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Editor's Notebook

The Great MSRP Debate

The road to smarter, more informed consumers is paved with unintended consequences

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Now that we are through with the Great China Tariff of 2009, everyone’s attention has turn­ed to the issue of pricing…in all of its forms.

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At the recent Global Tire Expo/­SE­MA Show, there was strong chatter about tire pricing, aisles slick with “Didja hear…” and “Whatcha know about…”

The only agreement was that post-tariff, the Major Brands (define that as you wish) were indeed cutting prices on mid-line and lower end product. Some said 6% to 8%, others said 6% to 12%. Some said prices will continue downward well into 2013, while others insisted the drops were because of low demand. Still others said the declines were because tiremakers are facing some inventory issues.

Oddly, we heard even less about what the importers were doing with their now tariff-free prices.

What we did hear more detail (and by “detail,” we mean “complaints”) about was the issue of tiremakers publishing online their consumer tire Manufacturer’s Suggested Retail Prices.

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We all understand the concept of MSRP; manufacturers of any goods are prevented by law from setting the retail prices for their products. They can, though, “suggest” prices that might be appropriate…the MSRP.

The Big Three  – Good­year, Bridgestone and Michelin – are the only brands sharing their MSRPs with consumers thus far, claiming “customer satisfaction” and helping buyers “understand product choices” as the factors behind their move.

But this is perhaps where good intentions are crashing headlong into  unintended consequences.

It used to be that tire dealers could set their retail prices based on a number of factors, including local same-brand competition (territory protec­tion), direct competition (regardless of brand) operational costs and product acquisition costs. Larger dealers able to order larger quantities earned large discounts, which allowed them to charge less at retail for tires.

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In these days of “satisfaction on demand,” tiremakers are so focused on selling tires four at a time that they have seemingly looked past independent dealers – representing some 70%of U.S. retail tire sales – and their need to make profitable sales. And dealers –  far more sensitive to gnat-hair thin margins than car dealers, mass merchants, price clubs…literally any outlet – don’t need more pricing pressure.

In the chase for “customer satisfaction,” though, tiremakers may be boxing dealers into a price corner. Good­year, for example, posting a MS­RP of $165 for an Assurance Comfor­Tred Touring in size 205/60R16 eff­ec­tively sets the price bar for that tire. Same with Bridgestone posting its Turanza Serenity Plus (same size) with a MSRP of $149.99, or Michelin with its Primacy MXV4’s $163 MSRP.

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If a dealer wants that business, they have to be willing (not necessarily able) to accept those price levels. Never mind how much they paid for that tire. Never mind what competition is charging. Never mind what services and support and customer satisfaction THEY deliver to the retail buyer. Never mind that they have bills and employees to pay.

So when a customer at Top Shop Tire & Service sees a tire price $10 per unit above the MSRP, what’s the consumer supposed to think? What reputation does that dealer get tagged with?

What’s wrong if a highly successful dealer CAN sell tires at $10 above the MSRP?

I get that tiremakers are trying to protect and position their products by giving tire buyers a simple element (dollar signs) to compare to other brands. Iget the idea of “empowering consumers.” There is nothing wrong with what they are doing.

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But then there are those pesky unintended consequences.

How does MSRP play in the real world? Consider Tire Rack’s prices.

At Tire Rack, that Assurance ComforTred Touring sells for $133 per unit. Price difference: $32 per tire.

That Turanza Serenity Plus at The Rack was $112. Price difference: $37.99 per tire.

That Primacy MVX4 goes for $137. Price difference:$26 each.

This may not compare with your business (I know Tire Rack charges shipping)but that isn’t the point. Unless you have massive buying power, this MSRP thing may well impact your business. A lot.

Price comparisons between retailers are always apple-to-grapefruit for a lot of reasons. Good­year- and Bridgestone- owned stores aren’t even using their company’s respective MSRPs, further muddying the water.

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There’s such a thing as too much information, especially when it adds to an already unlevel playing field.

Keeping the retail waters clear and still is far more beneficial – and harms independent distribution less – than trying to create “smarter consumers” by being overly transparent.

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