Price Fixing - Right or Wrong?

[ElectroSoldier]

It isnt my place but knowing a little about America and its like of law suits against each other I would suggest you guys who are involved be very careful what you say here.

One of you have already accused another of creating a cartel, something which is illegal in America I believe, he is also suggesting a criminal conspiracy to fix prices, and as it crosses state lines its a federal case, not state, so its the FBI.

Be very careful what you say.

And before anybody denies the accusation of a cartel it was my imediate thought after I read the post, and if I think it others will too.

The person who has created the business contract of sale is not price fixing at all.

It is a mutually agreed contract, and the reason for leaving the contract doesnt matter, it was a contract you agreed to be bound by in order to get the goods to sell.

You accuse of price fixing, offer it as a discussion and then go on to nullify your own part in it by saying you only offer it for discussion...

Litigation America beckins!

Just so you know this term of business is legal, not only in America but in other countries too because it is a sale contract, not "price fixing" at the hands of a cartel, most of the things you buy are sold on a similar arrangment... McDonalds for instance tell the franchise owners what they will sell their own products for, they enter a contractual agreement and thats that.

All that asside, and take it how you wish, you may think its a load of garbage for instance, BUT I have one serious suggestion to all of you.

As you live in a country that is known on a global scale for litigation (in the UK we can buy "anti US litigation travel insurance for instance lol )I would stop, because MAYBE you have not already said something that might get you into trouble, be tempers my flare, and you will find yourself in court....

And Im talking to all of you.

[Bugfan]

If SBM wants to sell his "widgets" at 1.00 above cost, it would take SBM selling

10 units to 10 customers to make 10.00.

If PCM wants to sell his "widgets" at 10.00 above cost, it would take PCM

selling 1 unit to 1 customer to make his 10.00.

The key word in the above scenario is "CUSTOMER". And without the customer,

neither would prosper, but as above SBM, has accomodated and became exposed to

10 customers, which will lead to more sales to these 10 satisfied customers, a

more loyal customer base, and in the end more "PROFIT" for that store. Most

people have a limited hobby budget, and will shop around to get more bang for

the buck, be it from the LHS OR THE INTERNET STORES!!!

THINK ABOUT IT!!!!

Jack aka BUGFAN

[Fishwelding]

Hey, Ken, welcome to ARC. I have seen your products in my local hobby shop, and am somewhat familiar with your line.

In order that you are properly represented here, perhaps you should explain your position here, so people know what it is you are proposing. People here have already expressed opinions, but if we have opinions at all, we should all hear what this is about from your perspective. You may not care to, especially if you've hashed this out, elsewhere, but you did post a reply to Gordon above, so I assume you'd like people to have your thoughts, too. Gordon, I don't doubt your effort to represent Ken's side of this fairly, but sometimes it helps getting the proposition straight from the source, and that way you're not responsible for both sides of the argument, which is a lot of work!

[Raptor01]

Sheesh.. Did Dave Klaus open a business school or something? What a bizarre discussion, someone is trying to kill the hobby again.

John

[CorsairMan]

I believe Ken may be right - a manufacturer, on it own, is free to set retail prices and only deal with retailers who adhere to those price policies. The manufacturer can also not supply (or stop supplying) those who will not adhere to those policies. There is nothing anti competitive about it - after all, that manufacturer is only limiting his own sales.

Of course, this is in the USA and may not apply to other countries.

Its a marketing strategy adopted by luxury brands and tends to be used to protect retailers who service customers. Lots of money needs to be spent in advertising and promotion to prop up this pricing structure. The risk is that the ultimate buyer does not 'buy into' this structure. After all, the buyer has the ultimate power to not buy a single product.

[Miccara]

- a manufacturer, on it own, is free to set retail prices and only deal with retailers who adhere to those price policies. The manufacturer can also not supply (or stop supplying) those who will not adhere to those policies. There is nothing anti competitive about it - after all, that manufacturer is only limiting his own sales.

