ApplianceAdvisor                         

CONTINUING READER COMMENTARY 2003 - 2006
PRICE FIXING IN THE APPLIANCE INDUSTRY

FROM THE INTERNET
http://www.bargainsla.com/bargainbasics.htm
http://www.gcwf.com/gcc/GrayCary-C/News--Arti/newsletter/antitrust/032803/
http://www.ftc.gov/bc/compguide/illegal.htm

READER COMMENTS IN REVERSE CHRONOLOGICAL ORDER (most recent FIRST)
FROM A CONSUMER
I'm ready to order appliances for a kitchen remodel...UMRP value at about $30,000. After about six months of getting frustrated by 7-8 sellers of the brand Sub Zero and others (Thermador etc), I wrote Sub Zero and asked "Is it true that you don't allow dealers to sell your product below UMRP?" No reply for several weeks so I wrote another query on email. After a week I received a reply saying that Sub Zero does not set any price for dealers and that they are allowed to sell at any price they wish. With that in hand, I drove to the Purcell Murray showroom south of San Francisco and asked the lady accompanying me why, if that is the case, dealers would not sell appliances to me at a discount. She suggested that I must have misunderstood the message from Sub Zero and that it was the manufacturer that established that rule. At that time I pulled out my printed copy of the email and let her read it. She said she would have to go talk to "my supervisor" for a moment. After a few moments she returned and told me that yes, it was not a policy of manufacturers such as Sub Zero and Thermador (I was looking at both brands) to require a minimum selling price. I replied "So....why can't I get a discount?" Her reply..."It's our policy. We're the manufacturer distributor and it's our policy that we will not allow them to sell the product unless they agree to sell at UMRP only." I'm about to give up and will be placing an order at full price in the next few days.


FROM A DEALER AND CUSTOMER OF HIGH END APPLIANCES
As a dealer and a customer of high end appliances, it is important that all customers understand when there is a "Bottom Line Price", it always seems to be at a lower margin than most of the 'Brick and Mortar' dealers would like to operate.  The effect of UMRP is to impose a ceiling as well as a floor.  Sub-Zero refrigerators require much more work to sell and deliver than an Amana side by side, but we actually make less margin on the Sub-Zero.  This also applies to ranges, dishwashers, etc.  We do not like the constrictions any more than consumers, except for the lazy dealers who cannot sell their services anyway.

FROM A BUILDER DISTRIBUTOR
UMRP, a builder distributor's response:
The manufacturers of higher-end appliances do not want their products 1) disparaged in the field; and 2) sold so cheap as to not attract dealers to sell their high-end products, thus narrowing their ability to get their product shown and sold in the marketplace.

It boils down to greed…but consumer greed, not supplier greed. The mark-up on high-end appliances, if you are lucky, is 18% to 20%. The dealer must inventory, manage, display, sell and deliver, all without damaging property or products. When the dealer does damage something, the cost to replace it is outrageous. 18-20% is not a rip-off, it is a fair, possibly even TOO low, margin to operate on. Most consumers would have you do it for "cost + 5%." But try to buy something from a guy who owns a furniture store, who sells at 100-300% mark-up, or try negotiating price at any gas station! You'll note the consumer will utilize a showroom and the expertise of its trained personnel to learn and decide which product is best for their needs, and then---as one admitted to in your column---will go straight to the Internet to attempt to purchase it from someone else at a lower price. Good luck to that consumer when the product is missing parts, damaged in freight, or when the deliverer scratches his wood flooring bringing it in.

FROM A CONSUMER
I spent some time looking for a vacuum cleaner that would be suitable for my needs. Finally, I went into my local dealer to inquire about a central vacuuming unit. After listening to my needs for a few minutes, he suggested I buy a Miele and forget the central unit; and I agreed.

The model I liked and wanted, he said, would cost $979. I thought to myself, as with everything else, I'll find it on the WWW for a
whole lot less, and I thanked him for his time. 

And so, I went back to my home, sat down at the computer and began my search. Are you kidding me! There are hundreds of web sites selling Miele vacuum cleaners, some sites with "brick and mortar" behind them, others without. Some are local, and others from across the country. But not only could I not find it for less, I couldn't find it for any other price! $979- is the only price.

My next search on the WWW was for the words "price fixing", and among the results was your blurb on the subject of price fixing.
From my understanding of your understanding, for price fixing to be illegal, there has to be collusion between the parties. In the scenario we have here in the appliance industry, there is no collusion between manufacturer and dealer.

