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Bike Race to the Bottom — Amazon.com Style

by Ted Johnson

Before you head over to Amazon.com to buy cycling accessories, do you mind if I gripe about how Amazon.com plays the price-matching game?

You don’t mind? Thank you.

Previously, I wrote about Minimum Advertised Pricing (MAP), and how it means that bike shops that play by the rules can’t advertise below certain price points, but they might be willing to sell below those price points if you just ask.

But when people are shopping online, they rarely ask for a lower price. Savvy shoppers will use a comparison shopping engine, such as Google Shopping, and then they’ll click through to whoever has the lowest price.

Burley Nomad

Burley Nomad on Google Shopping - Screen shot captured on 11/30/2011

Easy, right?

But it creates an incentive for some online retailers to break the rules. Some retailers will advertise a price that is lower than the manufacture’s MAP price, because price is all that matters to many shoppers — not service, or the expertise of the retailer.

Frequently, Amazon.com will match (or nearly match) the lowest price that has been fed into the comparison shopping engines.

Screw you, manufacturer!

Screw you, honest online retailer!

Screw you, local bike shop!

And whose job is it to make a fuss? The manufacturer.

The bike shop or the honest online retailer can make a fuss, but the manufacturer has the ball.

And if the manufacturer chooses to enforce their MAP policy, they don’t have much choice but to threaten to stop selling to the MAP-violator.

Sorted by Base PriceSuppose you’re a rent-a-cop at the mall. You see two vehicles speeding through the parking lot, at nearly the same speed. One is a tour bus full of corporate lawyers. The other is a shifty-looking little guy on a (probably stolen) fixie. Who are you going to chase down?

So who tends to bear the brunt of the enforcement? The shady little rogue, of course. Would you go after a behemoth like Amazon.com, with it’s tour-bus full of lawyers?

And does the shady little rogue MAP-violator care? Of course not. It’s a shady little rogue. It’s the one that lowered the bar in the first place. It’s the one that will be difficult to bring into compliance for the same reason that smart people won’t want to buy from a shady little rogue they’ve never heard of before.

Given the choice between shady little rogue MAP violator and the familiar corporate behemoth MAP violator, most people will buy from Amazon.com.

In short, Amazon.com hurts small businesses by matching the lowest prices offered by rogue retailers, and pretty much dares manufactures to do anything about it.

So you, consumer of cycling products, benefit from prices that are harmful to honest businesses, and harmful to cycling. I thought you might want to know why.

So who plays by the rules? Who should you support when you shop online?

Take a look at the graphic on the right. These are prices for the Burley Nomad Bike Trailer. Notice that the prices fall generally in three groups.

There is a bunch of prices within a dollar of $349. Those are folks playing by the MAP pricing rules.

Everyone below $348 is a MAP violator — and all of those but one is a shady little rogue. Guess who.

Amazon.com

Everyone above $350 is following MSRP pricing — but just not playing the game very aggressively.

When you are using comparison shopping engines, you will see this three-tier distribution (as long as you are comparing apples to apples). Unfortunately, it won’t be color coded the way it is here.

In the “MAP Followers” tier, you will usually find the Bike Shop Hub shops: Bike Bag Shop, Bike Kid Shop, Bike Tech Shop, and Bike Trailer Shop — along with other reputable retailers of cycling products. And often Amazon.com is in the “Map Followers” tier as well. Amazon.com can be deviously strategic about when they break the rules and when they don’t. But even when Amazon.com is in this tier, they are still taking a whopping 15 percent cut — plus fees — from the manufacturer.

When you buy from the MAP followers — ones whose names don’t begin with Amazon.com — you are supporting cycling and a strong cycling industry. (This applies to any industry. Amazon.com by no means has singled out the cycling industry with this tactic.)

Last week I wrote, “Find it locally if you can, and from a small online business if you can’t.”

And to that I will add, Support cycling by supporting businesses that aren’t racing to the bottom.


Updated 11/30/11: The original version of this post did not present damning evidence (as reader Josh pointed out). The post has been updated with a clear example of Amazon.com violating MAP. The original version of the article is here.

Updated 112/2/11: I took out the references to Cyber Monday,” because this phenomenon is relevant beyond one day a year.

 
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19 Responses to “Bike Race to the Bottom — Amazon.com Style”

  1. Josh says:

    In the exapmle you give, Amazon is within the MAP guidelines. SO, why rip on them?