Finally, at least someone gets it. What he is proposing is NOT illegal. Let's remove that from the discussion.

[LanceB]

I believe Ken may be right - a manufacturer, on it own, is free to set retail prices and only deal with retailers who adhere to those price policies. The manufacturer can also not supply (or stop supplying) those who will not adhere to those policies. There is nothing anti competitive about it - after all, that manufacturer is only limiting his own sales.

Agreed. And if that maker sells other people's products as a distributor of those products s/he is free to demand that shops that purchase those products sell them at a certain markup or else lose their buying privileges. And those local shops can choose to buy kits from that distributor and sell them at the agreed-upon price as a condition of purchase, or (especially in this day and age) they can choose to buy wholesale from another outlet such as HLJ, or they can elect to not carry that product line at all.

I somewhat fail to see how tying the retailer's hands, though, is "supporting the local shops which are the future of this hobby", but perhaps that's just me.

[KenLawrence]

<<The Brighton case is being appealed...>>

Last I heard the appeal had not been accepted by the Supremes. Until it is, the decision still stands.

<<The other case you use for this discussion, Costco v Swatch, was not really about the price, but the fact that Costco had, in their opinion, acquired the inventory through channels that were not authorized by the Swatch/Omega dealer policies.>>

Swatch/Omega brought the case specfically because of the low prices being charged for Costco. The end result is that Costco lost the ability to sell the watches below the prices set by Swatch/Omega.

<<It's my fault that I didn't understand that I couldn't take pricing action on inventory from you after seeing that it failed to move at all after a more than generous inventory cycle, but once that was clear, from our face-to-face discussion in Phoenix, and subsequent emails, I had no reluctance disposing of the line.>>

I specifically explained that to you and you agreed when we began to do business together.

We have always had a policy of taking back inventory that didn't move as long as it is in new resalable condition. If you had informed me that you wanted to drop our lines, we could have helped you.

Let me repeat again. We are not here for the internet discounters. We have never been here for the internet discounters. We support the local hobby shops because we think that they are the foundation of the hobby and that, without them, the hobby will become so small that the kit makers will not be able to survive at their current level. You are free to say that you disagree, but I think that our policy is right and we will continue to support the LHS,s and in turn the modelers.

Best Regards,

Ken Lawrence

Pacific Coast Models, Inc.

[KenLawrence]

"I'm not getting Ken's argument. Price fixing to save the LHS? I could not obtain a PCM kit from my LHS even if I wanted to."

Please inform us of your shop's name and we will contact them.

"I think Ken's hidden agenda is "price fixing to save Ken's bottom line."

LOL! I can SAFELY say that I do not do this for the weekly salary I get.

Cheers,

Ken

[KenLawrence]

"I guess I'm just wondering how far Ken can ever hope to have his theory applied."

As far as the kit makers want to take it.

"But take the Trumpeter example: what if they refuse to establish such rules for their distributors and end-retailers?"

They have already had a policy of restricting their distributors sales to specific territories. I don't know how this has worked out for all their territories, but I know of a couple who refused to sell into the U.S.

"And then, what if Trumpeter decides to make kits that compete directly with Ken's, but allow these to be sold at a lower price? In essence, then, Ken--and any other manufacturer who agreed to his plan--run the risk of being undercut."

True, but that is a risk which can be offset by selling out of our stock or by our kit being superior to their offerings.

Cheers,

Ken

[mingwin]

i've always have a better service with sprue bros than i ever got from my LHS...

i prefer to support a more viable way of doing business, paying less for nothing...

paying less for that crappy shopping mall with endless parking lots...

when you buy at your LHS you spend a lot of money to people who doesn't really care about the future of modelling...

kit makers receives same amount for each of their kit sold (usually...) no matter who solds...

kit makers does the offer... internet is the new shopping mall... order and pay less. (less time, less gas...)

finally, hobby store jobs aren't exactly very valuable (nor any retail jobs) ...i ain't count on theses to bring america's economy back on top!

i still don't agree (and don't see in anyway how) artificial pricing will save LHS from their fate...

