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Old 7th March 2009, 23:55   #1
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Default Tyres - price fixing (cartel tactics)

A few days my father picked up a couple of new tyres of BFGoodrich from town 1. We needed another for so he went to Ludhiana and tried to procure 1 piece. The dealer in Ludhiana asked for several hundred RS more than the town1 dealer. My father asked him to lower the price as he had bought them a couple hundred cheaper elsewhere.

The dealer then started asking my father for a receipt as he was going to fax it to the Tyre manufacture as the other dealer was selling below the MRP and tyre smuggling was going on - apparently BF Goodrich as a result of this was stopping sales across India of these tyres , the biggest b/s story I have ever heard. My father just walked out the store as the guy was talking utter nonesense. We have since learnt that the dealer has contacted the manufature and tried to force the other retailer to increase his prices.

Strange tactics from the second retailer. Maybe if he was more honest with his pricing he would have got a sale. Instead the morally bankrupt retailer tries to enforce a form of price fixing via the manufacture.

So watch out for these lowlife price fixers when you go to buy new tyres.
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Old 8th March 2009, 00:16   #2
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MSRP is exactly that.

A Maximum Suggested Retail Price. I guess he needs to understand that.


Also, if he is selling @ MSRP i don't think that makes him a "morally bankrupt / lowlife price fixer" either.

Correct me if i've missed something here...

cya
R

Last edited by Rehaan : 8th March 2009 at 00:18.
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Old 8th March 2009, 00:51   #3
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Most companies follow this practice. It has a diff name and form everywhere. No manufacturer can be "forced to enforce a form of price fixing" in fact it's the other way round with companies asking dealers not to sell thier products below a certain price. In your case maybe the dealer in town 2 followed company policy and just wanted michelin India to know that the town 1 dealer was selling below recommended price. In fact companies stop billing tyres to dealers who undercut prices to keep dealer profitability in line. I know for a fact that bridgestone India dealers are made to give an undertaking on stamp paper regarding the issue.
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Old 8th March 2009, 01:44   #4
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Quote:
Originally Posted by Rehaan View Post
MSRP is exactly that.

A Maximum Suggested Retail Price. I guess he needs to understand that.


Also, if he is selling @ MSRP i don't think that makes him a "morally bankrupt / lowlife price fixer" either.

Correct me if i've missed something here...

cya
R
I feel he is a low life because he took it on himself to go back to the manufacture to try and force the price up at the other retailer. Not exactly the attitude of an honest dealer if he tries to influence pricing in other towns. He could have said "sorry I can't sell for such a low price" instad of trying to solicit receipts etc to grass up the other dealer.

Another thing he had no stock of the required tyres but when contacted on the phone claimed to have plenty of stock. So not only does he like inflated prices but also likes to tell lies on the phone. When you get there he then tries to sell you other tyres claiming they are better than what you are after. In the UK we call such tactics dubious trading practices and such retailers are not looked on favourably.

Last edited by bigman : 8th March 2009 at 01:51.
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Old 9th March 2009, 02:14   #5
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Yup, that's how it works in our Indian market. Almost all companies provide the dealers with a price list stating the price they should sell the tyres at, and most of the dealers happily waive this list in the customer's face trying to make him understand that they're earning next to nothing on the tyres & are selling them purely out of the goodness of their heart! Some claim (and I'm talking some real big time ones) that their margin on the tyres is only 2-3%!

And the tyre companies make every effort to make their dealers stick to those prices & not sell below. They even send decoy customers & dealers also keep tabs on each other to make sure no one's cut gets effected. I've even seen cases of companies like Michelin cancelling dealerships because the dealer was willing to sell tyres below their recommended prices as he was making better margins on the alloys that he was selling and could afford to sell the tyres cheaper.
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Old 9th March 2009, 02:29   #6
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Out of curiousity, why is that? The company is making their money anyway, and if there are more of their tyres in the market - why should they be bothered if the dealer is selling it below the price the company itself suggests?

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Yup, that's how it works in our Indian market. Almost all companies provide the dealers with a price list stating the price they should sell the tyres at, and most of the dealers happily waive this list in the customer's face trying to make him understand that they're earning next to nothing on the tyres & are selling them purely out of the goodness of their heart! Some claim (and I'm talking some real big time ones) that their margin on the tyres is only 2-3%!

And the tyre companies make every effort to make their dealers stick to those prices & not sell below. They even send decoy customers & dealers also keep tabs on each other to make sure no one's cut gets effected. I've even seen cases of companies like Michelin cancelling dealerships because the dealer was willing to sell tyres below their recommended prices as he was making better margins on the alloys that he was selling and could afford to sell the tyres cheaper.
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Old 9th March 2009, 02:41   #7
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Well, I was just scouting around for bike tyres and was surprised by the price variation. One dealer quoted Rs. 1,200, some quoted Rs. 1,100 and one dealer quoted Rs. 720/- ! Now thats a real wide variation for tyres of the same size, model and company!!

