European Court Votes For Higher Prices

[Gary]

Are we just talking jeans here ?

[Solly]

Originally posted by Gary
Are we just talking jeans here ?

You're also talking pants.

[Adam Smith]

Coming from the Inlaws' house in Massachusetts, with a lousy AOL connection which may die any second, so I'll have to be brief.

There are reasons why a manufacturer may want to control its distribution and prices, even if that results in higher prices for consumers. When I was in college I worked evenings and weekends at a hobby shop selling electric train sets. People would come in, ask all sorts of questions about how to set it up, what kind of accessories to buy, etc, and then go down the street to Toys R Us and buy the same train set for much less. Why could Toys R Us sell for less? One big reason was that they did not provide the same type of retail service - information - that we did. People got the information from us, and then simply pulled the appropriate train set off the shelf at Toys R Us. The people at Toys R Us didnt know a damn thing, if you could find anybody to ask a question anyway.

This type of argument applies most strongly to goods where information is important top buying decisions, such as consumer electronics. A somewhat weaker argument applies to jeans. Levis set up their own outlets to insure that their product got enough "push", has a cool image etc. Levis are not likely to get this type of treatment as a blue light special at KMart. And all this retailing effort costs money, which has to be recouped through higher prices. Think about it. Levis gets the same amount for for each pair of jeans sold to a wholesaler. Why would it want retailers to charge a higher price, thereby reducing demand?

Economists dont usually worry too much about this type of behavior so long as there are a large number of competing brands and retailers, which there appear to be in this case.

[Solly]

Just to clarify Adam Smith's point, since he seemed a little rushed.

If Levi's didn't control where its products were sold (and hence the price at which they were sold), there would be the situation described whereby those shops which allow, for example, customers to test fit jeans and have staff's advice would need to have higher prices to allow for the better customer service.

Customers could easily go to such a shop, try the jeans on, utilise staff time...and then go around the corner to the shop where customer service is less good, and the jeans are hence (slightly) cheaper due to lower costs for staff and customer service.

Without the kind of actions Levi's took, the shops who offer good customer service are likely to go out of business. Levi's wants its jeans to be sold in a shop that offers good customer service, hence the need for this kind of limit for where its jeans can be sold.

The higher price, therefore, is for the added customer service.

Infatuation, Rah-style

Does Tesco's have changing rooms?

[TCO]

Originally posted by Adam Smith
Coming from the Inlaws' house in Massachusetts, with a lousy AOL connection which may die any second, so I'll have to be brief.

Slacker! Go respond in the MS thread.

There are reasons why a manufacturer may want to control its distribution and prices, even if that results in higher prices for consumers.

A "saltwater" economist might say BECAUSE it results in higher prices.

Levis gets the same amount for for each pair of jeans sold to a wholesaler. Why would it want retailers to charge a higher price, thereby reducing demand?

How do you know that? They could sell at different prices to different channels. This is a way to price discriminate. (via channel seperation.) For instance, a computer games maker might sell at a cheaper price to the overseas channel because they are more price sensitive (and have more piracy) while keeping the prices higher in the US. The issue than becomes prevention of arbitrage.

[Solly]

*bump for *Eif**

[Gary]

To be clear. If a retailer buys an product and chooses to sell high, with high services offered, that is their choice. If a retailer decides instead to sell cheaper with low service, again that is their choice. No one else has a right to interfere with that no matter what their desires are.

If the manufacturer wants to create a particular image then it should decide who it wants to sell to achieve that aim, and under what conditions the sale is made. But after the product has been sold, it is no longer any of the manufacturer's concern.

It's all very well to want to have things your own way, but it is intolerable to try enforce them in areas which are no longer anything to do to you.

The argument attempted to be made in favour of the manufacturer, would still have no validity even if they played by the same rules across the globe, but when it is clear they use one set of rules in one place, and another in another, then it becomes clear this is just rip off here in the UK, pure and simple.

Besides, £50 at a special shop, £25 at Tesco. How much damn service do you think you can use as an excuse ? Give me the extra £25 and I'll tell you that your bum doesn't look big in those ! What's needed is a dose of reality to these Levi apologist arguments !

[Solly]

If a retailer buys an product and chooses to sell high, with high services offered, that is their choice. If a retailer decides instead to sell cheaper with low service, again that is their choice.

The retailer selling at a lower price actually enjoys a positive externality from the retailer selling at a higher price. Consumers could go to the shops where they are treated like kings, allowed to try the jeans on, enjoy excellent staff service, and then go to the retailer selling at a low price, a retailer who perhaps believes in "stock 'em high, sell 'em cheap" and get the jeans for a cheaper price.

In the long run, this will lead to shops offering excellent customer service becoming extinct as consumers will buy jeans elsewhere after utilising their services. (Or, alternatively, consumers being charged to try the jeans on - also something which I would expect you to whinge bitterly about)

Consumer service, without the kind of action Levi's took, would become more and more marginalised until it hardly existed at all.

I'm sure it's people like you who would be the first to moan if customer service suddenly goes worse.

(By the way, this is the third time this has been explained in this thread so far. I don't wish to have to explain it again)

[TCO]

Gary...you are spot on. Infat...you are ok...it's just that IF LEVI'S WANTS TO MAINTAIN A CUSTOMER SERVICE CHANNEL, IT IS UP TO THEM TO DRAFT SALES AGREEMENTS THAT MAKE THAT NECESSARY. Once the goods are sold it's ridiculous to say that Levi's has any right over them other than specific agreements that they construct at the tiem of the sale.