[KenLawrence]

"I believe Ken is struggling to sell his products...example...the Hurricane 1/32nd scale."

While they haven't sold as well as I would have liked, we did get our investment back with a profit. I think that they will continue to sell and we will be satisfied with the overall result.

"I'm a dyed in the wool Hurricane fan and have wanted a good 1/32nd scale Mk I for years...and have yet to buy the PCM kit. Reason....I know if I wait someone will do a better product at a reasonable price"

How many more years are you willing to wait? Now you can have a very good kit with lots of marking choices, PE set and resin detail pieces for $69.95. What do you think a better kit will cost and when do you think that you will see it?

"....look at the 1/32nd Spitfire Mk IX series....Tamiya released theirs and suddenly you see PCM kits for sale cheap all over the place."

I just checked E-Bay and there were no PCM Spitfires for sale. There were two Hurricanes with the cheapest at $64.95. Where are you seeing them?

Cheers,

Ken

[Wayne S]

Swatch/Omega brought the case specfically because of the low prices being charged for Costco. The end result is that Costco lost the ability to sell the watches below the prices set by Swatch/Omega.

Best Regards,

Ken Lawrence

Pacific Coast Models, Inc.

Ken, I understand what your getting at, but it is a wrong case to bring up with your idea, since they had to use another law to stop it.

That would be like saying they tried and jailed Al Capone as a gangster when in reality he went to jail for tax invasion.

finally, hobby store jobs aren't exactly very valuable (nor any retail jobs) ...i ain't count on theses to bring america's economy back on top!

I disagree with you here, the simplistic way I can think of showing you this is with Tourism. Most places that have a booming economy and no local taxes are those places that have a booming Tourism industry. Since these places are low on taxes one can be assured they have a good economy. Tourism industries are heavily dependent on disposable income, with that disposable income comes Mom & Pops stores, Tons of local jobs that deal almost entirely on retail.

Edited February 16, 2011 by Wayne S

[pigsty]

Ber-limey. What a can of hornets' nests.

On this side of the pond, case law has established that a manufacturer cannot require a retailer to sell at a given price, but can refuse to supply retailers who sell at lower prices. This leaves the retailer free to obtain supplies by alternative routes, and leaves the manufacturer free to shut down those routes if they find out about it. Bizarrely, both sides' positions are thus protected, without either being able to stop the other by using the law. And everyone seems happy enough.

Of course, it might help that this was established when Tesco tried to sell cut-price designer jeans - several orders of magnitude beyond a few hundred model kits in small corner shops.

Now, would this summary be about right?

• manufacturer wants to set retail price (not wholesale) and is denying supply to retailer who won't co-operate;
  
• manufacturer's reason is that selling at a lower price - ie a lower profit margin - favours larger retailers who can live with lower margins because they have higher turnover.
  

The first of these is legal here and appears to be legal over your way as well. I've also read threads about another manufacturer doing it to an on-line retailer in Poland, so it must be legal there too.

The second - well, no reason to do this is any more valid than any other. But will it work? I'm sure it's true that smaller shops need higher margins (I've heard that model shops reckon on 30%, whereas Tesco is content at 3% because of the gargantuan volume they get through). But it strikes me that this misses out the most important person of all: the buyer.

There's a long tradition* of threads waxing lyrical about the demise of the model shop and cursing the reasons, which seem to boil down to other retailers being more competitive (this is commonly, and wrongly, described as "unfair competition"). Equally, there's a long tradition of threads complaining about high prices. Work that one out, eh. And it has to be said, people often behave irrationally when they think they're getting a bargain. Drive miles to save a couple of quid, and forget how much the petrol cost; snap something up on eBay and omit the cost of postage from your calculations; that sort of thing. But let's face it, almost everyone pays as little as they can manage. If we all had a handy shop nearby we could all keep it open much more easily, and I'd applaud anyone who managed that. But I'm not sure it's possible in the current situation - the economics of it, and the niche nature of the hobby, aren't very favourable.

