Hornby Discount Limits

[dpgibbons]

 

It is perfectly legal for a manufacturer to refuse to supply a retailer should they discount the manufacturers product lines to heavily in order to protect the value of the product being sold.

 

No. Threatening to withdraw supply in this way isn't legal, as the CMA guidance notes (link above) make clear. They also say that retailers submitting to RPM may also be breaking competition law. I think the trade is skating on thin ice here.

[frobisher]

On the question of whether or not this is legal I think that can only be definitively answered in the event that it is tested in court (the favourite answer of the European Commission to any questions about the legality or otherwise of things subject to directives and regulations). Certainly, I think there are enough indicators that the policy of limiting discounting may constitute illegal price management that I wouldn't like to be the person told to deal with it in a company if we got a legal letter on the matter.

It's naïve to think that Hornby, Bachmann et al didn't take legal advice over the drafting of their terms and conditions and this is pretty common practice with branded goods.

[jjb1970]

It's naïve to think that Hornby, Bachmann et al didn't take legal advice over the drafting of their terms and conditions and this is pretty common practice with branded goods.

 

I'm not suggesting they haven't taken legal advice, I'm suggesting that there would appear to be a reasonable case that this could be illegal and that the only way the legality (or otherwise) of these mechanisms would be for them to be tested in court. Legal advice can take many forms and ultimately a company can still make it's own judgement based on risk/benefit. I've been involved in enough cases where corporate (and government) lawyers have offered legal advice which has been disputed or which has been framed in response to particular questions to be slightly cynical on that particular matter.

[Fenman]

Huge losses aren't necessarily due to low prices - it's more likely that the prices are too high and therefore they can't sell in sufficient quantities to make a profit.

Would that same logic apply to, say, Rolls Royce - the lower the price, the more they’ll sell, and therefore the higher their profit?

 

Doesn’t seem right to me.

 

We know that both the big players have had profitability problems. Both have put prices up. One now seems to be back in profit (with the caveat that internal pricing is always tricky to work out), the other is making smaller losses. Neither have prices which seem wildly out of kilter with the rest of the market.

 

So I’m curious what you think the “correct” price is for, say, a Bachmann C1 (RRP £200) or a Hornby 87 (£171)?

 

Paul

[pheaton]

Well, now I’m curious. Hornby and Bachmann have for some years been making huge losses. That would suggest their prices have been too low, yes?

 

So why do you think their prices are “artificially high” - especially since the recent signals were that Hornby’s apparently interminable “recovery” is going even less well than planned?

 

I have almost no experience in brand management, so I’m keen to learn from you why I’m wrong, and what their pricing should correctly be.

 

Paul

It would be wrong to assume losses are the sole result of incorrect pricing, there are hundreds of factors that could influence profits or losses. The notion that prices are being held artificially high isvthat retailers that would routinely discount are being prevented from doing so by certain percentages within a certain period of time. Hence prices being held higher than they might otherwise have been.

 

Would the relevant authorities be interested? i doubt it for 2 reasons.

 

1 the discount ban isn't permanent

2 there's no indication of the consequences.... We have only perceived the consequences. Unless of course a retailer is prepared to put on a public forum that they have proof they have been cut off from suppliers for not following the relevant pricing structure....

 

Really can anyone honestly see the likes of Bachmann or Hornby cutting hattons or rails off for discounting? All that will happen is the wholesale prices will increase and prices will raise that way....

 

Its a simple supply and demand scenario we supply but at the first 6 weeks at this price....

 

Hornby Bachmann whoever dont gain anything oyt of this supposed price fixing they sold the models long ago to a wholesaler or direct to the retailer at a price below what we pay, its the retailer if anything that potentially gains in the 6 week period, by flogging a model at a higher price to moddeller who just can't wait for there model....

 

The answer is simple just wait another 6 weeks for your model by then the price might drop....... All Hornby or whoever are trying to do is create a level playing field for retailers.

