as always - what they are willing to pay for products. If consumer delays spark a mini-recession in AV purchases, then you can bet manufacturers will lower the retail process and the system will balance itself.

According to the ruling:

The decision will give producers significantly more leeway, though not unlimited power, to dictate retail prices and to restrict the flexibility of discounters.

Five justices said the new rule could, in some instances, lead to more competition and better service. But four dissenting justices agreed with the submission of 37 states and consumer groups that the abandonment of the old rule would lead to significantly higher prices and less competition for consumer and other goods.

There is also the possibility that companies like Apple and Bose will now simply have the legal authority to come out of the closet with respect to their price fixing and other manufacturers may simply continue business as usual.

States will determine, on an individual case-by-case level whether any one company's minimum pricing policies will fall into the area of anti-trust laws and need to be limited.

Rule #1 is simple: Don't Panic! Life will go on and no one is going to force you to pay $750 for a clock radio if you don't want to. You don't want to, do you?