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.
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.
Words of Wisdom
“If you can not fill up the lake with the cup that you have, what makes you think that you can fill up the ocean with the same cup?”
– Samson Eshetu
“For decades we all competed in what I would call an ‘invent and assert’ industry. We would create new technologies and then we asserted – we projected and marketed – what we thought the technology could be used for. We have reached a point in our evolution where we can no longer be an industry driven by gizmos and guessing. We cannot grow this industry on that basis. Instead, we have to be driven by the needs of our clients.”
– Samuel J. Palmisano, chairman and CEO, IBM
“The only new thing in the world is the history you don’t know.”
– Harry S. Truman