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Businesses fighting businesses

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* These B2B fights are never easy, but the Tribune has a solid story today about a legislative hearing on prohibiting floor prices for contact lenses and whether to prohibit lens manufacturers from refusing to sell to retailers which fail to comply with manufacturers’ demands…

Contact lens manufacturers began instituting price minimums more than a year ago, arguing that they would lower prices for consumers and encourage them to work with their eye doctors to find the right fit. But opponents say the price floors bar retailers from offering discounts on the products.

According to the article, just four manufacturing companies control 97 percent of sales.

* Retailers are crying foul…

Low-cost outlets such as Costco, Wal-Mart and 1-800-Contacts say nonnegotiable, minimum prices prevent retailers from selling lenses as cheaply as they’d like and, in some cases, drive up prices.

For example, a 30-day supply of Johnson & Johnson’s daily Acuvue Moist lenses that in 2014 cost $21.88 at Sam’s Club now sells for $33. At 1-800-Contacts, the same box cost $29.99 last year. This year it’s $33.00, according to data provided by 1-800-Contacts.

* But…

Eric Anderson of Northwestern University’s Kellogg School of Management, said many industries have pricing policies in place. Manufacturers of durable goods — refrigerators and coffee makers, for example — often set minimum prices so higher-end stores can compete with Amazon and Wal-Mart.

“If they don’t have a pricing policy for electronics, retailers will just stop selling the product,” Anderson said. “As a consumer, if you want to go see a television before you buy it — good luck. You won’t be able to go to Best Buy and see a television.”

Discuss.

posted by Rich Miller
Tuesday, Mar 24, 15 @ 12:02 pm

Comments

The “free market” at work.

Comment by Precinct Captain Tuesday, Mar 24, 15 @ 12:04 pm
=If they don’t have a pricing policy for electronics, retailers will just stop selling the product=

I don’t understand this point. First, I don’t understand why it’s true. Second, at least one retailer will sell it at the price the market bears, right?

Comment by chi Tuesday, Mar 24, 15 @ 12:11 pm
2 of those 3 retailers mentioned are thugs, always dictating to the manufacturer what they will be buying the product for. That is the reason there is such a turn over in products in these places.

Comment by Dan S Tuesday, Mar 24, 15 @ 12:24 pm
This debate has been going on for almost a year now. I typically buy my contacts from my optometrist since the price was roughly the same as buying online, after factoring in a manufacturer’s rebate. Just two weeks ago I had my annual eye exam and purchased a year’s worth of lenses. The price of my contacts has increased about 10% plus there are no more manufacturer’s rebates. Price minimums are a raw deal for consumers.

Comment by Just askin' Tuesday, Mar 24, 15 @ 12:27 pm
I find it bizarre that Best Buy, which I believe is the largest electronics big box store in America, would have trouble setting price floors on its own for products like an LG fridge or a Samsung television. Who would they be fooling if they claimed that?!

The contact lens battle is even more intriguing because, unlike electronics and appliances, contacts are a medical supply that are often covered by insurance or available at a discount through a corporate program. So if a manufacturer sets a price floor, does it really matter once a large employer haggles with the retailer over what the costs is after insurance is approved?

Comment by Team Sleep Tuesday, Mar 24, 15 @ 12:30 pm
Free marketeers fighting over whether capitalism should be regulated or stay regulated.

Comment by chi Tuesday, Mar 24, 15 @ 12:33 pm
There is a huge assumption being made here, that all customers are motivated solely by lowest price. There are different kinds of customers due to differing customer needs. If the assumption being argued about is true, then there would be no kitchen designers, no architects, no suites, no luxury goods at all.

If you want to buy your contacts online and actually feel comfortable about it, then good for you - I won’t.

Service is valuable in many market situations. Selling that service is what makes businesses differ between an Amazon and an upscale appliance dealer.

Comment by VanillaMan Tuesday, Mar 24, 15 @ 12:35 pm
The worst monopoly is in eyeglass frames…60 minutes did report that huge percent are owned by one company that sets price for everyone.

Comment by D.P.Gumby Tuesday, Mar 24, 15 @ 12:37 pm
Ah….I see.