So my conclusion is: it's not wrong, in fact it's noble; but I don't think it will work.

One more observation: as many have said, retailers occasionally have to cut prices to shift unsold stock. They don't have infinite stowage space and it's better to have some cashflow at a lower margin than to have none at all. One thing I think no-one has spotted about this situation: if the stock is lying there unsold, why? Could it be price?

* by interweb standards

Edited February 16, 2011 by pigsty

[CorsairMan]

There's a long tradition* of threads waxing lyrical about the demise of the model shop and cursing the reasons, which seem to boil down to other retailers being more competitive (this is commonly, and wrongly, described as "unfair competition"). Equally, there's a long tradition of threads complaining about high prices. Work that one out, eh. And it has to be said, people often behave irrationally when they think they're getting a bargain. Drive miles to save a couple of quid, and forget how much the petrol cost; snap something up on eBay and omit the cost of postage from your calculations; that sort of thing. But let's face it, almost everyone pays as little as they can manage. If we all had a handy shop nearby we could all keep it open much more easily, and I'd applaud anyone who managed that. But I'm not sure it's possible in the current situation - the economics of it, and the niche nature of the hobby, aren't very favourable.

* by interweb standards

The one thing I have noticed about this hobby is the 'frugalness' of the participants. And yet - its a somewhat strange frugalness. High kit prices are a common theme as is the comparison to the prices of kits in the 60s 70s 80s etc.... But look at the contents of the box. More often than not we are comparing a 1970s econonmy car to a 2011 imported super car. The price of kits are always complained about while we happily pay for paint that is $600 per gallon and model cement that is even more expensive. Strange bunch we are.

[Mikehorrell]

I'm not getting Ken's argument. Price fixing to save the LHS? I could not obtain a PCM kit from my LHS even if I wanted to. I think Ken's hidden agenda is "price fixing to save Ken's bottom line."

Absolutely correct.

There have been at least three or four threads about this over on HS and anyone who wants to bother

can go back and read them and if you do, it's blatantly obvious that Ken's mostly concerned about Ken's

bottom line, which is legitimate, but this whole "it's for the good of everyone" position he takes is total crap.

As long as Ken continues to make a product people are interested in at a price they're willing to spend for that

product, PCM will be OK. If he doesn't make what the market wants or misses his price points, then he's in

deep kimchee.

The model ship market is willing to pay two and three hundred dollars for what they want so I don't think

it's the MSRP he sets that's affecting his sales; it's that the 1/32 niche market has suddenly become popular

with mainstream manufacturers and PCM now has direct competition from the giants.

That's unfortunate for PCM, and I hope PCM finds its feet in competing against them, but I really get p1ssed

when someone tries to play me in such a transparent manner as Ken has over the past few days.

[mingwin]

I disagree with you here, the simplistic way I can think of showing you this is with Tourism. Most places that have a booming economy and no local taxes are those places that have a booming Tourism industry. Since these places are low on taxes one can be assured they have a good economy. Tourism industries are heavily dependent on disposable income, with that disposable income comes Mom & Pops stores, Tons of local jobs that deal almost entirely on retail.

i live in quebec city, a town mostly devoted to tourism.

and, tourism jobs are still jobs... they're not great jobs... (noT much $$ for the effort)

i don't get it about "Since these places are low on taxes one can be assured they have a good economy" ???? you certainly ain't talking of europe... nor canada... low taxes (as in USA) don't mean good economy... better read economy books that aren't written in USA!!!

[crazydon]

"I'm a dyed in the wool Hurricane fan and have wanted a good 1/32nd scale Mk I for years...and have yet to buy the PCM kit. Reason....I know if I wait someone will do a better product at a reasonable price"

How many more years are you willing to wait? Now you can have a very good kit with lots of marking choices, PE set and resin detail pieces for $69.95. What do you think a better kit will cost and when do you think that you will see it?

