Serial entrepreneur with an industrial psychology education and over 23 years of creating, consulting, and operating businesses. Loves mountain biking, snowboarding, and surfing.
We have many manufacturers ask us about enforcing a pricing policy with their wholesale distributors. While this is not something we can easily enforce, I wanted to give some advice on how it might be encouraged.
First the problem:
The WDs have a lot of discretion in the prices they give their clients. We here at MAP Services Corp began as online sellers so we know a lot about this. We spent a lot of time negotiating with WDs in order to get better prices. The WDs generally do not want to give better pricing until you can do more sales. Which creates a chicken and the egg problem,
If we could get lower prices we would do more sales. But if we do more sales then we get better pricing. How best to deal with this?
Many sellers will sell at a loss or a tiny margin to get the volume they need to get better pricing. These practices definitely harm manufacturers without strong MAP enforcement.
In addition, manufacturers who want to enforce a WD pricing policy have no way to know what prices WDs are actually giving to dealers. The dealers certainly do not have any incentive to reveal their pricing.
So what is a manufacturer to do?
Maybe let your WDs know about U.S. Wholesale Outlet & Distribution Inc., et al. v. Living Essentials LLC, et al.
In this case, smaller wholesalers sued 5-Hour Energy claiming that Costco received better pricing than they did. The case went all the way to a jury and was extremely costly. Although 5-Hour energy ultimately won the case, I bet most WDs would be scared of a potentially expensive lawsuit, especially if they did not have someone like Costco in their corner!!
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