LDS vs. Online

[GreenDiverDown]

I was thinking of AL as well as Oceanic, although I would have to review Oceanics current policies.

While I'm certainly not suggesting that I know more than you on this subject, I suspect that there are some mega-operations that do indeed use their "clout" to skirt some manufacturers' regulations...at least they have in the past.

 

[mdb]

The bottom line is, the consumer makes the choice.


The consumer does make the choice. SCUBA stores who spout the no air/no warranty line will lose. The stores who offer quality instruction, friendly service, and fair prices will do very well.

 

[narcT]

Stephen, there is some truth to what you are saying. Our "clout" only applies to our purchase price. We have to abide by exactly the same rules as any other dealer. What is sometimes misleading is which manufacturers have the most restrictive rules. With the exception of Aqua Lung and Scuba Pro, who attempt to restrict both Retail Price and Advertising (these two have the most restrictive advertising policies I have ever experienced) most manufacturers have ADVERTISING price only restrictions, but do not have restrictions on the actual sale price. Many manufacturers have no restrictions at all. You might want to review a document I prepared a couple of years ago that describe these restrictions. Please remember I have not updated this document in a couple of years, so some of the information may be slightly dated. If there are errors with regard to any manufacturer, i apologize in advance for the errors. Here is a link to that document.

Retail Restrictions By Scuba Manufacturers

I hope this helps. I think it is good when discussions like this take place. There are CLEARLY changes coming to the scuba industry. These changes will benefit almost everyone (especially consumers), except those unfortunate merchants that can't change or simply refuse to change. Some of those changes will be made by local scuba stores who suffer from stagnant sales resulting from a limited potential base, but ever increasing costs of operation....some of these changes will be by the manufacturers themselves. Their policies are designed to protect the local dive store (mostly margin protection) who suffers from a number of built in problems associated with market and competitive ability, but that business model has problems, Unfortunately, the manufacturers don't realize that they can't "protect" marginal dealers forever. They think price competition will go away. They are wrong on both accounts. Again, just my opinion. Thanks.

P.S. I could write a book on this subject. In fact, I might!

Phil Ellis
Dive Sports Online
www.divesports.com
(800) 601-DIVE

I thought price fixing was a felony in the US???

Agreements to adhere to a price book.
Agreements to engage in cooperative price advertising.
Agreements to standardize credit terms offered to purchasers.
Agreements to use uniform trade-in allowances.
Agreements to limit discounts.
Agreements to discontinue free service or to fix any other element of prices.
Agreements to adhere to previously announced prices and terms of sale.
Agreements establishing uniform costs and markups.
Agreements imposing mandatory surcharges.
Agreements to reduce output or sales.
Agreements to share markets, territories, or customers.

http://en.wikipedia.org/wiki/Price_fixing

 

[Mr. Brown/Scuba]

I run a brick and mortar dive store in a small town in Alabama. I also operate out of this same store an online store with a fairly good selection and fairly aggressive prices. I would agree that it is a sticky situation when a buyer calls my toll-free number and questions us about wetsuit or bc fit, then states that they intend to go to the local store and investigate sizing and "call us back". In EVERY one of these situations, I always suggest that while at the local store, why don't they make a good deal on the item with the local store and save themselves some time and effort. I would NEVER tell an online customer to size at a local store, then call us for the sale.

That being said, we have dozens of local customers come into our store who are using us simply for sizing and information. Even though we operate an online store with great prices, and offer those great prices to our walk-in customers, many simply prefer purchasing from some particular on-line store. In those cases, we help them anyway with the sizing and information. After all, they may buy from us next time.

Running a small business has lots of ups and downs, lots of "win" and "lose" propositions. The important thing is to keep your eye on the long term strategic goal. You must offer great customers service, have knowledgable employees, have a broad inventory, and offer competitive prices. This is a must for ANY business, not just the dive store industry.

Just as a piece of information.....our store has an inventory in excess of $450,000. This is five, six, or seven times the typical inventory of most local scuba stores. The online side of my business costs MORE TO OPERATE than the brick and mortar store. That's right....MY ONLINE STORE COSTS MORE TO OPERATE THEN MY BRICK AND MORTAR STORE! Those that don't understand that simply don't understand e-commerce. We spend HOURS AND HOURS per week on the telephone giving the same information to our online customers that we typically give to our walk-in customers. These conversations are on our dime...all of our online customers call us toll-free. Many conversations with our online customers last 30, 45 minutes.....often an hour or longer. These are not conversations with minimum wage employees. These are conversations with well paid, full time employees. So remember to temper all of your talk about brick and mortar being so expensive and online being so cheap from an operating perspective. The price difference from local store to onine store is based only on two things.......sales volume and buying clout....not lower operating expense. A local store that can do the sales volume that an online store acheives can easily match the online prices.....in fact, they can BEAT them because they don't have the added cost of the online store!