For a large scale Hurricane...I don't have to wait. I have 2 of the 1/24th scale Trumpeter Mk I's and if I told you what I paid for 1 of them you'd call me a liar ...it sure in the hell was'nt MSRP.

As a consumer I "need' the best bang for my buck and don't have to have the 1st kit on the market of a subject that interests me. Another example we could use is the Eduard Emil series 1/32nd scale...I bought 1 first out of the gate and was dissapointed with the kit....passed on the Trumpeter version and waited to see before I ordered the Dragon version....which I ordered through a friend and odds are will order 1-2 more from Sprue down the road

[crazydon]

The one thing I have noticed about this hobby is the 'frugalness' of the participants. And yet - its a somewhat strange frugalness. High kit prices are a common theme as is the comparison to the prices of kits in the 60s 70s 80s etc.... But look at the contents of the box. More often than not we are comparing a 1970s econonmy car to a 2011 imported super car. The price of kits are always complained about while we happily pay for paint that is $600 per gallon and model cement that is even more expensive. Strange bunch we are.

I have no problem spending money on a new release if the subject interest me....but I am going to try and stretch my dollar as far as I can.

[Big Texan]

I think what is being proposed is akin to buying a car. So, every model you buy now from PCM approved hobby shops, you have to haggle from MSRP with the salesman. If you get the kit for $300 dollars above actual book value, you have a good deal! Also, beware of the option where Dealers get a percentage back from PCM for selling their kits! Buyer beware! Is there an Edmund's for model kits out there now? I want to see the Consumer Reports evaluation of PCM kits compared to other manufactures and if it is a Consumer Reports "Pick" or to be avoided altogether!

PCM, you have the right to do what you want and what you think best for your company. Don't even try to impose your ways on everybody else! You will lose every time. Price fixing is wrong, no matter how noble it sounds. This isn't socialist Russia where the govt. sets prices, or OPEC, and yes, even our own oil and gas industry. It's monopoly, plain and simple. No one is holding you back from doing what you want or what you think is right for your company. If it works for you, great. But, don't impose this on others. If I want your "Hurricane" bad enough, I'll buy it regardless of cost. That being said, I will always look for a bargain for my wallet. What you're proposing couldn't be accomplished anyway! What would you do about Ebay? Hang it up pardner!

[Fishwelding]

Price manipulation is done all the time in various industries. Much of this takes place outside our understanding, because we as citizens can't or won't pay attention to it. Farm prices, utility rates, transportation fees, and many other things are not "left to the market." This is done at times to protect consumers, to protect businesses, or to ensure a service is kept widely available and efficient for the rest of the economy. So there's little point in high-minded diatribes about the morality of it.

When I hunted for a fairly rare locomotive in HO scale for my father's christmas present two years ago, Walthers, the big railroad uber-catalog-and-distributer outfit, directed me on the phone to local hobby shops around the U.S. The Walthers guy literally pleaded with me to call up a small-time shop in Florida to get the locomotive through him, instead of have Walthers send me one from their warehouse. I thought that was awesome. Further, my local hobby shop fairly eagerly will honor stuff at the Walthers monthly special discount price, so I suspect Walthers is backing that to an extent. It's possible to take a "support-the-shopkeeper" attitude.

In trying to vertically enforce a high price, however, I'm still skeptical that it will accomplish the intended goal, unless you get widespread agreement across manufacturers. I don't claim to understand how the business works, though, so maybe I'm missing something. Also, it seems to me small hobby shops are under assault from a variety of things, internet discount retailing being only one of them. Plus, perhaps it's not that simple; a local shop of mine discounts plastics 10-20%, and I buy there (too) regularly, because this effectively wipes out internet discounts, and cost of shipping. My internet purchases have correspondingly suffered!

