Is MSRP the new MVP?
Remember when Michelin North America Inc. implemented its Maximum Value Policy (MVP) program on BFGoodrich All-Terrain T/A KO light truck tires some 12 years ago? The program was designed to protect the tire’s profit margins and beef-up sales.
At the time, dealers didn’t like Michelin setting a minimum price. They also didn’t like it two years later when the policy was discontinued. “We won’t be able to compete against Costco!” one dealer told me.
Now Michelin has embraced manufacturer’s suggested retail pricing, or MSRP. Why? The reason, announced in September, is simple.
Based on its consumer research, the company says consumers are dissatisfied with their experience on the Michelinman.com website because there is no price information. Twelve percent of the site’s visitors come primarily looking for price; another 29% indicate “price shopping” is at least one of the reasons for visiting the site.
“Through additional consumer surveys about price, we learned satisfaction will improve with manufacturer’s suggested retail price,” says the company.
Both Goodyear Tire & Rubber Co. and Bridgestone Americas Tire Operations LLC were first to post MSRP on their websites.
Michelin was up and running as of Nov. 1, 2012. And it didn’t just fabricate MSRP out of thin air. It used price data from some of the largest tire retailers in the United States, including Discount Tire Co., The Tire Rack, warehouse clubs, TBC Corp.’s retail stores, Sears Holdings Corp. (Sears Auto Centers) and Tirebuyer.com.
Continental Tire the Americas LLC, Cooper Tire & Rubber Co., Hankook Tire America Corp., Yokohama Tire Corp., Falken Tire Corp., Kumho Tire U.S.A. Inc. and Pirelli Tire North America Inc. have yet to follow suit.
Tire manufacturers usually tiptoe around pricing, and with good reason. Antitrust laws make price fixing illegal.
According to the Federal Trade Commission (FTC), price fixing is an agreement (written, verbal or inferred from conduct) “among competitors that raises, lowers or stabilizes prices or competitive terms.”
The Sherman Act imposes criminal penalties of up to $100 million for a corporation knowingly involved in price fixing. For an individual, the penalties are $1 million, and up to 10 years in prison.
If the amount gained by the conspirators from price fixing is more than $100 million, the maximum fine may be tied directly to the ill-gotten gains — and doubled.
“When consumers make choices about what products and services to buy, they expect that the price has been determined freely on the basis of supply and demand, not by an agreement among competitors,” says the FTC.
Matching competitors’ pricing, by the way, is not illegal. “Each company is free to set its own prices, and it may charge the same price as its competitors as long as the decision was not based on any agreement or coordination with a competitor,” says the FTC.
At the recent Bridgestone Consumer Dealer Meeting, Michael Fluck, director of digital media for the Consumer Tire Division, told attendees that company websites are important to online tire shopping. Only 20% of consumers buy their tires without doing any research.
Fluck cited a 2010 Google Automotive study that showed 86% of tire buyers purchase them in person at a store, while 9% buy online and pick them up at a store. The remaining 5% buy online and have the tires shipped directly to them.
So traditional stores are still the place buyers go for tires. The trend toward MSRP, however, makes me wonder what the next step is for tire manufacturers. Will they take advantage of e-commerce and begin selling directly from their websites? I hope not. ■
If you have any questions or comments, please e-mail me at firstname.lastname@example.org.