PRICE POINTS

DAN ALAIMO

Minimum advertising pricing, or MAP, is a well-intentioned policy designed to provide some price stability in the sell-through market, but it really isn't doing much good, according to participants at SN's video roundtable.

The MAP is the lowest price at which retailers can advertise videos and still receive co-op reimbursements. While some said it has helped stem the tide of lowball pricing -- at least in advertising -- others said it has had little effect at all.

"MAP has had an adverse effect: Rather than acting as the floor, in our experience, it has become the ceiling," said Ron Eisenberg, president of ETD Entertainment Merchandising, Houston.

"You still see Best Buy blowing everybody right out of the water and they're well below the MAP," noted Clifford Feiock, video coordinator at Nash Finch Co., Minneapolis.

"It started with the big titles and now it's filtered down so that every single sell-through title has a MAP," said Bernard Herman, president of Star Video Entertainment, Jersey City, N.J.

Retailers also object when MAP is lower than their cost since they feel they have to charge the MAP for hit videos to convey a price-leadership image to consumers. "When the MAP is very close to what you pay for the product, it doesn't make much sense in terms of profitability," said Bill Glaseman, video specialist at Bashas' Markets, Chandler, Ariz.

Most on the panel acknowledged that in establishing MAPs, studios are responding to retailers' concerns that pricing on big hit titles was getting out of hand. At the same time, they are walking a tightrope trying to avoid any semblance of mandating retail prices.

"We were never trying to set a floor in the marketplace. That really is the retailer's job," said Dennis Maguire, vice president of sales at Buena Vista Home Video, Burbank, Calif. "But we were certainly looking to set a floor for the ads that were being run in the marketplace."

Here is what roundtable participants said about MAP, as well as about McDonald's video promotions and other pricing issues:

SN: Are minimum advertised price policies working? What are some of the pros and cons?

GLASEMAN: I personally think that when the MAP is very close to what you pay for the product, it doesn't make much sense in terms of profitability. Maybe I'm naive in thinking there should be some area where everybody should make a profit and the customer also comes out all right. But when MAP is so close to cost or even below cost, it just doesn't make any sense to me.

FEIOCK: I'd have to agree. I mean, you still see Best Buy blowing everybody right out of the water and they're well below the MAP. At Wal-Mart, they may be advertising the MAP, but they will price it a buck and a half below that in the store. So it really doesn't mean a whole heck of a lot at this point.

FRENCH: I agree. All the Kmarts and Targets out there are cutting our throats.

KAIREY: Do you retailers use MAP? Do you automatically go to the MAP pricing?

GLASEMAN: We have an advertised price. It doesn't necessarily tie in to the MAP. We have that for a week and then we raise our prices because we're still in the business of trying to make a profit.

KAIREY: Do you feel MAP has hurt you at all?

GLASEMAN: I don't think so.

FEIOCK: No, it doesn't hurt anything. If nothing else, it does establish a price point in the consumer's mind, which gives you a standard to shoot for. But a lot of times the MAP is below cost, unless you're really fighting to get the best price you can. That just does not make a lot of sense. A lot of distributors are not giving prices that enable you to make money, and I also understand where they're coming from. But something has to budge somewhere.

FRENCH: Raise the co-op dollars. That's what I think.

INGRAM: Raise MAP and raise co-op dollars, and things might change a little bit? How do you feel about it, Ron [Eisenberg]?

EISENBERG: Originally, MAP came into being as a good faith effort of the studios to respond to the problem of selling prices being too low. I think their hearts were in the right place, and they put it in to try and establish a floor on retail prices. Unfortunately, it's had an adverse effect: rather than acting as the floor, in our experience, it has become the ceiling.

Most of our retailers feel that during the first couple of weeks, they have to go out at MAP pricing. Recognizing that the mass merchants will be lower, many of them would prefer to go for a higher price, but they feel they can't afford to do that because of the existence of a MAP. So they say, "Mr. Distributor, we're going out at MAP, so you have to sell me at a price that enables me to make some profit at the MAP retail price," and it kills us.

We had a roundtable discussion of our supermarket customers at a golf outing back in October. When the subject of MAP came up, they were unanimously and adamantly opposed to it. They wanted to see it discontinued, down to the last buyer who was there.

MAGUIRE: We were never trying to set a floor in the marketplace. That really is the retailer's job. But we were certainly looking to set a floor for the ads that were being run in the marketplace. But, Ron [Eisenberg], you're right. The good thought was there. We were trying to add stability to the business, we were trying to keep it as a long-term business. It was always an advertising policy; retail is going to price it at whatever retail decides to price it. That's really all we ever wanted to do.

We wanted to make sure we were not losing value of our cassettes out in the consumer's eyes. I think we have done that, in terms of people not going out blasting a price below certain levels. We're still trying to figure out the best way to add value to this business and not to let it continue going South. I'm looking for a great idea. Maybe someone in this room has it.

HERMAN: Initially, it was done for very much the right reasons. What happened is that it started with the big titles and now it's filtered down so that every single sell-through title has a MAP. Possibly if it were just contained at the megahit level, and let the other titles fall where they will, that would allow retailers to make some money on the title if they want to, or let them have the merchandising creativity to do what they think is right. This way they're very much inhibited. SN: Ron [Eisenberg] said retailers he spoke with were strongly opposed to MAP. Would the retailers here like to see MAP discontinued?

FRENCH: I'd like to see that.

GLASEMAN: I don't know if it makes that much difference.

