Blunt Sage - Pithy Commentary

The Supreme Court began hearing arguments yesterday regarding whether to abolish one long-standing portion of antitrust law — the manufacturer’s suggested retail price, or “MSRP”.

Thanks to a 1911 case, Dr. Miles Medical Co. v. John D. Park & Sons Co., manufacturers cannot require a retailer to sell their product at a minimum price. Manufacturers can establish an “MSRP”, but it’s entirely up to the retailer to determine the actual price at which the goods are sold.

It’s a law that’s served consumers well over the past century because it’s placed a market emphasis on offering the best price for identical goods. But it’s one that’s also stuck in the craw of many a manufacturer (and inefficient retailer) because they believe their “goods” or their “brand” is diminished when a retailer sells their product for less than the manufacturer thinks the consumer should pay.

The current case before the SCOTUS involves a handbag manufacturer, Leegin Creative Leather Products, who has a “pricing promotion policy” that prevents retailers from placing their products on sale. According to the Washington Post:

Leegin said that “the typical retail strategy of putting products on and off ’sale’ degrades a manufacturer’s brand by causing customers to feel cheated when they buy at the wrong moment.”

One of Leegin’s retailers, a Kay’s Kloset outside Dallas, Texas, violated the policy by placing Leegin’s products on sale. Leegin’s subsequently refused to sell to Kay’s Kloset, Kay’s Kloset said their business was damaged, sued Leegin’s and won $1.2 million largely because of the Dr. Miles precedent.

Leegin’s, in turn, has dragged the thing all the way to the SCOTUS where Dr. Miles may end up being tossed out.

So is it a good or bad thing if Dr. Miles goes bye bye?

Well, Leegin’s and the manufacturing groups that have joined the suit are arguing that its a good thing. That consumers won’t feel “cheated”, brands won’t be “cheapened”, and retailers (with all those extra non-discounted profits) will be free to offer more services to shoppers rather than constantly worrying about price-matching others selling the same goods.

Do you buy that? I don’t. Here’s why:

1. Brand value isn’t simply based on the price you pay for the product. If it were, every time a Mercedes dealer had a year-end deal on all of the current models, Mercedes “brand” would be diminished. But it isn’t, is it? Why, because the Mercedes brand has more to do with identification with quality, comfort and style than it does price. Sure, you pay more for a Benz than you do a Chevy, but you also get a lot more car.
2. Consumers don’t need to be protected from hurt feelings. Say you buy a product today and it goes on sale tomorrow. I don’t know a retailer worth its salt that wouldn’t give you the sale price if you marched back in there the next day and said “I want to return this.” I know this because I’ve seen my wife do it 100 times if I’ve seen it once. (Me — unless it’s a big chunk of change, I’m not going to bother. Going back to the store and enduring all the waiting for $4.63 isn’t worth it to me.)
3. Putting a product on sale for seven days doesn’t hurt anyone but the retailer. The manufacturer still makes the same amount on the wholesale end, and the customer pays a little less than they would otherwise. All the risk of a sale is absorbed by the retailer. Sure, they’re gambling that the customer will purchase additional items to make up for the loss in profit margin, but if they don’t, they’re the one who pays.
4. Prohibiting discounting of products removes one of the few market advantages that small retailers have. Big corporate monoliths have the deep pockets it takes to maintain massive marketing campaigns. Smaller retailers rely on lower overhead and greater efficiency to lower their operating costs so they can afford to offer lower prices than the large competitors. If the ability to offer lower prices is removed, you can kiss off thousands of small and/or efficient retail operations and say hello to bloated, expensive ones who monopolize the market.
5. Eliminating discounts and sales won’t make the market better, it’ll make it worse. Here’s the way it will go: Retailers buy a product that they are prohibited from discounting. The product doesn’t sell. In today’s market that product would go on sale (think “After Christmas”, “Inventory Clearance”, “President’s Day Blowout”, etc.), but in the post-Dr. Miles Post world they will be forced to carry that product at full retail forever. So their choice is sit on a product they will never sell (and tie up cash and shelf space), or violate the minimum price rule and get sued by the manufacturer. This will lead to the retailer going belly up and the manufacturer having fewer retailers to sell to. Which will in turn lead to large retailers having more power over the manufacturers and more monopolistic control over what they are charged, and where and if the product appears on shelves. That is bad for manufacturers, bad for retailers (except those few who control the markets), and bad for consumers (who will have fewer choices and higher prices).

Now, don’t get me wrong. Leegin’s is right for objecting to pay Kay’s Kloset $1.2 million when it was Kay’s Kloset who violated the pricing agreement. (Whatever idiot jury came down with that decision deserves to be jailed for violating common sense.) But at the same time overturning Dr. Miles and allowing the manufacturers to start price-fixing once again isn’t going to help anyone but a lot of lawyers in the long run.