With all of that said....if you go to your local store ONLY to get sizing on an item you ALREADY intend to purchase from the online store.....call someone else. lol. That's not the online business I want. Remember, I run a local dive store. I have great sympathy for the local store problems. Soon, all of the local stores will change their business model and expand to marketing methods that expand their potential customer base. Thats that problem with the local dive store model....potential customer base. That is why MANY of us local stores have added the on-line option. We are trying to increase our potential customers base, increase our sales, and improve our clout with our suppliers. THESE ARE THE THINGS THAT RESULT IN LOWER PRICES FOR YOU! Oh well, just my opinion. Thanks.

Phil Ellis
Dive Sports Online
www.divesports.com
(800) 601-DIVE

great site phil........

 

[Mlody11]

I thought price fixing was a felony in the US???

Agreements to adhere to a price book.
Agreements to engage in cooperative price advertising.
Agreements to standardize credit terms offered to purchasers.
Agreements to use uniform trade-in allowances.
Agreements to limit discounts.
Agreements to discontinue free service or to fix any other element of prices.
Agreements to adhere to previously announced prices and terms of sale.
Agreements establishing uniform costs and markups.
Agreements imposing mandatory surcharges.
Agreements to reduce output or sales.
Agreements to share markets, territories, or customers.

http://en.wikipedia.org/wiki/Price_fixing

It is... Trying fighting a multi million dollar corp on that law suit... There are only 3 out comes, black, white and shades of grey.

 

[carldarl]

I had just posted this question and then I saw your post. In answer to your question, YES it is illegal.

With all the complaints about LDS controlling pricing (at least trying to) by trying to withhold warranties etc., I have not seen two issues raised.

1. Implied warranties... Many states, including Idaho have an "implied warranty" of usability by businesses selling products for profit. Even though the manufacturer/vendor says they do not warranty an item the state can and will step in under certain circumstances.

2. The Sherman Act legislated in 1890. What they are doing is a direct violation of this Federal Law. Here is an brief explanation and link to an article:

Price Fixing Price Fixing (from a US Department of Justice site)

Price fixing is an agreement among competitors to raise, fix, or otherwise maintain the price at which their goods or services are sold. It is not necessary that the competitors agree to charge exactly the same price, or that every competitor in a given industry join the conspiracy. Price fixing can take many forms, and any agreement that restricts price competition violates the law. Other examples of price-fixing agreements include those to:

Establish or adhere to price discounts.

Hold prices firm.

Eliminate or reduce discounts.

Adopt a standard formula for computing prices.

Maintain certain price differentials between different types, sizes, or quantities of products.

Adhere to a minimum fee or price schedule.

Fix credit terms.

Not advertise prices.
In many cases, participants in a price-fixing conspiracy also establish some type of policing mechanism to make sure that everyone adheres to the agreement.

Many of the "policies" of large vendors/manufacturers meet these qualifiers.
Refusaling to allow discounting.
Using warranty loss as a means of controlling price.
Agreeing to price in a certain manner or established level.
Not allowing the advertising of prices.

Seems like a pretty close match to me. Either way the LDS looses when they try to control pricing using these methods.

 

[narcT]

It is... Trying fighting a multi million dollar corp on that law suit... There are only 3 out comes, black, white and shades of grey.

If you have been forced to sign a document that is illegal, just mail a copy to the US Justice Department and let them decide? Man, that would sure be a mean thing to do!!!

Wonder if the IRS would be interested??? Now that would be REALLY mean!!!

 

[Scuba]

While price fixing is illegal, there are established legal precedents that subvert the intent of this law at face value. A manufacturer can legally set its own MSRP (Manufacturer Suggested Retail Price), and a manufacturer can legally refuse to sell its products to any retail dealer. Put two and two together, and for all practical purposes, it becomes next to impossible to prove price fixing when skillfully done. This puts the retail dealer in a real bind, he either plays within the boundaries set by the manufacturer, which may be flexible, and not equally fair to all dealers, or he tries to brake the rules without being detected at the risk of loosing what may be a valuable product line. You can be sure the reason a dealer is cutoff by a manufacturer will be anything but failure to follow MSRP or any other restrictive suggested guidelines that may be interpreted as price fixing. As long as manufacturers retain the legal right to refuse the sale of their products to legitimate retail businesses, don't expect any help in this area. The government is more likely to enforce and apply the price fixing laws in a case, where for example, all different brand regulators are suddenly selling for the same price. Competitor businesses, who should be competing against each other - are instead colluding to fix the market price across the board. As opposed to individual manufacturing/marketing businesses trying to set (affect) the retail price of their goods, even when this affects the ability of retail businesses to set their own price.

On another point. Why do stores (LDS's or online) offer some of the following: showrooms, variety, lower prices, better service, salespeople, air conditioning, toll free phone numbers, cash registers, accept credit cards, and so forth? It is up to the business to device strategies that produce a profit. Customers need to be attracted and then sold. Neither one is easy to do. Please stop blaming customers you have not attracted, or those you have attracted with whatever enticements are offered, for failure to buy from you. This is a strategic and execution failure that falls squarely on the shoulders of the business operator.