    That being said, My family owns a small business (not bike related) and I really think that MAP is a load of garbage. A merchant should be able to sell his or her products at whatever price point makes sense for their business model.

    In many cases, MAP is just a tool for manufacturers to try to artificially inflate the perceived value of the product, not about protect little merchants.

    • Ted Johnson says:

      In the exapmle you give, Amazon is within the MAP guidelines. SO, why rip on them?

      I did say that Amazon can be deviously strategic about when they break the rules and when they don’t. I’ve been ruminating on this article for a long time. Today when I sat down to write it, I couldn’t find a good example where they are clearly violating MAP. I realize that this may undermine my case in the eyes of some. They tend to violate MAP during the season when particular products are in high demand. Since I limited my research to cycling products — which are not in high demand this time of year — I couldn’t find a clear example. Maybe I could look at snow blowers. But I’m not privy to MAP prices on snow blowers.

      Whether or not MAP is a load of garbage, and whether or not it should be legal, retailers agree to it. The ones who observe it are playing by the rules, and the others aren’t.

  2. I can’t speak for the US, but in Australia it is illegal for manufacturers to stipulate a price that retailers must advertise or sell their products at.

    I believe this should be the case.

  3. BluesCat says:

    Y’all are talking a corollary to this quote:

    “There is hardly anything in the world that some man cannot make a little worse and sell a little cheaper, and the people who consider price only are this man’s lawful prey.” – John Ruskin

    In this case, the “make a little worse” part corresponds with, and can be substituted with, “provide with poorer service”.

  4. Quality, value, service, reliability, customer-focus, experience, accurate information, local economy: these are factors which ought to be important to consumers who don’t just behave like avid pacmen chomping up wucca dots at the lowest possible price. These are in consumers’ own personal interest to understand and cultivate. Where we are at currently, though, I see a lot of wucca dots being gobbled up avidly. Sigh.

  5. Sean says:

    If the manufacturers don’t like retailers advertising for less than a specified price, stop selling product to them – if they can afford to lose that partner in the distribution channel, which most cannot.

    If an online retailer can sustain its long term operations by advertising AND selling at a lower price than the LBS can afford to thats just economics 101. I don’t think the manufacturer should artificially prop up the local retail channel by hamstringing the online retailers who may be doing more volume and therefore benefitting from the economies of scale.

    I take this approach – find the online price and use this as a starting point in the negotiation with the local retailer. Look up the online price and then ask the local retailer to match it. I just did that for a Garmin GPS at “BadBuy” and saved a further 3% of the difference from the online price. If that’s a price the local retailer won’t match and it’s significant enough, I tell them I’m sorry but I’ll be buying it online.

    If it becomes an issue the local retailers can always threaten stop carrying the line. That happened here in Canada when MEC (similar to REI or EMS) carried Park Tools – local bike shops threatened to drop Park altogether unless Park stopped selling to MEC, which Park eventually did.

    • Ted Johnson says:

      I take this approach – find the online price and use this as a starting point in the negotiation with the local retailer. Look up the online price and then ask the local retailer to match it.

      That’s an excellent strategy. However, keep in mind that an aggressive haggler can negotiate away any goodwill between himself and the seller in the future. Goodwill is not part of the business model for shady little rogue MAP-violators.

      For Amazon.com, the business model includes volume as well as minimal-to-no expectation of customer service. Okay, they do have a pretty good return policy, but that is also paid for by volume.

  6. SwineFlu says:

    I find the only way rock bottom prices on products can make sense is if there are high volume sales to back them up. That means loads of stock, loads of demand, and relatively inexpensive production & distribution costs. If a company sets abnormally low prices on products that do not have those features, then they shoot themselves in the foot and remove the margin for every retailer in the industry. A cartel in the industry through MAP could work if you could eliminate cheaters easily or if prices below the MAP would make high volume sales of said product unprofitable.

  7. Stephan says:

    Cyclists are very picky consumers. They often know exactly what they want, and don’t need a storefront retailer to tell them. And, unless said cyclist lives in biketopia, the local shop isn’t always going to have exactly what is needed. Amazon may offer lower prices, but their service is far from bottom line. Selection, reviews from actual customers, and ease of shipping and exchanges qualify Amazon as a customer service oriented company. That being said, a good relationship with the right local bike shop can yield prices at or below what would be found online.

  8. Dan says:

    This Travoy trailer would be perfect for carrying a trombone. Just sayin’

  9. Can’t the honest online retailer who advertises at or above the MAP price offer free or discounted shipping in order to give the consumer the price at which they are willing to sell the item?