You mention UMRP (unilateral minimum retail price) as a strategy by the manufacturer to guarantee inflated retail prices. I asked my local dealer what would happen if he sold a Miele vacuum cleaner below the $979- price and Miele found out about it. He said that they (Miele) would take down their sign from the front of his store. I take that to mean that he would lose his dealership authorization, and with that a portion of his livelihood. Is it any wonder why dealers will not sell these units for less. If this is not price fixing, then how is it not extortion?

Whether collusion is or is not a factor, the end result is the same. The price is inflated beyond all proportion and fixed!!

Furthermore, equivalent (if not more powerful) models available in the U.K. are available at half of what they cost in the U.S., and the prices are not fixed. If you visit the Miele web site, they make no qualms about how proud they are of the U.S. subsidiary being responsible for their tremendous success globally.

My teeth were clenched when I paid for my Miele vacuum cleaner as I felt like I was being take for a ride.

There must be something we can do to stop this! Whatever it is, let's do it.

APPLIANCEADVISOR RESPONSE TO ABOVE:  Thanks for that thought.  I will add this comment to the site.  That said.......as mere mortals and not anti-trust attorneys one wonders what we can do.  Your greatest power was one in the end even you chose not to exercise, as you did purchase the Miele.

RETURN REPLY FROM CONSUMER:  The truth of the matter is that they do make a superior product. After having owned four other vacuums in the past seven years, I wasn't willing to inconvenience myself again. However, that doesn't give them the right to engage in unfair practices. But you are right, I chose to fall victim too. Blasted, I'm guilty!
Nonetheless, thanks for your efforts and keep up the great work.

FROM A CONSUMER
Dear Appliance Advisor,
I'm shopping for my own kitchen remodel... I do want all pro-style appliances, and although I hate getting the same price on the same item from every retailer, I know that our "free market" economy does NOT mean that every manufacturer has to let their distributor/retailers fight it out for the lowest pricing on their identical product. Rather, our "free market" economy means that forced pricing dictating "too much profit" makes that manufacturer a "fat cat" target of a new price conscious competitor. Wouldn't that be a great business to get in to, your competition won't let their distributor/retailers compete with your equally built but less expensive product? The old "excess profit breeds ruinous competition" thing...

That's what I think, but who cares what I think...
Realtor

FROM A DEALER
I feel that common pricing in the appliance industry is a positive policy. As a dealer who carries a wide variety of brands, I feel that by enabling a products profitability, it allows the customer to make a decision more based on the quality of the store than the product itself. A case in point: I sell the Maytag Neptune washer for the same price that everyone else does, $999.99. However, I also include delivery, installation, removal of the old product, and most importantly, I have a service department. Many customers realize today the value of good service, so why would they go to a hardware store (Home Depot, Loews, etc.) to purchase a washer when they can get it for the same price with a much better value from a dealer that knows appliances.
Now, let's discuss the same scenario with a product that is NOT covered by such policies. I sell a basic gas range, let's use a product like Maytag's PGR5710. I sell this range for $699.99, again I include delivery, hook up removal of old, and I even will convert it to LP gas. In our area those same hardware stores I mentioned above, charge extra for all of the above, and, will not even consider converting a product to LP gas. Sure, they may sell it for $100.00 less, but at what value?

Thank you for listening,

FROM A BIG BOX DEALER
I just thought that I would give you my thoughts on the UMRP pricing that exists in most high end Appliances. For many years I was a General Manager of a Big Box retailer of appliances and electronics. I came across this site looking to add a UMRP pricing policy with my new company. Here's why. While these policies sound like they hurt the customer you must consider what goes into carrying, stocking, supporting these products. Today's consumer cares about nothing except price. In years past a consumer would pay more for better service, today as stated in another readers comment customers will go to one dealer for the information and then buy that same product online to save a few dollars. What ends up happening is a complete commoditization of the market. There is always going to be some idiot working out of a warehouse that will sell at 5% above cost. Than in an effort to get back some margin the manufacturers have to lower their price = lower quality. Look at DVD players, sure their $30 now but look what you get. The other thing that consumers should understand, they are buying high end appliances. Those that want a deal should buy a Hotpoint. I don't believe that Rolex has a UMRP policy, but try to get a deal on one... A final point on UMRP means that a dealer has to win a consumer's business on the hard part of running a business. Service, Selection, Stock, Salesperson knowledge, Delivery and Installation services. Any price whore can lower the price to earn business. UMRP takes them out of the mix!



FROM A DEALER
Dear appliance advisor,
I am writing in response to your ongoing commentary on UMRP price fixing in the appliance industry. In essence, UMRP as it is written is a legal way to control prices by the manufacturer or distributor. As with any law there are loop holes with UMRP policies.