Yet another point. While it is regrettable that small towns may loose LDS's do to internet dealers, the other side of the coin is that many other small towns and rural areas without an LDS presence, have gained by the accessibility and pricing to gear they now have thanks to internet sales. The issue of gas fills, training and service is impacted in a negative way by the closure of LDS's who now provide these services. Services which may be subsidized to some degree by the high gear prices. This would indicate the probability of future higher prices for these services, despite the effort on the part of remaining shops to maintain the status quo. New service providers will come in to the market, and existing ones will be forced to meet demand without the benefit of gear subsidies. This would apply to small town or large cities. Competition will eventually develop based on the cost of service and demand for it.

That's simple theoretical economics, but the real marketplace is always more comples. The SCUBA market is a hobby where many enjoy and are willing to "work for fun", while they make a living doing something else. There is also the seasonal recurring influx of new divers, totally ignorant of the sport, who can be largely counted on to pay higher prices and buy unnecessary equipment. Successful utilization of these norms will continue to allow some LDS's to maintain the status quo for some time to come until changes in these areas take place. With the advent of online gear sales competition, it just ain't as easy as the good ol'e days anymore.

Whining understood. Customer negative sales strategies and tatics will no longer be as effective against online savvy customers.

 

[MikeFerrara]

From the sound of it, the manufacturers are losing some of their control as some bigger players get into the business that aren't so easy to push around. Manufacturers reps never hesitated to walk into our store and tell us what we had to stock, what other brands we could carry or whatever. What that meant for us was that if one manufacturer had fins that sold well and another had regs that sold well we would have to stock 2 full lines and meet 2 anual volume requirements in order to get those fins and that reg. We couldn't pick and choose. We couldn't afford to do that so the result was that we going to be stuck with fins or regs that we couldn't give away. When a dealer's hands are tied because he can't stock what he knows will sell best you end up with shop owners that will stand in front of a customer and tell em that scubapro is great and everything else is junk. It's just because he has so much invested in scubapro that he can't afford to have the other stuff. You go online and you have EVERYTHING available at the click of a mouse. If you don't need the guy behind the counter to tell what you should buy there isn't any reason not to.

Not all these practices (maybe none) were engineered out of any kind of malace. It was to support the idea of the "Dive shop" which was to be a place where you could get everything from training to gear to travel. In supporting that idea they limited competition by requireing dealers to teach and sell gas...so non-scuba folks couldn't retail dive gear...at least not as easily. They didn't want the local department store to push out the only guy in town who could teach some one to use the equipment. PADI teaches it as the three E's, Equipment, Education and Experience. Note, that the co-founder of PADI was VP of aqualung for many years so this evolution wasn't an accident. Unfortunately the best guy to teach you to dive may not have the the best guy to run a great retail business and he may not be any good at all at fixing regs. I'll bet none of you know any one like that. LOL

 

[narcT]

From the sound of it, the manufacturers are losing some of their control as some bigger players get into the business that aren't so easy to push around. Manufacturers reps never hesitated to walk into our store and tell us what we had to stock, what other brands we could carry or whatever. What that meant for us was that if one manufacturer had fins that sold well and another had regs that sold well we would have to stock 2 full lines and meet 2 anual volume requirements in order to get those fins and that reg. We couldn't pick and choose. We couldn't afford to do that so the result was that we going to be stuck with fins or regs that we couldn't give away. When a dealer's hands are tied because he can't stock what he knows will sell best you end up with shop owners that will stand in front of a customer and tell em that scubapro is great and everything else is junk. It's just because he has so much invested in scubapro that he can't afford to have the other stuff. You go online and you have EVERYTHING available at the click of a mouse. If you don't need the guy behind the counter to tell what you should buy there isn't any reason not to.

Not all these practices (maybe none) were engineered out of any kind of malace. It was to support the idea of the "Dive shop" which was to be a place where you could get everything from training to gear to travel. In supporting that idea they limited competition by requireing dealers to teach and sell gas...so non-scuba folks couldn't retail dive gear...at least not as easily. They didn't want the local department store to push out the only guy in town who could teach some one to use the equipment. PADI teaches it as the three E's, Equipment, Education and Experience. Note, that the co-founder of PADI was VP of aqualung for many years so this evolution wasn't an accident. Unfortunately the best guy to teach you to dive may not have the the best guy to run a great retail business and he may not be any good at all at fixing regs. I'll bet none of you know any one like that. LOL

That's like Exxon saying that if you want to sell their gas you have to charge at least $3.50 a gallon or you get no more gas at your station. Problem is, everyone goes across the street to Gulf and buys their gas at $2.50 a gallon.

Scubapro and Zeagle (used for example only, I'm sure there are others) are using the LDS to artificially keep prices 100% higher than they should be. This prevents market forces from bringing the prices down to meet demand. The sad thing is that demand would increase if the prices came down, then these companies would actually have to produce more (and employee more people).

Strange, I thought this type of price control died with the communist bloc????