Let’s hope that SCOTUS notes this, and kicks the issue back to a lower without undoing a major chunk of antitrust law.

Yeah, I hosed my site a couple of weeks back, but I finally got around to fixing it.

Just in time too, because I’m in a hell of a mood.

Prepare to fire…

As a writer by training I tend to fall to words to explain complex ideas like the magic and possibility of the web.

This guys does way better in video. It’s web 2.0 in under 5 minutes:

(Thanks to John Batelle)

Yes, I have hosed my WordPress theme installation. It’s probably a good thing. The design dates back to 2000 when I was lazy and didn’t really use CSS so it was full of tables and crap.

Give me a day or two and I’ll update it.

If you’re like me, you’re a lazy slob with bad habits when it comes coding your xhtml and css. Take a look at the guts of this site, I haven’t updated it in 5 years even though I know I should. (I will… one day… just not today.)

Fortunately for me–and the three of you who read this blog–there are people like Florian Schmitz who, while not curing my bad habits, at least make them a lot less noticable to my clients. Herr Schmitz is the author of the most excellent CSSTidy, a nifty little app that tones and tightens your flabby CSS . (Sorta like a Denise Austin for web dorks.)

While CSSTidy will not make you look any better (sorry, not to much will), it will make your CSS files smaller, neater and sytactically correct, which makes it look better, load faster, etc., etc. Even better, it’s GPL’d and available at SourceForge in both executable and web-based formats.

If you don’t have the desire/need/energy to run the software yourself, there’s also a bunch of websites that host it for you. For example, you’ll find CSSTidy on this site right here.

Now go. And don’t let me see your flabby CSS around here again.

This morning I was in a discussion with a client lamenting the recent loss of a sale to a competitor. The client in question is a 6 month old startup with a great product, but no track record outside one installation where it was developed. The competitor to which they lost the sale has been around for years. And while the competitor’s product isn’t as flexible or comprehensive, the customer still chose them because, in the words of the customer, “they’re a well-known name.”

Now while I spend a lot of time slamming “branding”, this is one case in which it actually works. A lot of times people just don’t want to go with the unknown or the unfamiliar. Sometimes it’s because of conformity (”everyone else is doing it”). Other times it’s fear of risking the unknown. And a lot of times (a really lot of times) it’s just plain laziness (easier to go with what everyone already knows rather than doing the work to find out if there’s something better).

Regardless of the reason, for the small, unknown company, going up against a well-known brand is just one more obstacle you have to overcome.

So what do you do?

Well, first off, don’t panic. Brand loyalty is a fleeting thing. In fact, I think you can argue that markets are not defined by brand loyalty, but by brand “dis-loyalty.” Toyota and went against brand giants Ford & GM in the 1970’s; Dell against IBM in the 80’s; Wal-mart against Sears and K-mart in the 90’s. And in all those situations, who’s the brand to beat now?

Feeling better yet?

Ok, overcoming an entrenched name takes time, but obviously it’s possible. Here’s the marketing methods I use to great success:

1. Target the risk takers. Customers likely to buy products from (relative) unknowns aren’t driven by making the safe choice (i.e. “the known name”), rather they are motivated by other factors — value/bang for the buck; acute/specific pain points that have to be fixed; industry competition/one-upsmanship; etc. If one of these over-riding conditions doesn’t exist, the customer is probably just going to go with a known name that they’re comfortable with even if it’s not a 100% solution (ie., “the solution is good enough”). Don’t bother with them. Look elsewhere.
2. Attack weak niches. Established brands tend to go for low-hanging fruit and high margin deals because they’re counting on the power of their name to do most of the selling. That means they leave a lot of niches where it’s more work or less profit open. Japanese car makers produced smaller cars and trucks and targeted urban areas; Dell sold PCs to individuals and small business rather than corporate giants; Wal-mart setup stores in rural and suburban centers rather than malls and downtowns. In the same vein you need to concentrate on segments of your market that are traditionally underserved or ignored because your better-known competitors don’t think they’re worth the effort.
3. Get 3rd party validation. Everybody says they’re solution is better — they just change the framework underlying what “better” refers to. In your case you might say your product is better because of your technology. Your competitors will say they’re better because they’re proven in the real world, they’re safe, etc. What you need then is an authoritative 3rd party to say that you are better and document why. Customer testimonials are a good way of doing that. If you don’t have customers, go to a testing lab, an industry publication, a standards or awards organization, or some other respected non-affiliated voice that customers will listen to and accept. (And if you can’t get any independent 3rd party to validate that you/your product is better, then maybe you ought to re-think your business because you’ve got a tough row to hoe.)

You may have to use more than one of these methods (perhaps even all three), and it will take time, but if you stick to it you’ll find that after a while you hear less and less “we’ve decided to go with a more established name” and more and more “we’ve heard good things about you.”

Why eventually you might even be the well-known brand everyone’s going with–at which point you’ve got a whole new set of problems.