The sale of premium products today has become very complicated. It isn't as simple as a Sub Zero refrigerator on an invoice so everyone can see the price. Most products being sold are sold as packages. In a package UMRP can't be enforced. If you have a Viking with a Sub Zero on an invoice neither manufacturer can in-force their own policy.

Most distributor policies state that a UMRP policy does not allow Free offers other then delivery and Finance. But yet in most markets with a high density of sale of this product you can find many other discounts. I would like to list a few. In the market where we do business it is common practice to write an invoice for the customer and then rebate them back an amount up to as much as 10%. The distributor can't see or enforce this as a policy violation. Many new kitchens have a nice new flat panel television in them. We see sales daily that give these consumers this set for free. A $699.00 television on an on a $14,000 package is 5%. Small dealers play games with sales tax and enterprise zones where sales taxes have been reduced for specific reasons.

So all being said a UMRP program standing by itself could be a good thing for the appliance industry. Unfortunately these policies are impossible to enforce unilaterally which makes them legally questionable. In the case of a UMRP program with a distributor, I feel strongly that this policy is used as a margin stabilizer. This is illegal. I have seen in recent months that UMRP is starting to crumble. I don't believe there is any APPLIANCE manufacturer that wants to get investigated on this. Just ask Maytag in Florida.

So the lesson of the day is.....JUST SAY NO TO UMRP>>>>


FROM A PRO-STYLE APPLIANCE CUSTOMER
I read your article when I was looking at distributors for Viking. I am in the process of redoing my kitchen and was looking at Sub zero 690, Viking 42" rangetop and Thermador double ovens. I did some search on the web to see the best prices around and found out about this UMRP thing. I believe this is very close to price fixing if I have ever seen one. To tell retailers that they cannot sell below a value and if they do, they won't get any more parts, seems to me to be an effort to fix prices. I don't know what your thoughts are on this? Is there a way to get around this? I was told that different distributors around the country have different UMRP's, or in some regions, they don't. But I am not having any luck getting any published pricing on any web sites. Any guidance you can give me would be greatly appreciated. It seems like I am going to be stuck with almost $15 to $20K for appliances, I guess that is the cost of having a picky wife, but I hate feeling I have been screwed by this price fixing. I wonder if you could tell me the list of all the distributors around the country for these brands, and if you know whether they have UMRP's or not. If they do, how would one get a hold of those numbers? I guess some of those folks ship these merchandise and some do it for free or very cheaply to get around the price fixing issue. I would greatly appreciate your insight into this and any help or guidance you can give me. Thanks.


FROM A SUB-ZERO CUSTOMER
All dealers in the San Francisco Bay Area told me that Sub-Zero ordered a policy that setting the UMRP on Sub-Zero's products. All dealers in the area are willing to give me the UMRP price but they will not go lower to risk loosing Sub-Zero reselling license. I then learned that many other appliance manufacturers including Thermador, Maytag are applying UMRP on their products as well. Some dealers jumped at my questions related to UMRP to defend this practice like a mad dog. I sensed that something is wrong in the appliance world. As a consumer, it appears to me that the manufacturer attempts to practice price-fixing by issuing UMRP policy for its brand; even though the practice is currently interpreted as legal, based on a 1960 Supreme Court ruling.


FROM A DEALER
Blatant price fixing. Good for retail dealers, bad for the public. Very stupid on Bosch's part, SEAR'S buys direct with no UMRP, Distributors are setting the UMRP higher than SEAR'S floor price, so brick and mortar stores can't be competitive, consequently Bosch is being switched to Asko , KA , Miele etc.


FROM AN APPLIANCE SERVICER
I believe price fixing exists. I've owned /operated a refrigeration service business since 1980. Cut my teeth on everything from Admirals to whatever ends in Z. Now.... FF to 2002. We are building a custom home. We need high end appliances right? OK. I'm out there working dealers for pricing on the appliance package, easily over 15K. Hoping for a little professional courtesy ya know.
After shopping the package to several independent dealers, it became amazing to me how the same piece can be priced exactly the same. I mean EXACTLY! This tells me their all in bed together in some kinda way. I haven't figured this part out yet. The coincidence is blatantly obvious.
I might add I don't want something for nothing! I have no problem with every body putting shoes on lil' Joey. The scratching of the head part comes from many dealers, without knowing what each other quoted, having the same price on the same piece! How does this happen? I'm sure the salesmen don't even know. They quote prices from a book and that's that. If you're a "friend of the program" you get X percent off........no less. Things that make you go HMMMMM....

