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email from a music retailer re: Universal's new pricing structure and store agreement

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email from a music retailer re: Universal's new pricing structure and store agreement

Old 09-12-03, 07:19 AM
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email from a music retailer re: Universal's new pricing structure and store agreement

Got this in an email, didn't see it posted, and thought it was interesting.

I thought you might be interested in reading this critique of the Universal [=UMVD] price cutting [=Jumpstart Plan]. This was written by a store in Tempe AZ that doesn't buy directly from Universal, but has to get CDs from a distributor. Stores have been given an agreement about pricing that they have to sign.

Here are the specific concerns that we have about the UMVD Jumpstart plan:

1. In order to get the new price 25% of our bin space must be UMVD product (the agreement says "total bin space", but supposedly itıs changing to "new major label CD bin space"). This number is based on Soundscan market share.

… As a good partner, we will gladly sacrifice some of our space for this newly-priced product, but we donıt think that we OWE it to them because the price was lowered. We think that the lowering of prices was a direct result of simple supply and demand economics. Will we gladly carry more UMVD product and titles because the price is lower? Hell, yes. But we prefer to do it because of the price and the product itselfŠ and because itıs smart businessŠ not because we owe it to our supplier for lowering prices to where they should have been all along. … Even if we did think a lower price entitled a distributor to a certain amount of bin space, basing any type of requirement on Soundscan numbers doesnıt work for us because it doesnıt accurately reflect our store. Everyone knows that market share is dominated by washing machine stores that use our only product as loss leaders.

2. In order to get the new price in spite of the fact that UMVD co-op has been eradicated - we must agree that 33% of our merchandising and marketing efforts will go to UMVD product.

… Lowering prices doesnıt entitle a label to any of our marketing space any more than it entitles them to our bin space. Will we gladly give some of our space up for their lower priced product? You bet we willŠ but again only because it is good for the customers and the store. Would we be willing to deal with a little less co-op for lower pricesŠassuming we were asked and not told? Absolutely. But we arenıt good with everything for nothing. All we expect is balance.

… Even if we somehow were good with the "no co-op = marketing love anyway" entitlement concept, if UMVDıs market share is 25% - what would entitle them to 33% of our space?

3. Even if an account does sign - superstar artists (the examples were Shania Twain and Eminem) will cost more than a dollar extra - yet still have the same 12.98 list price directly stickered to them.

… Why do we have to pay more, and accept less margin, for a superstar artist? Should we suffer in margin because of their contract? With a one-stop cost of nearly 11.00, we could hardly go lower than the SRP. While we may move a few more pieces - hit product is currently on sale for 13.99 anyway so the price perception wonıt be much different for the superstars than it is today. At that margin, it will still be smarter to get off of that product as soon as possible.

… As we all know -- they all think they are superstars. Which Def Jam rapper doesnıt think heıs a "superstar"? Weıve seen labels attempt to draw that line with every list price increase over the past ten years? The next thing you know, itıs all at the "superstar" price, and weıll be making a buck a stick on everything.

We still haven't been given an answer on whether the higher "superstar" cost will remain for the life of the title.

4. Whether an account signs the agreement of not, all product will be stickered with a specific 12.98 or 9.98 MSRP sticker. The product will be stickered underneath the shrink-wrap and now possibly on the top spine of the product as well, so it will be impossible to remove the sticker without unwrapping the product.

… This far and away the most manipulative and worst-tasting part of the deal. Although we understand that the word "suggested" technically keeps this from being flat-out price fixingŠ itıs all semantics - to us it is flat-out price fixing. … For UMVD to tell us the direct cost is 11.50 if we donıt sign their "preferred pricing" agreement and then internally sticker a 12.98 "suggested" price on ALL of their applicable product is tantamount to blackmail. Truly an offer we canıt refuse. … It is not in the spirit of a true partnership (or free enterprise) to not allow a retailer the right to price their product how they want. If a retailer wants to go way above list price in our opinion they wonıt be around long but they should have the option.

If UMVD is worried about us not passing on the savings why not just put a sticker on it that says "low price". How high can you go if it says that?

The sticker is especially horrific in the case of the "superstar" artists, especially to a one-stop store. Letıs just say we couldnıt figure things out and opted to pay the non UMVD-preferred prices: If the direct price goes up to 12.51, the one-stop price would be roughly 13.20. Yet the product is going to be stickered at 12.98??? How can you refuse them? The sticker is the ultimate control issue.

5. For an adjustment to inventory levels and stocking philosophies of this magnitude, we simply were not given enough time -- especially at the start of the fourth quarter.

6. A signed agreement with this level of importance should be laid out more specifically than bullet points. The vagueness of the following phrases scares the shit out of us:

… "Specific space and featured product mutually agreed upon". No one will tell us what this means.

… "Cooperate in distribution of UMVD-provided marketing materials". Itıs a fine line between "tool" and "shit" -- we like to decide if we want to use it.

… "Display in-store signage featuring low price sticker artwork". Uh, does the sticker have the price points on it too? See concern #4.

… "UMVD can increase the required percentage based on market share". When? How often? How much more than a third of the store do you want?

There it is our specific feedback.

You have to admit, itıs the kind of agreement that it would be pretty tough to follow as it stands now.

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Old 09-12-03, 08:55 AM
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Should've known the scumbags would find a way to sleaze up a simple price reduction.
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Old 09-12-03, 03:20 PM
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And the music industry wonders why they are losing sales.

I wonder if smaller labels are actually doing better, worse or the same in this climate.
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Old 09-12-03, 05:56 PM
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Here's a list of the (US) Universal imprints. The number in parenthesis is how many CDs I own from that label.

Geffen Records (14)

Interscope Geffen A&M (5)

Island Def Jam Music Group (17)

Lost Highway Records

MCA Nashville

Mercury Nashville

Motown Records (1)

Universal Classics

Universal Records

Universal Music Enterprises

Universal Music Latino

Universal South

Verve Music Group (13)
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