Ever noticed that some brands are the same price everywhere? I bet you have; find out more about the act of price fixing in the music business and what it means to you!
Price Fixing by Dealers, Manufacturers or Cartels of Music Gear
Ever wondered why when you go to buy some equipment that no matter where you look or which dealer you go to the price is EXACTLY the same? I bet you have!
Often unless someone like me points this out, you might not even notice that its going on - right under your nose. But hey, these are independent dealers owned by different companies - they have no affiliation to each other than simply selling the brand and product that you might want, whether its a guitar, amp, speakers, effects unit, accessories, you name it and one or another brand suffers in this way. And that means YOU suffer too.
What's it all about then? Well there are a few scenarios, let's discuss a few below:
Surely the manufacturer can't be involved in fixing prices? How?
I came across one recently. The manufacturer shall remain nameless for now (unless they give me trouble for publishing this page) but basically I went to visit a dealer and was talking about how the music trade was in equipment. This dealer was saying how hard it really was out there in the music trade to sell kit these days with the big fat recession handed out by bankers (or is that wankers?) since 2008.
So I said to this guy, well, why not simply put this particular product (a well known brand) on eBay so lots of people will see it, discount it so it sells and hey presto - you have a steady stream of sales. His reply was immediate and exact. We can't was his reply. If we do that the manufacturer will stop us being an authorised dealer or maybe they are always out of stock so we can't get the brand for sale.
Surely they don't mind you selling on eBay if its new kit I asked.. and the reply was QUOTE: 'Oh yes they do - and they don't take kindly to it at all. And if we put it on eBay and/or discounted on eBay then we would cease to be an authorised dealer'. What's more is that if we advertise anywhere a discounted price we get big trouble. Frankly, I was surprised at his comments - but I know these are genuine comments from a reasonably good dealer.
So what's the bottom line with this manufacturer (and others I can name)? There are a number of issues involved:
- Holding the retail price of the brand in question at retail price so that the brand is 'seen' as a premium brand of high value
- Keeping the brand off eBay when it is new from authorised dealers
- Keeping the second hand value of the brand high - again adding that 'high value' branding to the brand and its products
- Price fixing on all retail advertising so that effectively the price is the same everywhere
The truth is, that if you buy this brand - its almost assured that you will pay list price for it, you will think that the brand is 'awesome' and so expensive because its 'brand x' and how high the second hand value is shows you that this brand is the best! (In fact many purchasers think that if it costs more then it must be 'better' in some way) Products that are always in demand so much so that you always end up paying the price - and second hand brand X is so expensive too!
And all along you thought it was because the brand is so well known and in demand. Wrong; you just got ripped off for the full retail price and can't get around it no matter what you do. But actually you can - and those manufacturers, distributors and dealers hate it. I also like the way some manufacturers specifically exclude voltages from equipment except for the country that the equipment is destined for. A good example is that on many amplifiers and other equipment the multi voltage transformers have now mutated in to one voltage input... oh, you thought it was to save money on production? right? Well some people are a little nieve but don't worry... I won't tell anyone.
Now one thing is for sure - I don't have much time for distributors. Let me explain and name one as an example. I could name many. Imagine being here in the UK and wanting a Mesa Boogie Road King II head. A very nice amplifier of that there is no doubt. So off we go to our authorised dealer channel and ask the price, which currently in the UK is £3199.00 at Andertons UK as of August 15th 2011. Wow that's expensive but hey its a Boogie? Right? Well it is, and you might know the Road King II and agree that its worth all that money.
But its not a Road King II as I know it. In fact, no matter where you go for Mesa Boogie kit in the UK you will be very hard pressed to get ANY discount from the dealers and there's good reason too.
Its called Westside Distribution. Never heard of them? I'm not surprised. But I have. This is the sole distributor of Mesa Boogie kit right here in sunny UK land, where they reside. Carefully develop the brand as being the 'rolls royce' of brands (that is questionable by some) and a UK list price and dealer discount structure. OK so far? Then comes the rest, a really big fat retail price (good for high profit and the UK is KNOWN to put up with it) a structure of dealers that dare not break the 'rules' or he's out. The result is that you NEVER see new Mesa Boogie on eBay discounted. Come to think of it, you never see a brand new Mesa on eBay in the UK at all. We have already discussed the consequences to dealers if they go off course a little - similar to the manufacturers above.
Now before I finally put the nail in the coffin about distribution scams let's just sit back a moment and sum up where we are (there's more on this yet):
- Super high retail prices to ensure that Mesa Boogie (in the UK) is seen as a premium product
- Hard and fast rules to dealers to stop them discounting (some say their sales receipts are even checked) and stops them 'devaluing' the brand
- Price fixing at its best shielded by frightened dealers with nowhere to turn
Lastly, lets examine the Mesa Boogie brand as I know it, then compare the two markets:
Wow what a difference! I'll use the same Road King II as the example (but could choose any model) so there's no funny business going on. Here in the USA the LIST PRICE of the amp is $3200 give or take. In fact it looks like Mesa Boogie have withdrawn their retail price list from the Mesa Boogie site these days... I wanted to check their current take on the amp. Don't worry, I have a price list in my Mesa Road King II which by the way I bought second hand.