Comment by A guy Tuesday, Mar 24, 15 @ 12:41 pm
Big biz is not a reliable friend of free trade. Eye docs want the price floors so they can conpete with online retailers. Buying from an online retailer allows you to skip going for a check up to update the perscription. Doc gets paid for the exam. Not saying I woukd skip the eye doc every time, but my eye rx hadnt changed in like the last 5 check ups. Price floors create shortages, shortages increase price.

Comment by TGS Tuesday, Mar 24, 15 @ 12:51 pm
Surprised this isn’t settled law. Manufacturers have been trying to set minimum consumer market prices for centuries, usually failing. This has to have been tested legally dozens of times.

Comment by walker Tuesday, Mar 24, 15 @ 12:57 pm
Doctors prescribe and handle all the situations that arise with patients, ie prescription changes, product quality issues, comfort issues, overwear problems,etc. the patient wants to have this resolved and expects free trial lenses and they buy them somewhere else. Doctors and retailers alike should be able to sell and not be gouged by the price. This makes it even. It’s fair. Patients ARE saving more $ now and they don’t use the rebates anyway. The rebate usage percentage is so low. This way every patient gets to benefit.

Comment by Concerned Tuesday, Mar 24, 15 @ 12:59 pm
I thought companies acting in collusion to fix prices was illegal. What am I missing?

Comment by TwoFeetThick Tuesday, Mar 24, 15 @ 1:29 pm
My gut tells me there shouldn’t be a floor price. My brain seems to remember Econ 101 which I can’t recall the specific arguments about price ‘fixing’…

Comment by Tornadoman Tuesday, Mar 24, 15 @ 1:29 pm
Walk, it’s never-ending, but the big fights occur when there’s a near-monopoly in supply.

Comment by Wordslinger Tuesday, Mar 24, 15 @ 1:51 pm
the retailers are right. I can get discounts on everything else I buy at stores-but contacts.

This law needs to go.

Comment by Shore Tuesday, Mar 24, 15 @ 2:02 pm
Very similar to golf club (and ball) pricing. Will never see Titleist Pro V1s selling for anything less than $39.95 per dozen. A Callaway Big Bertha driver - $399. Talked to a salesman from Golfsmith - the manufacturer dictates the price for new merchandise. Once it has been replaced with a newer model, the store can reduce the price to the older line.

Comment by Bogey Golfer Tuesday, Mar 24, 15 @ 2:17 pm
This is a case of 1-800 contacts trying to pass a law because they can’t compete on cost.

Their “low cost” usually involves a mailed in rebate of which only 10 percent of people apply for and you have to buy a year’s worth of product. I’ve been fooled by my eye doctor who said I get $50 off my supply only to find out that I’d ordered 6 months so it didn’t count.

The companies that have share only use PPP pricing for about half of their products.

Comment by 1776 Tuesday, Mar 24, 15 @ 2:18 pm
===This is a case of 1-800 contacts trying to pass a law because they can’t compete on cost

Why should 1-800 not be able to compete on price?

Comment by ArchPundit Tuesday, Mar 24, 15 @ 2:28 pm
the assumption that drives this logic of “no TV’s at best buy” is the same argument that says there are no businesses in Illinois at all, because we have a income tax. After all, if the only consideration is the cost or the presence of an income tax, then the only state with any business will be the one that is income tax free…. but clearly that is not true.

This whole argument assumes that a consumer does not consider paying more to go look at a product, or for the quality of the warranty or service team, services like installation etc. Consumers are complicated we consider price, and other factors.

Floors are about exploiting monopolies on products to make huge profits. Go look at the management pay and bonuses of these companies. They do not need price floors to keep in business, this is just a way to transfer more wealth from the middle class to the .005% ers whose wealth continues to expand while the middle class disappears.

Comment by Ghost Tuesday, Mar 24, 15 @ 2:28 pm
There is an app now for an eye exam you can take with your smart phone and a licensed eye doctor emails you your prescription.

This debate shows just how out-of-touch both sides are.

While the eye doctors and the big retailers fight, the manufacturers are working to cut them both out.

Comment by Juvenal Tuesday, Mar 24, 15 @ 3:02 pm
I’m sure some deregulation and the free market will fix this right up.

Comment by The Equalizer Tuesday, Mar 24, 15 @ 3:59 pm
@Arch. If they could compete on price, they wouldn’t need this bill.

Comment by 1776 Tuesday, Mar 24, 15 @ 4:01 pm
Why don’t we just call it “price fixing” and be done?

I agree with bogey’s analogy, but we ought not to be pricing medical supplies the same way we price golf balls.