[Adam Smith]

Infatuation:

Thanks much.

GP:

I thought I did respond fully in the MS thread.

A saltwater economist also knows that the market for jeans looks pretty competitive, so excess profits are likely to be zero, so not much to worry about.

AFAIK "no reselling" is a standard restriction in commercial contracts, but I did not see any evidence one way or the other in this case.

Gary:

If retailers can do whatever they want, how do you get around the provision of service problem in the train set example? I will admit that the difference in prices is a bit on the high side. Toys R Us sold train sets for about 30 percent less than we did, but I would say I spent 20-30 minutes with each custopmer answering questions, selling additional books and equipment, etc.
Some of the price difference may be that TESCO has economies of scale in distribution.

[TCO]

Originally posted by Adam Smith
Infatuation:

Thanks much.

GP:

I thought I did respond fully in the MS thread.

A saltwater economist also knows that the market for jeans looks pretty competitive, so excess profits are likely to be zero, so not much to worry about.

AFAIK "no reselling" is a standard restriction in commercial contracts, but I did not see any evidence one way or the other in this case.

Gary:

If retailers can do whatever they want, how do you get around the provision of service problem in the train set example? I will admit that the difference in prices is a bit on the high side. Toys R Us sold train sets for about 30 percent less than we did, but I would say I spent 20-30 minutes with each custopmer answering questions, selling additional books and equipment, etc.
Some of the price difference may be that TESCO has economies of scale in distribution.

AS,

I posted again in the MS thread. The horse needs more beating. I'd like to get some more discussion with you there.

Sure jeans have some competitiveness. But they are branded products. Levis is different than Wranglers in terms of prestige. Given that, it is in Levi's interests to price discriminate by charging higher prices to people who value the brand equity more and lower ones to people who value it less. To do so, they have to set up separate channels and restrict arbitrage. So far, so good.

But the point of this case was that the EU court said that their was no need for Levi's to have any restrictions on sales. (in this paricular situation) In other words, somebody who buys the jeans WITH NO RESALE RESTRICTION, can still be prevented from reselling the jeans. It's as if they didn't fully own them REGARDLESS OF WHETHER RESALE RESTRICTIONS WERE STIPULATED OR AGREED TO.

[*End Is Forever*]

Apologies for the absence...

I have to say I find myself agreeing mostly with Gary, but a few things to pick up on...

Colon,

Are you searching for a "UK against the rest of EU" case again Iain? I'd look elsewhere because the German, Finnish and Swedish government had an opposite stance of France in this suitcase. (UK wasn’t even part)

Nope. I was just wondering what would prompt the French and Italian governments to support Levis... do they have big factories there or something?

Infat,

f Levi's didn't control where its products were sold (and hence the price at which they were sold), there would be the situation described whereby those shops which allow, for example, customers to test fit jeans and have staff's advice would need to have higher prices to allow for the better customer service.

Do you need specific advice when you are buying a pair of jeans?

Does Tesco's have changing rooms?

The one in Walkden does. I'm surprised you haven't noticed.

[Solly]

Do you need specific advice when you are buying a pair of jeans?

You probably need to try them on...? That in itself is a form of advice/information.

[Provost Harrison]

Originally posted by Infatuation

The retailer selling at a lower price actually enjoys a positive externality from the retailer selling at a higher price. Consumers could go to the shops where they are treated like kings, allowed to try the jeans on, enjoy excellent staff service, and then go to the retailer selling at a low price, a retailer who perhaps believes in "stock 'em high, sell 'em cheap" and get the jeans for a cheaper price.

In the long run, this will lead to shops offering excellent customer service becoming extinct as consumers will buy jeans elsewhere after utilising their services. (Or, alternatively, consumers being charged to try the jeans on - also something which I would expect you to whinge bitterly about)

Consumer service, without the kind of action Levi's took, would become more and more marginalised until it hardly existed at all.

I'm sure it's people like you who would be the first to moan if customer service suddenly goes worse.

(By the way, this is the third time this has been explained in this thread so far. I don't wish to have to explain it again)

I have never heard such a load of crap in my life. How in the name of hell do you need specialist assistance with bleeding clothing? You put them on and that is it? If there is any specific information needed for the product it should be the manufacturers responsibility to provide the appropriate documentation. For example, if you buy a computer. These can be bought from a variety of retail outlets who have a variety of different levels of knowledge. But the fact is you should not trust a retailer for the information anyway as they have a vested interest, you should check yourself. And if there are any technical difficulties, you should be able to phone a helpline. And lets face it, computers must be the most complicated and problematic of all consumer products. A garment of clothes is just an inanimate object that you wear to keep you warm. A minute fraction of the information is required. So this is just nonsense.

[Solly]

If there is any specific information needed for the product it should be the manufacturers (sellers) responsibility to provide the appropriate documentation

When selling your car, will you tell the buyer every single one of its faults? Or will you try to maximise the price you get for it?

If a year down the line, after someone has bought the car, they phone you up and ask for "customer service" and for you to repair the car from your pocket, what would you say?

Why?