This was for a Dunlop tyre. One dealer told me that Dunlops are outsourced, so no point buying them. Someone else told me, Dunlop does not have any authorised dealers as they are imported from Korea or something. So what explains this VERY wide difference in price?

This tempts me to look at a couple more places to find the best price...
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Old 9th March 2009, 07:35   #8
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not just tyres, I've seen the same for a lot of other products!
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Old 9th March 2009, 08:12   #9
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Quote:
Originally Posted by anantnehru View Post
Out of curiousity, why is that? The company is making their money anyway, and if there are more of their tyres in the market - why should they be bothered if the dealer is selling it below the price the company itself suggests?
I think I know the answer to it. I am a sales manager with a fmcg company and this situation in my worst nightmare.

A situation where dealers are cutting their margin to the customer is very bad for the market hygiene. Suddenly you see all the dealers are getting into a price war. Due to this they will lose out on profitability and will ask the company for more margin on bulk orders. This situation is not increasing the actual sale but only increasing the discount on current sale. Thus the company's A&P (Advertising and Promotion Budgets) go for a toss. This is one of the main reasons why companies are against selling below recommended price.
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Old 9th March 2009, 09:17   #10
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Quote:
Originally Posted by Raccoon View Post
Well, I was just scouting around for bike tyres and was surprised by the price variation. One dealer quoted Rs. 1,200, some quoted Rs. 1,100 and one dealer quoted Rs. 720/- ! Now thats a real wide variation for tyres of the same size, model and company!!

This was for a Dunlop tyre. One dealer told me that Dunlops are outsourced, so no point buying them. Someone else told me, Dunlop does not have any authorised dealers as they are imported from Korea or something. So what explains this VERY wide difference in price?

This tempts me to look at a couple more places to find the best price...
If someone quotes an extremely low price for tyres - it is time to be cautious. I can understand a variation between 1200 and 1100 but Rs. 720 is incredible. Please make sure that the tyres are original, not (defective) seconds and that they are not old stock.

Cheers,
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Old 9th March 2009, 15:00   #11
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Quote:
Originally Posted by anantnehru View Post
Out of curiousity, why is that? The company is making their money anyway, and if there are more of their tyres in the market - why should they be bothered if the dealer is selling it below the price the company itself suggests?
Not only the A&P budget, companies also want to maintain a kind of brand reputation. Like someone just mentioned in the case of dunlop, after getting 3-4 diff prices the customer would eventually be put off and go for another brand altogether. So it boils down to a loss of sales. There are brands that will have 10 diff price quotes from as many shops. At least when the manufacturers try and keep dealers in check some level of profitability is maintained. Or else it turns into a free for all.
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Old 9th March 2009, 15:15   #12
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Originally Posted by iraghava View Post
And the tyre companies make every effort to make their dealers stick to those prices & not sell below. They even send decoy customers & dealers also keep tabs on each other to make sure no one's cut gets effected.
recently i had got my tires changed from one of Bridgestone Performance store and was nego. over the price , since there was 100-150 difference quoted by different bridgestone stores , while i was there the dealer got a call
on his landline asking for a price quote on certain model and within mins he got a call on his mobile from company executive as to why he was quoting lesser rates compared to other performance stores .

Last edited by khan_sultan : 9th March 2009 at 15:51. Reason: fixed quotes
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Old 9th March 2009, 15:38   #13
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That is tantamount to cartelization, and an unfair trade practice IMHO. The reasons given also don't amount to much. Nobody will logically sell below cost price, so there is a lower cap on the price. And if some dealer is willing to take a hit to his margin in order to gain more volume, I don't think the manufacturer (should) have any say in this. And I cannot fathom what impact on A&P budgets this will have. Please clarify.

Last edited by anurag_p80 : 9th March 2009 at 15:40.
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Old 9th March 2009, 16:30   #14
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Cartelisation is when ALL the tyre companies get together and screw the customer. That is not happening here. Until you know what the word means, you shouldnt use it!

Here, each company has a certain policy. The dealer at the MAXIMUM makes abt 8-9% profit. This is also quite impossible in a market like Bangalore. Everyone is offering freebies like WA/WB, etc. The profit on tyres is BARELY enough to run the shop when you calculate your expenses like salary, electricity, water, rent, etc...

Most companies have something called an RCP. Recommended Counter Price. This is usually 3-4% over the landed price. People do try to sell above that(it is not ILLEGAL or unethical). This RCP is less than the MRP.