Comment by Juvenal Tuesday, Mar 24, 15 @ 4:12 pm
@ juvenal..that “app” is NOT an eye exam. Really? Does anyone think they can get an exam via an app? That “exam” is against the state law and will never get off the grround. Glaucoma? Cataracts or even corneal edema due to over wear by patients ts who abuse their eyes by wearing Daily lenses, multiple days, sleeping in lenses not approved for extended wear. I could go on but to replace an ophthalmologist or optoptometrist with an “app” is jus plain wrong and unhealthy

Comment by 10th ward Tuesday, Mar 24, 15 @ 4:25 pm
==- 1776 - Tuesday, Mar 24, 15 @ 4:01 pm:==

They were competing on price until manufacturers either 1) actively conspired to set a similar price floor or 2) all decided independently to set a similar mandatory price floor

Comment by Precinct Captain Tuesday, Mar 24, 15 @ 4:55 pm
If there were no UPP, 1800 contacts would be selling their contacts at a lower price. Wait, 1800 contacts is currently selling above the UPP? But if 1800 Contacts really wants to lower its price, and says this bill needs to pass to do so, why not lower their prices to the floor NOW and demonstrate they really want consumers to pay less?

Comment by Anon Tuesday, Mar 24, 15 @ 5:30 pm
On behalf of the Fair Price to See Coalition: This legislation simply keeps intact the competitive pricing that exists in contact lens sales–the pricing that benefits consumers who cannot afford to pay exorbitant prices. In the case of 1-800 Contacts, 70 percent of their customers buy multiple boxes of contact lenses-at a time-because of the savings. UPP increases the cost of buying, often by more than 30 percent. This is about keeping the price of contact lenses where they are, instead of raising them.

Comment by Lis Tuesday, Mar 24, 15 @ 5:55 pm
My family owns a small business, and this isn’t specific to contacts. Many of our vendors utilize MAP pricing (Minimum Advertised Price). This helps even the field for brick and mortar stores who compete with online retailers with much lower overhead. It also helps stores compete with big box stores that buy by the truckload versus stores like ours that buy by the case. Pricing remains competitive and allows what the market will support, but it prevents retailers from advertising prices below cost to draw in customers in hopes for additional sales. MAP pricing doesn’t prevent sales below MAP…but it prevents the advertising of it. Today’s market is very different from 15 years ago. Brick and mortar stores like ours often become “showrooms” for those who later buy online…sometimes at prices at or below our cost. We won’t stay in business if our margins are that low. MAP pricing is on many goods…from boots to power tools to electronics.

Comment by Stephanie Tuesday, Mar 24, 15 @ 6:01 pm
Any pricing that occurs within a price floor system is not competetive and will not benefit consumers. Just another example of outdated business models trying to reap gov protections. If online retailers have a lower overhead than brick and mortar - so what? Let consumers take advantage of the low prices.

Comment by TGS Tuesday, Mar 24, 15 @ 7:48 pm
In related business fight, I was just attacked by my Chicago Taxi cab driver (cab #3168). The driver’s credit card machine was down and I offered him all the cash I had which was about half the fare. After arguing I threw the cash in his window and walked away. He then drove the wrong way down a one-way street to find me, get out of the car, and attack me. This is why Chicagoans are switching to Uber. If I complained about this to Uber they would do something, if I complain about this to the City they would ignore it.

Comment by Just Me Tuesday, Mar 24, 15 @ 8:10 pm
My screen name caused my blindness so I have no contacts however I have to disagree with the Wildcat academics prediction that this will lead to other products. After all this is what the Affordable Care Act was all about right you should be able to shop around and of all things healthcare is not a luxury

Comment by Scarlet fever Tuesday, Mar 24, 15 @ 10:02 pm
If the margin on a product isn’t able to generate enough revenue for a business, the business simply won’t stock it. A vendor understands that and sets MAP pricing to both encourage the retailer to stock its product and to prevent retailers from de-valuing its products. No business that wants to stay in business will stock items that don’t help make money for the business…unless it’s a loss-leader to get people in the doors. You can’t keep your doors open by selling just nuts and bolts or milk and bread. Similarly, optometrists have to be able to make money on contacts and glasses…especially since their insurance payments are set by insurance companies.

Comment by Stephanie Tuesday, Mar 24, 15 @ 10:38 pm