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Retail price maintenance protects the manufacturer's margin. If your retailers get into a price war, their margin will get squeezed down to almost nothing. At t

Retail price maintenance protects the manufacturer's margin. If your retailers get into a price war, their margin will get squeezed down to almost nothing. At that point, they'll either drop your product, nudge customers towards an alternative product that they can make a profit on, or demand bigger discounts from the manufacturer. If your retailers can't make a healthy profit from selling your product, they're not particularly inclined to sell it. Excessively tight retail margins also degrade the customer experience. As a manufacturer, you generally want retailers who can provide good pre- and post-sales support. If a retailer makes almost nothing from selling a product, they aren't particularly inclined to help customers. They'll spend more time upselling accessories or additional warranties than actually advising the customer and will just deflect all problems to the manufacturer. https://en.wikipedia.org/wiki/Resale_price_maintenance https://en.wikipedia.org/wiki/Resale_price_maintenance

jmanderley 8y ago
The incentive for retailers is to provide as little post-sales support as they can get away with, margin has nothing to do with it. Also, online stores don't tend to "advise" customers.
- jdietrich 8y ago
  Hence RPM. If everyone is selling my product for the same price and making a healthy margin doing so, they have to compete on other factors, customer service being the most obvious. Online stores often indirectly benefit from brick & mortar retailers - customers browse in store, then buy online. Again, hence RPM.
rhizome 8y ago
How does competition between resellers change the wholesale price, from which (AIUI) the manufacturer's margins are derived?
- coryfklein 8y ago
  The clear inference from OP's remarks is that if the resellers literally stop selling your product, then the manufacturer would be forced to lower the wholesale price to compete for "shelf" space.
- jdietrich 8y ago
  I offer a product with a wholesale price of €149 and a recommended retail price of €249. Competition between retailers pushes down the actual retail price to €169. Online retailers can make a sliver of profit at that price, but for brick and mortar retailers it's pretty much a break-even proposition. Those retailers will come to me saying "We can't make any money selling your product. Unless we can get a bigger discount, we'll have to discontinue stocking it". I either lose my presence in retail stores and the sales volume that goes with it, or I have to eat into my margins to keep those retailers on board. If I do eat into my margins, there's a good possibility that the online retailers will figure it out and demand a discount too. Big online retailers have good market intelligence resources and considerable negotiating power, so they can demand as good or better wholesale prices than anyone else despite having very low overheads. Left unchecked, everything converges to the margin. I'm making just enough money that it's worth keeping production running, most retailers are making just enough money to justify the shelf space, but we're just barely scraping by. I can't afford to invest in R&D, so I just churn out cheap me-too products. Retailers with high overheads will be driven out of business, leaving only the most efficient of box-shifters. Customers get low prices, but very little more. Sound familiar?

jmanderley 8y ago

The incentive for retailers is to provide as little post-sales support as they can get away with, margin has nothing to do with it. Also, online stores don't tend to "advise" customers.

jdietrich 8y ago
Hence RPM. If everyone is selling my product for the same price and making a healthy margin doing so, they have to compete on other factors, customer service being the most obvious. Online stores often indirectly benefit from brick & mortar retailers - customers browse in store, then buy online. Again, hence RPM.

rhizome 8y ago

How does competition between resellers change the wholesale price, from which (AIUI) the manufacturer's margins are derived?

coryfklein 8y ago
The clear inference from OP's remarks is that if the resellers literally stop selling your product, then the manufacturer would be forced to lower the wholesale price to compete for "shelf" space.
jdietrich 8y ago
I offer a product with a wholesale price of €149 and a recommended retail price of €249. Competition between retailers pushes down the actual retail price to €169. Online retailers can make a sliver of profit at that price, but for brick and mortar retailers it's pretty much a break-even proposition. Those retailers will come to me saying "We can't make any money selling your product. Unless we can get a bigger discount, we'll have to discontinue stocking it". I either lose my presence in retail stores and the sales volume that goes with it, or I have to eat into my margins to keep those retailers on board. If I do eat into my margins, there's a good possibility that the online retailers will figure it out and demand a discount too. Big online retailers have good market intelligence resources and considerable negotiating power, so they can demand as good or better wholesale prices than anyone else despite having very low overheads. Left unchecked, everything converges to the margin. I'm making just enough money that it's worth keeping production running, most retailers are making just enough money to justify the shelf space, but we're just barely scraping by. I can't afford to invest in R&D, so I just churn out cheap me-too products. Retailers with high overheads will be driven out of business, leaving only the most efficient of box-shifters. Customers get low prices, but very little more. Sound familiar?