FEIOCK: I guess I would like to see it remain. It's just that we need to become more proactive on getting the best cost we can out there.

KAIREY: When you have other retailers in the marketplace that go and break an ad below cost on a title, how do you respond to that?

GLASEMAN: You just face it and go on.

KAIREY: Do you try to match that price on a store-by-store basis, or do you just stand on your price?

GLASEMAN: We may sell a few less tapes [while maintaining prices]. But we always have traffic coming into the store and there's going to be that certain percentage of buyers who will pick it up from you regardless of what the price might be, as long as the pricing is sensible.

INGRAM: When the big guys come out with a super low price, the smaller guys will withdraw from the product because it's all about this image of being the price leader. Kmart is at cost or below cost with their advertising and the small guy doesn't want to be advertising above cost at a decent margin because it makes it look like he has high prices. So they withdraw from advertising altogether, which probably hurts the studio's overall sale.

KAIREY: But what I was asking about was, when the consumer walks in and says, "I saw it at X location at this price," what will you do?

GLASEMAN: You just have to accept that. We can't say we're going to match anybody's price. Our price is pretty well set. If they say, "So and so down the street is $2 less," we just have to accept that.

VAN GORP: Have you seen a difference in sales on titles that have a MAP vs. those that don't in terms of what you projected the title to do?

GLASEMAN: No. We have not measured anything like that.

FEIOCK: We haven't either. But we look at it on a market-by-market basis. We may have some stores matching prices and losing money. In other locations, we may stick with our price. We still try to remain within a dollar or a dollar and a half of MAP. If we've got a rental department in a store, then we can offer some free rentals with the purchase to add value. That's really the only way we can fight it.

FRENCH: We do that a lot, too.

SN: Is offering rental along with sell-through a key advantage over the mass merchants?

FEIOCK: I think it is. If you've got a rental department and you can get them to buy that product from you and be sure that they're going to come back to rent some titles, it doesn't hurt quite as much when you're not making a lot of money up front.

KAIREY: How do you advertise?

FEIOCK: We're really not able to advertise in the big grocery ads that we run because of lead-time problems. Our ads are done four to six months in advance. There's just not enough notice with many of the sell-through titles. But it's getting better. Studios are providing information sooner, and every once in a while things click and we do get those ads in there. It certainly seems to help, but lead time is the problem.

SN: Another issue that relates to pricing is the low-priced video promotions at fast-food restaurants. These have been very controversial over the last three years, but retailers have told us that last year's, which involved MCA/Universal and McDonald's, was the best to date from their perspective. What do the retailers here think of them now?

FRENCH: It kills my sell-through. It really does.

SN: The last one had rebates designed to send customers back to the retail stores for MCA/Universal products.

FRENCH: Really? I didn't see any of those.

KAIREY: Ouch!

FEIOCK: Although I'm not comfortable with the principle, I think the last one was handled very well. We did see some activity at our stores from the in-pack promotional material. We didn't see any rebates either, but we did have people in asking about titles that were promoted. For example, "Land Before Time 2" did very, very well for us. I'm not sure how much is attributable to that promotion, but I think it certainly opened up exposure to that title.

GLASEMAN: I didn't have anything reported to me one way or another. I personally don't like the idea of what's happening. The product is almost everywhere, sometimes in unreasonable places. I can understand that studios are looking for numbers and they're going to get them wherever they can, but I didn't really feel any benefit from it.

SN: Andrew [Kairey], what results can you share with us about the coupon redemptions?

KAIREY: It's a little early still to tell because the redemption hits in different surges. (Editor's note: The roundtable was held on Jan. 31.) We're still waiting for the second surge. The end of the promotion's first wave is actually today. To recap the promotion: Inside each of the four cassettes that were sold at McDonald's there were two inserts, one for the live-action titles and another for the animated product. Each of those inserts had different types of products being offered with promotional rebates. There were over $15 in rebates in addition to the "Jurassic Park" rebate offer, and they were all driving consumers back into retailers nationwide to purchase those other titles. The one that has the biggest jump right now is "Land Before Time" and the $2.50 rebate on "Land Before Time 2." The redemption on that is the highest we've seen in a long time. I attribute the success of "Land Before Time 2" to that promotion as well as to sparking on the increased awareness of "Land Before Time" [which was offered for sale in McDonald's during the promotion for $5.99 with the purchase of a large sandwich]. It had been released theatrically in 1988 and on video in 1989. It had been on moratorium for quite a while so that there was a sense of absence from the marketplace. SN: Dennis [Maguire], last year at the Video Software Dealers Association dinner you hosted, Jeffrey Katzenberg [former Disney studio chief] openly spoke out against these types of promotions. Has your policy changed since he left the company?

MAGUIRE: It hasn't changed. We think there are plenty of retailers out there to sell goods. We provide product month-in, month-out, and we don't think this is necessarily a venue to sell video.

SN: Could this type of promotion be good for video sales?

INGRAM: The answer to that is another question: Is the advertising that McDonald's is doing, and the fact that some people now own videos who never owned them before, going to offset retailers being unable to get the product and the possible devaluation of the product? I'm not sure I know the answer to that.

HERMAN: I agree with David. One interesting thing that did happen was when "Land Before Time 2" came out, there was a question of how the title would be perceived in terms of value, because McDonald's had just finished advertising the original at $5.99 and the new one was coming out at a much higher price. There was a question of was it going to be good for the title or was it going to be bad for the title? The answer seems to be that it was good for the title.