This is basically to make sure that the dealer's profitability is retained. If the dealer doesnt end up making money from the transaction, why will he bother selling the tyre? In the end, the tyre shop's aim is to make money. He will sell whichever company gives him good profits.

What happens in most places is this:

There is Dealer A. He has very good equipment, etc. Big shop, spacious, good technicians, good place to park, etc. He sells only at RCP. He says I wont sell below that as if I do, I may not be able to break even. This is what I call a tyre SHOWROOM.

There is Dealer B. In Bangalore most likely to be found on JC road. He has a tiny shop. Old, outdated equipment which will most likely give wrong readings for WA/WB, uninterested technicians, hardly any parking space. This is what I call a tyre SHOP. He is just interested in selling the tyre. He gives free WA/WB as he knows us Indians very well. We will kill for anything given PPHHRREE!! He sells it keeping 2% profit(yes. It's true.) He is able to survive on this margin but in the end, he ends up spoiling the other big dealer's sales.

Dealer B is a small time player. But he ends up spoiling Dealer A's sales, so Dealer A tells the company X to buzz off and he wont sell it's tyres as he is not getting anything out of it becuase Dealer B is selling at a ridiculous price. Company X lose a large amount of sales and suffers.

This is what happened to Goodyear. You have heard of the phrase "shooting yourself in the foot". what Goodyear did was take a machine gun, load it, aim it at their feet and pull the trigger.

Today, they are struggling in the market. Compared to what it once was, today it is in the dumps in the replacement market. The company is surviving because of the OEMs.

It is in the interest of the tyre company and the dealers to follow this RCP. Of course, no one is able to follow it 100%. Most times due to the mentality of the Indian customers and the market conditions, the end price is 50/- or so lesser than the RCP. Even in the best of places.

Quote:
Some claim (and I'm talking some real big time ones) that their margin on the tyres is only 2-3%!
It depends on interpretation. Their final margin (after calculating expenses, etc) can be 2%. In that case 2-3% is quite good actually! If their gross profit is 2-3%, it is BS. Net profit being 2-3% is decent actually!

It may not be in the interest of the customer per se but then you cant really complain as long as the tyre company or the dealer isnt overcharging you. It is like complaing that the Louis Philippe shirt costs 1,500/-.

This includes the dealer margin as well. Are any of you complaining about that? Hehe.

Last edited by Nikhilb2008 : 9th March 2009 at 16:45.
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Old 9th March 2009, 17:07   #15
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Quote:
Originally Posted by Ravveendrra View Post
If someone quotes an extremely low price for tyres - it is time to be cautious. I can understand a variation between 1200 and 1100 but Rs. 720 is incredible. Please make sure that the tyres are original, not (defective) seconds and that they are not old stock.
Cheers,
Well, this shop is on a busy road and is quite "happening". Happening in the sense that it seems to have a quite a bit of customers... So I dont expect any old stock... though I didnt actually check the manufacturing date on the tyres. Well of course do that before I actually buy! Now the problem is how do I find out if the tyres are indeed genuine? All I know is I don't really expect such an old, established shop to sell spurious tyres... unless they dont care at all for their reputation at all. It is in fact not an exclusive tyre shop... its more of a spares/accessories shop with a lot of other things, besides tyres.


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Originally Posted by WasavaTyres View Post
Not only the A&P budget, companies also want to maintain a kind of brand reputation. Like someone just mentioned in the case of dunlop, after getting 3-4 diff prices the customer would eventually be put off and go for another brand altogether. So it boils down to a loss of sales. There are brands that will have 10 diff price quotes from as many shops. At least when the manufacturers try and keep dealers in check some level of profitability is maintained. Or else it turns into a free for all.
Simply cant understand this logic. At least I didnt get remotely put off. I was happy to get a cheap quote as I need a cheap and good tyre for my old bike... for which I don't want to spend more. So it works perfectly for me!

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Originally Posted by Nikhilb2008 View Post
Cartelisation is when ALL the tyre companies get together and screw the customer. That is not happening here. Until you know what the word means, you shouldnt use it!

...
...
...

This includes the dealer margin as well. Are any of you complaining about that? Hehe.
I still simply cant see the logic of this either. Without getting into detail and typing too much, I'd just say in a free market, market forces should decide such things. If customers are ok with a run-down shop which offers low price, then thats how it should be! But frankly, I simply dont see everyone making a bee-line for that shop! There will always be many people who will want a better place (a showroom as you have described) with more accurate equipment and all that. Can argue on many more points... but I'll let it pass.

Last edited by Rehaan : 10th March 2009 at 04:43. Reason: Hi, please avoid quoting an entire large post. It inconveniences our small screen & mobile readers. Thanks.
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