  10. Sean says:

    Your point about goodwill is well taken Ted, but goodwill is a two way street. My LBS survives on word of mouth referrals as its primary means of advertising. Being competitive in pricing and willing to negotiate, solid on service and willing to help people get back up and running quickly contributes immensely to the reputation and survical of the LBS.

    Many cyclists like me are very much DIY types. I rely on them for few of my maintenance needs – wheel builds, brake bleeds and suspension rebuilds are the main ones I take to them, not that I’m not capable its just that those are important to get right. For their help and reasonable rates on those services, I send plenty of referral business their direction. Being known as “the bike guy” at the office usually means lots of people coming to me for bike buying advice and I always send these people their way.

    A good shop survives on these word of mouth referrals and repeat business. My LBS has me as a customer for life and for most of my bicycle purchasing, within reason. I also bring them beer when I pick up my bike :)

  11. Mike says:

    I really have trouble seeing this as anything other than a net positive for the consumer.

    Clearly Amazon violates the MAP policy, and gets away with it because of its size. I don’t really care about this; MAP policies are anti-consumer and so violating them seems to me to be at best a wash.

    As a consumer, the end result of this process is that I can get a given product A on Amazon as cheap as anywhere else, with Prime shipping and no sales tax. Amazon has, in my experience, outstanding customer service, as long as all you need is refund or replacement. Which is all I need. If I want support, I’ll go to web forums or, failing that, the manufacturer. Considering only price, “racing to the bottom” is exactly what I want to happen.

    If small online bike store can’t match Amazon on price and convenience, and small online bike store can’t match my LBS on service, I probably don’t have very much use for small online bike store in the first place. Perhaps small online bike store goes away. Small online bike store is clearly run by nice people, and I am sad for small online bike store. I want to support cycling and the cycling industry. But not enough to pay an extra $95+ for a trailer in order to support a business model that seems to be redundant.

    You want to survive? You need to stop selling the same things as Amazon.

    • Ted Johnson says:

      I would disagree that “MAP policies are anti-consumer.” Or perhaps they are in the same way that patents and copyrights are anti-consumer. Patents, copyrights and MAP allow a manufacturer a legal way of adding value to their products, and preventing unrestricted competition.

      Patents, copyrights and MAP policies are anti-consumer in the same way that loss leaders are pro-consumer. Selling products with no profit margin or below margin–at a loss–definitely benefits consumers in the moment.

      Amazon.com, in effect, uses its market dominance to bully manufacturers. It’s a difficult proposition to make consumers care about this or view it as a problem–especially when, as you pointed out, a consumer can save $95 on a product valued by the manufacturer at $350.

      There are two ways to “stop selling the same things as Amazon.” The first way is what I imagine you meant: online retailers and bike shops can surrender certain products to Amazon, and admit defeat in the competition for pricing.

      The other way to stop selling the same things as Amazon, is for manufacturers to stop selling their products on Amazon, and only deal with retailers who respect their MAP. That is the only legal recourse retailers have, and it is a hand that Amazon plays very well — by strategically violating MAP at times, while honoring it at other times. (If Amazon were to violate MAP all the time, then it would be an easy and clear choice for manufacturers to make.)

      Amazon is like a business partner that only embezzles from you occasionally — and flagrantly — but most of the time does an excellent job.

      However, Amazon’s pure-capitalist bully tactics taken to their logical conclusion are very anti-consumer. If LBS’s and specialty online retailers are pushed out of competition for products, then consumers will have no source for cycling products staffed by people with passion and expertise for cycling.

      Ultimately, I would argue, the quality of the products will suffer. Amazon is unlikely to hire staff with the experience and expertise available at a LBS or a specialty online retailer.

      Every bike shop knows the phenomenon of the customer who comes in and tries out a product, loves it, then walks out without buying it — and they go home and buy the product online at a lower price (without at least asking the LBS to match the online price). The logical conclusion is that the LBS’s of the world will not longer afford to sell the same products. The consumer won’t even have the option of trying out the product, or talking face-to-face or by phone with a knowledgeable cyclist who knows the product well.

  12. Mike says:

    Yes, I’d also broadly characterize patents and copyright law as anti-consumer.