Edited September 19, 2018 by pheaton

[Legend]

I'm not sure though. It certainly appears that any form of  "price fixing" is illegal having read through the useful information provided, so not sure that it being only temporary is a factor.   The other thing that may attract interest is that its now Bachmann, Heljan and Hornby that appear to be operating the same practice . That the major players in the market are acting in a concerted way may appear to be an issue .

[pheaton]

By temporary i mean its a 6 week period for each release

[NXEA!]

Good to see Hornby are doing this, if only to protect the local model shop. Not being commercially minded, I’m not sure how this could/would affect them, bearing in mind they’re in a slightly delicate position financially. It affects me as I have a more limited budget, so I tend to like the look through the bargain bins to buy stuff and there has been plenty of that in the last few years - an example is I’ve not paid for more than £60 each for my Clauds and J15s.

 

However, it will make me think more carefully about what I need and maybe buy less which is no bad thing! I may have missed it, but when is this being brought into effect? Does this affect the next batch of releases, or will it be reflected on the 2019 announcement?

Edited September 19, 2018 by NXEA!

[Keep the Faith]

...All Hornby or whoever are trying to do is create a level playing field for retailers.

The problem is that "levelling the playing field" is not Hornby's, Bachmann's or Heijan's job. At least not through trying to restrict discounting by threatening supply. Brands can support specialist retailers with marketing, instore events, product launches, exclusives, branded signage, profiles in the Engine Shed blog etcetera.

 

If any of these manufacturers want to control the price in the market then they have a perfectly legal route, to only sell on their own websites or vertically integrate retail by running shops.

 

The only loser in this current scenario is the consumer and that is not something to celebrate or praise.

[Legend]

In fairness to them , I think it is a move intended to help retailers . So their motive is good.  I don't think there is any direct impact on Hornby as such, except maybe to increase the confidence of their retailers to order from them . I'm not sure it will work though . As I've said in my area there are no local shops left to protect .  And I think it is potentially risky , certainly a grey area legally.

 

It is strange , only in model railways would we celebrate something that will put the price up to we the consumers.  Never seen this anywhere else !

Edited September 19, 2018 by Legend

[pheaton]

The problem is that "levelling the playing field" is not Hornby's, Bachmann's or Heijan's job. At least not through trying to restrict discounting by threatening supply. Brands can support specialist retailers with marketing, instore events, product launches, exclusives, branded signage, profiles in the Engine Shed blog etcetera.

 

If any of these manufacturers want to control the price in the market then they have a perfectly legal route, to only sell on their own websites or vertically integrate retail by running shops.

 

The only loser in this current scenario is the consumer and that is not something to celebrate or praise.

It is there job if they intend to maintain retailer confidence in the strength of the brand, for which if that strength is being dictated by the financial muscle of the larger model shops able to impact supply by buying in bulk at lower prices which is then going to impact supply to smaller retailers. Who then are going to think twice about buying models from the brand which then leaves for example Hornby to sell an entire production run for which the size of is difficult to decrease accordingly, through a decreasing retailer base..... Edited September 19, 2018 by pheaton

[phil-b259]

Yes but they make money for shareholders by pandering to our wants . A company that loses sight of the requirements of its end customer will fail, and that includes his price expectations .

 

In an ideal world yes

 

However it doesn't take much searching to find companies that routinely shaft their customers and still survive. Broadband, energy and banks being some of the worst.....

 

If Hornby's iniative was as bad as you make out then why do Bachmann continue with their version?

 

People need to ditch the emotional attachment claptrap they seem to have from their youth. Hornby is not a 'national treasure' or a company that should be treated differently from its competitors. Nostalgia doesn't keep companies in business as Woolworths, BHS and House of Fraiser show - keeping the banks and shareholders happy is what is necessary.

[The Stationmaster]

Strange question, one that should be addressed to Hornby.

 

I'm just sharing 30 year's experience in brand marketing.

 

As a consumer, not very keen on manufacturers attempting to keep prices artificially high.

