Hidden Dangers in Pricing Parity?
Could the growing trend of pet food companies adopting MAP (minimum advertised price) and MRP (minimum retail price) policies actually pose a clear and present danger to the same retailers these policies are meant to protect? According to at least one retailer, this may very well be the case.
Frank Frattini, CEO of The Hungry Puppy, a pet store in Farmingdale, N.J., recently sent a letter to Pet Business in which he contends that MAP/MRP pricing actually does a lot to help online retailers, to the detriment of traditional brick-and-mortar stores. The crux of his argument is that forcing online retailers to raise their bargain-basement prices in order to adhere to food manufacturers’ MAP or MRP policies will inevitably turn “companies that may have been losing money (to garner market share) into companies that are now coining money hand over fist.”
Casting MAP and MRP policies as something of a Trojan horse, Frattini suggests that these policies could be construed as “sleight of hand” that diverts brick-and-mortar retailers’ attention away from the attractive wholesale pricing that pet food manufacturers are offering to online retailers. While he does not argue against the concept of volume pricing, he suggests that at least some of the food manufacturers that are preaching pricing parity are also offering extremely favorable pricing to online outlets by cutting out the middlemen—distributors.
“Everyone must understand that these manufacturers that are selling direct are slanting the playing field in the direction of the large online retailers via a lower cost to them,” Frattini says. “In addition, since distributors are now cut out of the profit equation, they are forced to charge us (independent retailers) more for products to make up for the volume lost from these large online retailers.”
At this point, it should come as no surprise that Frattini ultimately proposes that pet food companies “repeal all MAP and MRP pricing immediately.”
But is he right? Do standardized pricing policies do more harm than good for brick-and-mortar retailers? I don’t think so, and neither do a majority of the independent retailers I’ve spoken with over the past several months since this issue has come under the spotlight.
Frattini does raise some very good questions—for example, are retailers no longer supposed to pass discounts they receive from manufacturer along to their customers? And what about underselling product; are pet stores expected to let it go out of date instead of marking it down? I have not heard questions like these addressed by manufacturers with MAP or MRP policies, and Frattini claims he cannot get a clear answer either.
However, his main assertion that forcing online outlets to raise their prices will simply make these retailers more profitable is problematic. First of all, it presumes that customers are drawn to these retailers simply based on convenience. I would argue that price is what is drawing consumers to online pet food retailers, and it isn’t until these shoppers get used to the idea of home delivery and subscription-based pet food ordering that convenience plays a significant role.
The idea that online retailers will inevitably cause their own demise by taking little or no margins on their pet food sales is also suspect. For how many years did prognosticators warn that Amazon.com was doomed because it didn’t turn a profit? How did that turn out?
At the end of the day, traditional pet stores must stand by the manufacturers that support them—whether that means controlling prices at the wholesale or retail level.