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Fender to phase out MSRP “List” Pricing

July 4th, 2014

Fender has recently announced that starting in July, they will no longer provide Manufacturer’s Suggested Retail Pricing — also known as list pricing — to their retailers. As of  July 7th, Fender will begin using just an “advertised” price, otherwise known as MAP pricing.

In many industries besides musical instruments list pricing is an almost meaningless number, sometimes only a reference point from which to calculate the MAP price. Given the fact that probably 0% of guitars are ever sold at list price, reverting to using only MAP may not have any material impact on the average consumer. But given the ability of buyers to rapidly price check products on the internet, MSRP bears little connection with reality.

The larger goal for Fender and other makers of well-known consumer brands is working with retailers — brick and mortar and otherwise — to properly present, market, and value their products. If the internet has proven anything, it’s that there are people out there willing to make amazingly little margin on their sales. Sometimes these folks don’t last long (it’s hard to survive on marginal profits, at least not without massive volume) but they all have their impact on the overall market. While low pricing and competition is inherently good for the consumer, taken to an extreme it lowers the value of a product to the point where it becomes unattractive to manufacture. This is the Wal-Mart effect of being able to drive a supplier to the brink of failure.

Case in point: I used to work for a well-regarded maker of very nice pens (writing instruments to those in the industry) and in order to grow volume they took on big box customers such as Wal-Mart, Target, etc. It got to the point where Wal-Mart was retailing our typical pen for less than a jewelry store or gift shop to could buy it from us. Long term having our pen at Wal-Mart dropped it’s perceived value, plus our traditional retailers were mad at us and stocked less of our products. Ultimately, Wal-Mart dropped the pens because the product did not generate enough sales volume. So the pen company alienated their traditional retailer, had their reputation damaged by the big box store that ultimately jilted them, and for that and many other reasons the company was never the same.

I can’t be inside the minds of Fender management, but the pen company experience feels very much like what many old line musical instrument manufacturers have been going through. We’ve had the grand experiment with Guitar Center, Mars, Unique Squared, Bain Capital, a botched IPO, and now it’s time to regroup and rethink.

While guitars can and will be sold on the internet, if they are sold and marketed like a commodity, the industry is doomed. Musical instruments are a personal experience, and people create art and emotion with them. Quite often the sales process is a relationship process, and even big mail order companies like a Sweetwater get that point. Consider Best Buy and their dalliance with MI products: Having untrained, underpaid people selling microwaves and Marshall amplifiers was so uncool and unappealing it could only crash and burn.

It’s interesting to see the recent changes at both Fender and Gibson. Fender is getting new management, dabbling with some direct sales of merchandise and high end products, cracking down on MAP violators, pruning minor brands, and eliminating MSRP. Gibson has been in an acquisition mode to acquire other types of entertainment and audio products, and positioning Gibson as a “lifestyle” (sic) brand. And while all this is going on, Guitar Center has cut ties with the private equity group that nearly killed them, dropped Berhinger for kicking them when they were down , and is crafting a plan to cutting years of quarterly losses. Interesting times indeed.

Personally, as a self-described “micro-retailer” I’m not sure who I’m rooting for. But emotionally, Fender is trying to maintain and protect the value that their products represent. Yes, you can get a silly “Fender” stereo in a VW Beetle, but I think you’ll see less pimping of their name, and more focus creating true brand value. Gibson appears to be doing the corporate diversification game, which is a sign that they may have less than rock solid faith in the profitability of their core products. Both approaches can work, but Fender’s “do what you are good at” approach is more reassuring for music lovers. As far as Guitar Center goes, their tactics have contributed to the devaluation of musical brands in general, but they are now trying to reinvent themselves. GC is very big player, so it’s similar to not liking General Motors, but not wanting them to go belly up either.  Paying their salespeople a half decent hourly wage would be a start though.

In the end though, any product has to represent value: Both tangible and emotional. And the selling process is part of the overall value proposition. Selling your product for too little, whether it be a guitar or the music you create is bad for your products, and it’s bad for the artist and creator. Free sounds cool until it’s your work that is being literally given away. On the surface, Fender dropping MSRP may appear like just a marketing sleight of hand, but hopefully it’s a sign of a new recognition of value in the MI industry.

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