[KenLawrence]

"Ken's idea is not related to the setting of the MSRP. His theory is calling for everyone that sells a particular item to be only allowed to sell it for the same price. In Ken's case, Ken wants to dictate what anyone who sells Ken's lines (either that he manufacturers or imports into the US) to only sell that price Ken decides a retailer can sell it for."

No, again this incorrect. When I started this company, I decided to sell only to brick and mortar hobby shops. I was not and am still not interested in selling to internet discounters who are at odds with our primary market. Over time, some internet discounters contacted us. We agreed to sell to a few of them only if they did not discount our lines. We didn't force anyone to buy from us or agree to our terms of sale. They did or they didn't and it was up to them. You agreed and everything was fine with you until last year. Then you attempted to arbitrarily change the terms of our argreement so that you would have an advantage over our other customers. We refused to your demand. This is about you keeping your agreement and not complaining about the results when you break it.

Also, I would like to point out that in all the years we have been in business, we have received only one complaint about the retail price of one of the kits we have sold. On the other hand, we have received hundreds of compliments about the completeness, quality and pricing of our PCM kits. We set our retail prices very carefully so as to offer the best possible price to the shops and the modelers as we want to sell more kits. I simply will not engage in sales which will be, in my judgement, detrimental to the local hobby shops and to the hobby.

In addition, we have made kits of subjects which, at the time we issued them, had never been made by the any other kit maker. As far as I can tell, we were the first to provide marking/painting instructions in color in all our kits. The first to offer a nice PE set and always use Cartograf decals. Our tiny company forged the way for these kits, some of which, will probably never be made by any other kit company. Modelers have told us that in some cases they had been waiting 30 years for some of the kits we have made.

Here's the example of what he is calling for from a prior post:

"For example, if Ken's theory is applied, the 1:32 Trumpeter F-14D kit that has an MSRP of $230 which you can now buy for far less (such as for $155.20 right now at Great Models), can only be sold to you for $230.00 no matter where you buy it at. The end result of this idea is that all consumers will end up paying more (even significantly such as this example). I know how much the cost is of this kit to a dealer and I know GM is making profit selling it at this price."

What another distributor is doing does not apply to us. But if we were the Trumpeter distributor, I can assure everyone that the retail prices of their products would be alot lower than they are now. Let me point to Tasca's retail prices since we became their importer/distributor. They are much lower than the prices of the previous distributor. Every week, we are adding new LHS customers who are now carrying Tasca products and can now supply them to their modelers. Look at our retail prices on Tristar. Thanks and

Best Regards,

Ken

PCM, Inc.

[crazydon]

Plus, perhaps it's not that simple; a local shop of mine discounts plastics 10-20%, and I buy there (too) regularly, because this effectively wipes out internet discounts, and cost of shipping. My internet purchases have correspondingly suffered!

Which is the way a LHS can both survive and make money. My LHS do MSRP or even tack on a higher price so that means to get the most for my money I go to the internet or scrounge at IPMS shows

[Miccara]

When, oh when, are you people going to learn?

You can't successfully argue your cases in this forum. You have nothing to gain discussing this here, other than total frustration. Take the advice of my PR company, "Just say nothing in a public forum you don't control. You will only make it worse and broaden the misconceptions already out there"

How many minds do you think have been changed since this started?

Somebody please take the high road. You've taken something that really no one was discussing or really cared about about for the most part, and would have just gone away if you left it alone. But noooooooo!

[Mikehorrell]

Which is the way a LHS can both survive and make money. My LHS do MSRP or even tack on a higher price so that means to get the most for my money I go to the internet or scrounge at IPMS shows

I'll spend a bit more than I have to if it's in support of a local business, but I'm not going to bend over

and take it dry.

If I can get a good selection of books and magazines at the local shop, I'll buy there even at full cover

price; if not, then I go to Amazon. Ken's production is so low that his "safe the local hobby shop by buying

my products at full MSRP" plea is just nonsense since few of the LHS have ever stocked PCM products.