Sideways

Approximately two years ago, the Internet factor came into play. Guys with real jobs and computers were sitting around their house in pajamas in their spare time and quickly became big-time retail sales outlets. They may not be able to buy as deep as the big mail-order guys, but with little or no overhead, they were able to sell retail at very low prices. Now, even the mail-order guys started complaining. Clearly, something had to be done.

ENTER MAP

The savior, they thought, was Minimum Advertised Pricing (MAP). With this program, retailers had to agree not to advertise ultra-low prices. According to manufacturers, when wholesale and retail customers saw their products advertised at such low prices, it hurt brand image. And, according to smaller retailers, those who could buy products at large-volume discounts undersold them.

MAP was going to change all that. Big-time buyers could still buy at large discounts; they just couldn't pass along the savings to their customers and retail consumers. The benefit from buying deep was more profit per item; not necessarily increased sales volume. The manufacturers would benefit by seeing their product prices hold. This time, the screaming came from price-conscious consumers who could no longer find brand-name products at rock-bottom mail-order or Internet retailers.

However, it didn't take long for Internet retailers to find a way around MAP—they simply wouldn't advertise or list prices. Internet ads instructed buyers to "call for prices;" no low-ball prices listed in ads = no violation of MAP policy. Under MAP, it didn't matter at what price the item sold; the policy concerned only the advertised price.

MVP IS BORN

This past April, MSD Performance Group announced a new unilateral sales policy called Maximum Value Program (MVP). This system has some teeth. Under the MVP pricing system, resellers enlist to become authorized dealers of MSD products—including MSD Ignition, Superchips, Edge Products, Racepak, and MSD Fuel Injection—enabling them to buy products from MSD Performance Group.

If a reseller sells a product below the MVP price, the reseller is no longer permitted to purchase that product and the penalty is indefinite. Isn't this price-fixing and isn't it illegal? Not according to MSD, which says, "U.S. antitrust law states that it is lawful for manufacturers to adopt a policy regarding resale prices and to deal only with resellers that independently choose to follow the policy."

MSD's MVP pricing policy allows for free installation, shipping, and dynamometer testing. These free services, they say, are not counted as discounts. However, if a reseller discounts the price or offers a coupon for a future purchase, instant or mail-in rebates, or a gas card, the reseller is found in violation of the MVP pricing policy and no longer permitted to purchase the MSD products sold at too-low prices.

The pricing policy still allows violators to continue to sell products for which they have not violated MVP. For example, MSD Ignition may cut off a reseller for selling MSD Ignition parts below the MVP price, but that reseller may continue to buy and resell other MSD Performance Group products that were not involved in the violation. In other words, a reseller may continue to purchase Superchips, Edge Products, Racepak, and MSD Fuel Injection products after being cut off from purchasing MSD Ignition products.

When questioned or polled, respondents almost always say "price is not important." And they are wrong—price is important. I believe they say this because they think it's what people want to hear. Is price the most important part of the aftermarket business? Maybe not. Maybe it's not number one, but it's still important. The number-one concern is usually "is it available?" If you don't have it to sell, you can claim any price you (or the customers) want. "Gee, that item is free this week, but we don't have any of them in stock." How convenient.

As a child, I toured with a circus. The strongman routinely lifted weights labeled as 1,000 lbs., but actually weighed something like 400 lbs. I knew that doing a military press with 1,000 lbs. was impossible, so I asked him about it. "Think about it," he said. "I only have to be stronger than the average guy. If you can't lift the weight, I can claim it weighs 1,000, 1,500, or even 2,000 lbs., and short of rolling the apparatus over to a scale, you can't prove me wrong."

It's the same with pricing and availability. If you don't have it to sell, you can make up a price.

Most wholesalers when pressed will say availability is the number-one factor, service (can you deliver it in the next hour?) is number two, and price is number three.

Mike Riley, who runs The Carburetor Shop in Costa Mesa, California, deals with price this way: a customer calls and asks for a ballpark price on a carburetor blueprint job. "A ballpark?" Riley asks. "How about Yankee Stadium? I can't give you a price until I inspect the carburetor and determine how much work (and parts) it will need. Then I will call you and you can decide. If the customer is concerned only with price, I will send him to a local low-cost supplier. If the customer really wants the carburetor 'blueprinted,' he will bring it in (or send it via UPS) and let me inspect it," Riley said.

WHO WINS?

MAP and MVP pricing are win-win situations. Who wins? Smaller retailers win because they can now compete for sales and everyone on the wholesale side wins. Even the big companies win because they don't have to discount so deeply to make the sale, which increases their profit margin. Manufacturers win because they can maintain their product and brand image.

Are there any losers? Yes. Internet sellers lose because they can no longer sell at ultra-low retail prices. Do consumers lose because they have to pay more for the items they want? Not necessarily. Consumers end up paying higher prices, but they also receive better service. The low-cost Internet provider is in no position to provide assistance to a consumer who needs help.

The big question still left on the table is "will higher prices cause sales to decrease?" It's too early to tell. Sales drive business and consumers have each product's perceived value in mind, which is determined when the customer first enters the market. If it is a long time ago, the consumer will suffer sticker shock. "That's way too much for a camshaft or an alternator," the consumer will complain, before learning the days of the $50 regrind camshaft or the $29.95 remanufactured alternator are over.

The trend is moving to new parts (usually from offshore sources) replacing remanufactured parts and all auto parts are more expensive now than they were years ago. Price is important, but it's not the number-one concern. For your wholesale customers, the number-one concern is availability, number two is service, and price falls to the number-three position. We'll talk about quality, perceived value (brand names), and preventing "comebacks" in future issues.

Right now, the MVP policy is too new to judge, but manufacturers, WDs, jobbers, mail-order firms, and Internet sellers are watching closely.

Mike Anson Editor in Chief [email protected]