    But I meant not so much admit defeat as look for products that Amazon won’t or can’t sell. To take the bike trailer, an online store might be able to differentiate their service by offering extensive customization or by designing a trailer to suit a specific bike or application. Amazon won’t do that, but a creative online business could. Wheels are a good example too: if I decide I want a 29″ tubeless-ready wheel with a QR15 XT hub and red spoke nipples, Amazon isn’t going to be much help to me.

    I’d also separate LBSs and online bike stores: for the consumer who requires no support beyond refund/replacement, the online bike store offers no advantage over Amazon — in fact, it’s likely actively worse/less convenient. The LBS, in contrast, does offer me an advantage: I want my LBS to stay in business, because when I need to try on a bike or get something fixed or buy a new jersey, I want to be able to walk into a local store to do it.

    So even on off-the-shelf products I’ll often go to my LBS and say, “Here’s Amazon’s price for this item. How close can you get?”, and then usually smile, say thank-you, and pay the LBS premium.

    The key difference between the LBS and the OBS is that I’ll knowingly and cheerfully pay over the odds to support a local outlet, whereas I likely won’t do so — absent any other considerations — to support a small online outlet, especially when the OBS is also less convenient than Amazon. Do I want the OBS to stay in business? In a purely abstract sense, yes, of course, but I don’t see any concrete advantage to me in it doing so. So I don’t want to pay over the odds and/or accept greater inconvenience so that it can. That’s the difference.

    • Ted Johnson says:

      Thanks for sharing your perspective, and for sharing it so clearly. I don’t think we are in stark disagreement.

      As someone who works for a small OBS, I hear daily our small customer support staff on the phone with customers helping them — brilliantly — figure out which products they can use with their bikes. Rack compatibility, hitch compatibility, whether to buy a trailer or panniers, etc. We offer the expertise that Amazon.com never will, and the selection most LBS’s can’t. Within or niches, we are to Amazon what a local bike shop is to Target. And we believe there is a value proposition there — for the consumer.

  13. RJ says:

    I find this article unsatisfying and distasteful. Minimum advertised pricing/resale price maintenance is illegal in much of the world, and in the US it has somewhat shaky legal grounds… the Supreme Court said it’s not illegal per se, but also not necessarily legal. That doesn’t stop companies from trying to use it. They are not laws, they are just agreements between companies and their retailers. Companies can do what they want with that. Burley may well have negotiated with Amazon to allow them to sell at whatever price they want… complain to Burley about that if you want, but don’t act like it’s Amazon’s fault.
    Second, this article seems like a rant about your own online retail shop, and a shill for it, by trying to claim the you are being bullied by Amazon.
    Third, your very own link shows that BikeTrailerShop is violating the MAP right now.
    Finally, since Amazon is a world-wide dealer, should they advertise their goods to the whole world at the MAP, even thought that is not valid except in the US?

    • Ted Johnson says:

      MAP pricing constitutes a legally-binding agreement between a manufacturer and a retailer. It may be unsatisfying and distasteful that these contracts are lawful, but they are — and they become part of the rules by which manufacturers and retailers are expected to play. When a retailer violates MAP, the manufacturer can choose to ignore the violation, stop selling to the violator and/or sue the violator.

      It’s not likely that Burley has a contract with Amazon that exempts Amazon from MAP pricing. I think the folks at Burley are a lot smarter than to alienate all of their other online retailers like that — and to alienate any other bike retailer that might want to advertise Burley products.

      And it’s Burley that is being Bullied, not Bike Trailer Shop or any other retailer — in my opinion anyway. I don’t speak for Burley, and maybe they don’t feel bullied in the slightest. Maybe their attitude isn’t, Amazon is bullying us but they are so big and scary we don’t know what to do. Instead maybe what they are thinking is, This Amazon thing is working out pretty well for us; we can put up with the whining from the smaller retailers.

      How do they feel about it? It’s a good question.

      But, as you pointed out, the risk they run is that when they see that MAP is not being enforced, more retailers will be emboldened to violate MAP. That’s what makes it a race to the bottom. When there are no apparent consequences to violating MAP, should all other retailers continue to play by the rules on principle when by doing so they are losing sales to Amazon?

      Finally: Should Amazon advertise their goods to the whole world at the MAP, even thought that is not valid except in the US? That’s an easy one: Yes. Of course they should. Either that, or they should advertise a price appropriate for the each country. Amazon (along with other, smaller online retailers with resources and sophistication) have the ability target market-specific language, currency, graphics, and products based on country. Manufacturers also have the right to tell a retailer not to sell to certain countries.

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