Now lets discuss the pricing on the street in the USA. You can walk in to an authorised dealer (of you look around a little and choose the smaller ones) and buy that amp on the street for $2350.00 or thereabouts plus 7% tax = $2514.00 which equals £1552.00 and without tax ( $2350 = £1450.00)
And the Price here in the UK without tax is: £2665.83 or $4318.65. Take the UK price $4318.65 and subtract the USA price $2350.00 = $1968.65
Now convert the difference to UK Pounds = £1215.21
That's how much you pay in the UK EXTRA to what the guys in the USA pay for basically the same product on the street! Mesa Boogie these days on their site say: 'MESA/Boogie Products are represented and sold in 35 countries throughout the world. From country to country, prices will be affected by significant differences in shipping costs, currency exchange rates, duty/tax, governmental safety/performance requirements, etc., that may exist.'
Now lets analyse this rubbish point by point:
- Shipping costs: I can and they can ship this product by sea to the UK for $70 = £43.20
- Exchange rate is currently as I write $1.62 to the pound and is not moving around much (update August 2015 is $1.55 to the pound).
- Duty is maximum 3% is $70 = £43.20
- CE approvals are EXACTLY the same and carried out in California - cost difference is zero
- Small charge for import clearance per amp £15.00
So the total 'additions of importing (we already disposed of the tax aspect difference) is just £101.40 in total. Now add that back to the USA pound equivalent which was £1450.00 + £101.40 = £1551.40 plus VAT. OK now add on the VAT here in the UK at 20% and let's really see the difference:
£1551.40 plus 20% = £1861.68 Real Cost
So even with those extortionate VAT costs that the UK suffers from, including shipping, including import taxes, including clearance fees, basically including everything based on USA street price the cost only comes to £1861.68 inc. VAT and the difference to UK retail is a whopping £1334.00 unaccountable by the distributor, the dealers or indeed Mesa Boogie.
Now is that a surprise? it might be to you but it is not to me. One more thing you have to take in to consideration of greedy distributors is that Mesa Boogie does not sell those amps to the distributor at list price. That distributor will be getting probably up to 40% (or more dependent on volume) from Mesa Boogie, which makes those imported amps actually cheaper than I have demonstrated here in this case.
I have always had my doubts about distributors - and the give away is always 'sole distributor' for XXXX (put your country where XXXX is). Now hopefully you can see why. No matter what anyone tells you about shipping (I import by sea from all over the world and its cheap by the right method for heavy goods (by sea) - really cheap) that's simply one of those many smoke screens that is often used as a smoke screen to those who do not know - as is the 'government/safety performance' thing - all that work is done at source and once done it does not have to be done again - simply ask them for a copy of their CE approval certificate (they have to provide it by law in Europe) - you will notice the date is just after development time. The distributor CANNOT import if the goods are not to European specifications and RoHS compliant. Check your amp - whether its a USA model or UK model the conformities are screen printed on both amps.
And don't think that the UK suffers alone. When you go over to the USA you will find some UK brands at approximately 30% to 40% more expensive than in the UK (even accounting for our huge VAT) and those USA boys talk about that brand as if it was superior to Mesa Boogie! (see that distro model creeps in even over there - and the second hand value is also higher than Mesa). Fancy that!
Conclusion? Rip off Distributors.
Where does the dealer stand in all of this? And I don't just mean with the brand quoted above either. Its across the board. When the manufacturers and/or distributors have whittled out the rogue dealers (oh yes they do) you are left with the ones that do as they are told. Don't think for one minute that the dealer will simply discount (he might want to) - he will sell more products? Right?
Actually you are wrong. The Dealer remains completely stifled by those suppliers and dare not say a word. Its true that if you really dig out there you might get an 'ex-demo' unit for a little off. What's that about I hear you ask... well, the clever dealers have figured a way to combat the invoice checking tactics that some manufacturers and distributors apply. All they do is to sell the items as 'ex-demo' or 'floor models' and offer discount.
Its not all hunky dory because those that check the sales invoices will not turn a blind eye to many sales like that. You see the 'floor model' going on a lot in high tech keyboards and similar products including floor pedals.
What's my take on this?
Simple. Its a completely illegal tactic here in the UK where price fixing is concerned - its against the law. The dealers have no spine, the distros are simply greedy and the manufacturers? go figure.
No matter what you think about this piece on my website - this price fixing goes on every day in the music retail business and is contributed to by all. It stifles competitive selling in the UK and makes you often pay far more than the goods are worth - even second hand. Personally, I really wish those politicians would get to grips with things like this - they do little else. But in any case, governments who stand by and allow this sort of thing to flourish are allowing companies to clearly break the law here in the UK which the government set in law in the first place!
It all sounds like some sort of devilish ploy to make more VAT! and at 20% of a high figure sale the winner hands down is the government. But its not all government by any means. ANY manufacturer who works this way wants their ass kicking (and I don't mean their mule!). If you don't want to be part of that rip off scene - then go and buy a US version (it applies to lots of kit and not jus the example I have shown above) and pay the shipping and VAT - get a power reducer (some kit comes with 110-240v adaptors - the G-System is one of them) and tell them all to get stuffed. I really hate price fixing and have been known to do things about that in my past.
Of course, if you are happy to keep getting ripped off (many UK boys are) then that's no problem either is it? after all its your money that you are being robbed out of - but I suppose your money grows on trees? Don't look for examples like I have discussed here any time soon in your favorite magazine or forum operated by a magazine (you know the ones) because they never bite the hand that feeds them do they?
Note that while I am not privy to actual costs of distributors, I have made a reasonable assessment of costs and approximations throughout this article based on street prices the last time I was in the USA. I cannot confirm that all costs are correct or completely accurate. Ask your manufacturer, distributor or dealer for the real costs - I'm sure they will muster up something... like the comment on the Mesa site to try and justify those high prices anywhere else around the world.
Like that great rock band Thin Lizzy once said 'Don't believe a word'.
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