 

Oh dear, looks like you want to kill off part of our hobby then.  I've recently bought two Hornby locos and that makes three this year so I wonder where I could have got them (including two WR outline) if comments like that had put both Hornby and/or my local model shop out of business.  Typical modern Britain - the race to the bottom in pricing leading to trash quality products and rubbish that sells because it's cheap or prices that are held because the contents are reduced in quantity or weight (a typical trick in the foods sector).  If you want a decent product and good retail service you have to pay for it - end of story.

 

As for artiificially keeping prices high I don't think Hornby are at all like Burberry because in historical terms Hornby's prices aren't really high in terms of teh additional bang you get for your buck after inflation.  And why on earth can't businesses make a profit?

[Keep the Faith]

...And why on earth can't businesses make a profit?

Hornby can set its COST prices to retailers at any level they like in order to make the margins they need. You still get your two locomotives although you may have to pay more if the retailer is paying more to Hornby.

 

What is less clear legally, and certainly objectionable as a consumer, is any attempt to prevent a retailer from selling to us, the consumer, at a price than the retailer WANTS to sell at.

 

Legend is correct in post 60, what other category would see consumers happy about interference like this resulting in higher retail prices?

[phil-b259]

 

It is strange , only in model railways would we celebrate something that will put the price up to we the consumers.  Never seen this anywhere else !

 

Not really. If you want small independent model shops to survive then they need to be able to compete with the likes of Hattons, Rail, etc The rise of internet shopping means that its easier than ever before for sales to become concentrated on a couple of players - who once they have decimated the competition can take advantage and raise prices even higher than RRP

 

You need to remember that Capitalism is not the nice and fluffy version of economics the Conservatives pretend it is. At its heart the goal is force any one business to dominate by forcing its rivals to go bust and ending up being a monopoly supplier. 'Competition' is therefore a means to an end, not a goal in itself and people should be careful what they wish for - the proposed tie up between ASDA and Sainsburys is not really about benefiting shoppers, its protecting shareholders profits by reducing the number of competitors in the market - as is Tescos new 'budget' setup.

 

Many folk on here say they value their local model shops and wish to see them survive. Those shops cannot do this in a situation where agresive pricing / heavy discounting makes it impossible for them to make a profit on big ticket items (such as locos) . As a result Hornby Heljan and Bachmann's cap on discounts is seen as trying to help the 'little man' of model railway retailing and keep small model shops going.

 

If you value pricing over everything else then yes, its a bad move - but as the saying goes there is more to life than money and to be frank, 3 decades of being obsessed with capitalism, the power of the free market and relying on finacial services to make us all rich has made screwed up this country.

[dpgibbons]

I wonder why the big box-shifters acquiesce to price constraints that would seem to hinder them. Do they get volume discounts or other incentives to keep them sweet?

[Wicor Models]

Oh dear, looks like you want to kill off part of our hobby then.  I've recently bought two Hornby locos and that makes three this year so I wonder where I could have got them (including two WR outline) if comments like that had put both Hornby and/or my local model shop out of business.  Typical modern Britain - the race to the bottom in pricing leading to trash quality products and rubbish that sells because it's cheap or prices that are held because the contents are reduced in quantity or weight (a typical trick in the foods sector).  If you want a decent product and good retail service you have to pay for it - end of story.

 

As for artiificially keeping prices high I don't think Hornby are at all like Burberry because in historical terms Hornby's prices aren't really high in terms of teh additional bang you get for your buck after inflation.  And why on earth can't businesses make a profit?

I totally agree with your comments.  The current discount model is unsustainable and will probably kill shops and the hobby, or at the very least make it a niche hobby for the rich and famous.  I have run our shop for 25 years now and still don't understand why I have to give a percentage of my profit to a customer, especially today when costs are rising often faster than inflation, and I need my profit to run the shop and not to finance a lavish lifestyle.  Yes we discount to be competitive otherwise we probably wouldn't still be around but I believe everyone should be prepared to pay the true price, after all you don't expect to go to your favourite restaurant and ask for a discount so why should buying models be any different.   Profit is not a dirty word and is wholly necessary to run a business and the idea that lower prices means more profit doesn't work, certainly not in the long term.  As regards to the legality of requiring a maximum discount for 6 weeks that is pretty lenient compared to other areas of retail.  One of the shops in the village here is not allowed to discount more than a few per cent and if caught his account will be closed.