My two cents, for what it's worth. I'll watch this site for follow ups. I'm very curious. I have examples for those who request the minutia.


FROM A PRO-STYLE RANGE CONSUMER
While shopping for "professional" style ranges for my home the discussion of bottom line pricing came up with the appliance store. The salesman stated that Viking Manufacturing had a bottom line price and that the manufacture would not allow him to sell products below that price. He then showed me a letter from Viking and the distributor that he utilized to show two prices, retail and the UMRP. This price piece seemed fishy. Was the salesman using a uniform sales piece that all dealers used to artificially set low end prices, or was this his sales tactic. I thought this was somewhat illegal, not sure, but definitely unethical. Any word on the legality of UMRP?


FROM A CONSUMER
I'd like to know more about price fixing. I thought Crazy Eddie's broke this economic handcuff years ago. Even Maytag's Neptune is not allowed to be sold below a "bottom" (aka "fixed") price or the dealer gets the ax. Doesn't seem to matter where I go for Viking, Thermador, SubZ, everyone's price is essentially the same. Is this legal?


FROM AN APPLIANCE DISTRIBUTOR
Dear Advisor,
UMRP policies reference the following:
United States v. Colgate Co., 250 U.S. 300, 63 L. Ed.992, 39 S. Ct. 465, 7 ALR 443 and
Cooper Liquor v. Adolph Coors Co., 506 F.2d 934 ( 1975 5th Dist.).

In essence, so long as the supplier says "sell at my price or I won't sell to you" and does nothing more to enforce his price policy, then this is not a violation of the Sherman Act.


FROM A WOLF CUSTOMER
Dear Appliance Advisor,
I was recently in the market for kitchen appliances for a complete kitchen remodeling/expansion project. When inquiring of numerous dealers about the price of a Wolf 36" pro-style range and a vent-a-hood range hood I was amazed that no matter where I called within 100 miles I was quoted the exact same price (within$.50-1.00) for both appliances and no one would move. One or two of the dealers were pretty up front about their pricing. They said that the manufactures didn't require them to sell at that price - but that if they sold it any lower they just wouldn't receive any more product!!!!  I eventually found a dealer who had last years model Wolf configured just as I wanted it (yes I know about the recall and have had it addressed) and was willing to put together an extremely attractive package price on the Wolf stove, vent-a-hood range hood, Amana refrigerator and Asko dishwasher.


FROM A MAJOR APPLIANCE SALES EXECUTIVE
I have attended quite a few legal sessions on UMRP and I see you make mention of the policy on your site on occasion. None of these comments should be construed as a personal interpretation of UMRP policy.

When a UMRP policy is implemented - it creates the best "Catch 22" that ever existed from a vendors-perspective. Once instituted - no one is permitted to speak to the dealer with respect to UMRP - as you have mentioned. [If an employee ever mentions something to a dealer and it gets back to corporate they will be terminated.] The dealer is given a P.O. Box so they can "report" violations of UMRP by other dealers.

It is legally "incumbent" upon a manufacturer to treat each reported violation EQUALLY - e.g. research, follow-up etc. Since that is impossible - the next best Unilateral Approach is to investigate NONE of the reports of UMRP violations that come from dealers. As a result - it is ILLEGAL to act on ANY individual dealer-reported-discrepancy as that would be COLLUSION.

If a dealer reports an issue - no matter how legit it is - it actually PREVENTS the manufacturer from acting. [Catch 22 - or - some other subtext-reference-number in the written policy]

How do dealers get cancelled? Only if the manufacturer "discovers the pricing issue themselves." You can imagine how anxious they are to do this. You will rarely if ever see a manufacturer cancel a dealer for breaking UMRP*. I know of only a few occasions - and one was based on a national advertisement by Lowes on a Maytag Neptune washer. [You can elect - in the original written policy - to terminate only the SKU that violated the pricing policy.] A Neptune derivative came out in a month or so - thank-god or that would have adversely affected Maytag business at Lowes!

*Distributors attempt to do things to control their UMRP policy and they are very sketchy legally. Since the legality of the process is not being seriously challenged - the possibility of a dealer filing a suit is minimal as legal costs eat-up any damages that would be received.


FROM A SMALLER DEALER:  February 2006
I work for a small appliance store. WE are the one that get screwed by the giants of the area like DEALER A, and DEALER B, (dealer names removed by ApplianceAdvsior) ect. I follow the rules and sell at the price that we are supposed to for I don't want to loose the product off the floor if we get caught. The problem is that the big dealers do not follow the rules of UMRP and they get away with it, some even advertise on the Internet below UMRP. I know that they have been reported numerous times by my self and other dealers! We do talk shop a lot and none of the manufactures have pulled their products yet nor will they because they will loose hundreds and hundreds of thousands of dollars a year (perhaps millions).  So it not only unfair to the consumer but also to the dealers. 


FROM A DEALER:  March 2006
The thing that amazes me about the consumers that resent umrp is their arrogance. They almost always appear to be mad that they can not bully the retailer with their dollars. Frustrated that they have been all over town and they they could not find one person they could intimidate. In most cases they appear to be very self-serving individuals.
If Consumer Reports rates the Kenmore Elite washer as "The Best" and one wishes to buy it, there is only one price you can pay, Sears' price. So synonymous Kenmore has become with manufacturing that most every day I hear someone ask to see the Kenmore washer and they look surprised when told its only available at Sears. Yet I hear no one complain that Kenmore should be available to all dealers so as to create a fair market. What if tomorrow Sub Zero decided to only sell direct to the consumer? Would that be price fixing? Would we have a fair market?
So get over it. If you don't like the price, if you don't like the practice. Put your money where your mouth is. Don't buy it!
If enough people feel the same way, the umrp will disappear.
Or buy with the knowledge that if all the pricing is the same, you couldn't have paid to much.


FROM A CONSUMER:  April 2006
    From a dealer, March 2006:  "The thing that amazes me about the consumers that resent umrp is their arrogance"
Those of us who have lived a long time and witnessed the occasional small triumphs of consumer rights over the might of manufacturers and large commercial enterprises--only to find, when they go out to make a major purchase, they are illusory--are far from "arrogant" in expressing their disillusionment.
When I go to a fancy, "full-service" establishment, I expect to pay top price. When I go to a local hole-in-the-wall, which has presented itself to the community as an appliance discounter for decades, and find it charging the identical price to the above, I call that price-fixing.
Whether it's a car or any other higher-end consumer item, the normal practice is for location, special services, and frills to influence prices charged. Likewise local economic conditions.
One expects to pay top dollar on Madison Avenue, Rodeo Drive, or Union Square, less on the Lower East Side, in an outlying, less-affluent part of LA, or in San Francisco's Mission District or adjacent Daly City.
When this proves true for most appliances and only a handful of manufacturers use their muscle against it, to most fair-minded folks that's flouting the spirit of the law and what should be the "letter" as well.
It's axiomatic that retailers have the right to price their goods competitively and should never have that right curtailed by their suppliers.


FROM AN APPLIANCE DISTRIBUTOR SALESPERSON:  April 2006
I am an appliance distributor salesperson in the Midwest. Here are my questions and comments concerning your questions and comments concerning the public's questions and comments about the validity and legality of UMRP:

If both the dealers and the manufacturers are getting so rich off UMRP, then why are there so many fewer dealers than there used to be? Did they close their stores, take their big frigging wad of money, and go on an endless vacation? In my home town alone, there were seven appliance stores with seven more in the surrounding small towns just twenty years ago when our population was less than 50% than what it is currently. Now consumers have to choose between only four appliance dealers in the city and only one in a surrounding town. From fourteen down to five in twenty years.

Of these five remaining dealers, three are national chains (The Home Depot, Sears, and Lowe's,) one is a regional chain with no service department, and only one is a locally owned store with a service department. All of the stores that are no longer here were locally owned. Did this loss of dealerships happen because the government wasn't anti price-fixing enough? No, just the opposite. The demise of the service oriented local retailer, was caused by the government taking away the freedom that manufacturers had to set a fair retail price.

And if the UMRP is providing such a windfall in profits, then where are all the investment bankers who seem to be able to smell out the chance possibility that a good return on investment may be lurking in some unsuspected place? With the huge flowing profit stream that the UMRP supposedly provides, you would think that they would be financing 101 new large and small appliance manufacturers! But NO ... the appliance industry is in a state of brand contraction because so many manufacturers just can't seem to find the extra few % to swing their loss to a profit.

When the government gets out of the way and gives manufacturers back the full freedom to market their products in any way they choose, including setting a fair trade price, then we will have a sane market. Until then, with the consumer able to convince his or her politician that a royal screwing is happening every time an item is purchased at a preset price, the marketplace will continue to be driven into a profitless and choiceless corner.

Copyright © 2003 - 2006 ApplianceAdvisor.com. All rights reserved.
Revised: April 13, 2007