[Andy Y]

 what other category would see consumers happy about interference like this resulting in higher retail prices?

 

Any category where the consumer would like to see manufacturers and retailers thrive (for future benefit to the hobbyist).

[phil-b259]

.....what other category would see consumers happy about interference like this resulting in higher retail prices?

 

Lots actually. I deplore this disease where price is the yardstick by which everything is judged. Be it broadband, energy, insurance, food if we junked the gimmicks / discounts / hype and actually paid a realistic price (and shareholders wern't so greedy) then society as a whole would be a lot better off.

[pheaton]

Objectionable yes, but as mentioned the knock on affect of allowing retailers to set there own prices will price smaller retailers out of the market. Tough titty you might say but that then potentially decreases the retailer base for the manufacturer, and potentially accelerates the downturn of modelshops because margins have become so squeezed they are not profitable. If all the smaller modelshops closed overnight do you honestly think the survivor's would maintain the level of discounts seen?

 

In the short term i agree the consumer loses out... But in hornbys case its 6 weeks... Its then up to the retailers to set discounts beyond that, and they do accordingly to their sales trends..... Long term i percieve the consumer losing out without these measures because shops will close and competition eill decrease.

Edited September 19, 2018 by pheaton

[phil-b259]

I wonder why the big box-shifters acquiesce to price constraints that would seem to hinder them. Do they get volume discounts or other incentives to keep them sweet?

 

Or maybe its because they have a consonance?

 

In all seriousness though if the 'box shifters' don't discount they get to make more profit too. Then after 6 weeks they can lower the price and hoover up the sales from all those winging about high prices on here.

 

In other words as long as everybody abides by the initial 'no discount' rule it makes very little difference to their sales volumes - although it could induce a delay as folk hold off purchases for 6 weeks.

[Keep the Faith]

Any category where the consumer would like to see manufacturers and retailers thrive (for future benefit to the hobbyist).

Andy, can you name one category where consumers approve of price controls that keep retail prices artificially high?

 

A buoyant manufacturing and retail sector is great but achieving this through what looks like price fixing is not.

 

Waitrose and M&S can thrive in a world of Aldi, Lidl and now Jack's by offering a differentiated service. Hornby et al need to be supporting independent retailers to make their shops special with trade marketing support.

[dpgibbons]

From Amazon on down, box-shifters make their money by slashing prices to gain volume and market share, so neither altruism nor margins seem likely motivators for their toeing the line on price discounts. 

Edited September 19, 2018 by dpgibbons

[phil-b259]

Andy, can you name one category where consumers approve of price controls that keep retail prices artificially high?

 

A buoyant manufacturing and retail sector is great but achieving this through what looks like price fixing is not.

 

Waitrose and M&S can thrive in a world of Aldi, Lidl and now Jack's by offering a differentiated service. Hornby et al need to be supporting independent retailers to make their shops special with trade marketing support.

 

Actually if you look at the recent financial results of John Lewis (who own Waitrose) and M&S you will find they are not 'thriving' as you put it. Lots of retailers are in fact in quite a bit of trouble financially - and most of that can be traced down to aggressive pricing by internet sales or discounters.

 

You might love it but the rise of the likes of Amazon, etc (who contribute very little to the UK Treasury and who can escape the extra costs associated with running a network of retail premises) but they are progressively destroying any opposition which will leave society much worse off overall.

[phil-b259]

From Amazon on down, box-shifters make their money by slashing prices to gain volume and market share, so neither altruism nor margins seem likely motivators for their toeing the line on price discounts. 

 

Then having built up market share (or destroyed their competitors) they raise their prices.

 

Pile it high, sell it cheap is not the ultimate goal - it is a means to an end.

 

Remember when supermarkets first started selling fuel - they deliberately sold it at a loss to encourage custom knowing full well they would make up the difference and more from folk who would pop in store while they were there.