US Supreme Court case could affect Festool

[bassman00]

...
Let the free market work like it should!
...

Ummm, Festool, the company, IS a part of the free market.  If the retailers don't like Festool's requirements, they can pass on buying their products for resale.  When the gov't steps in and puts limits on things, then it's no longer a free market.

PaulD

 

[greg mann]

The term price-fixing doesn't really apply here, at least in its traditional use. Price fixing is when several players or companies, usually dominant players (read: oil companies) collude to fix prices, thereby eliminating competitive pressures and keeping prices artificially high. This works very well to their advantage when the product is a necessity to everyone without any practical alternative (read: gas). That is not the case with Festool. While we like to thing they have no peer they do have competition and we do have alternatives, including just not buying their products. Festool is not colluding with their competition. In fact, one could argue they are making it easier on their competition by not trying to compete on price.

There is an interesting article in today's Wall Street Journal (bottom of Marketplace, B1) about how Samsung and others have chosen a retailer in Chicago to handle their high-end products and have excluded marketing through their traditional sources. The retailer has one store, period. At this point, if you want their $150k 80 inch plasma TV, that is where you have to go. This is an extreme case but don't think for a minute that Samsung isn't trying to protect their product from being devalued by predatory retail practises. There is nothing wrong with a manufacturer wanting to protect their product value and our purchase value. That's right, our purchase value. If we, Festool's most loyal customers, line up and buy the Domino at today's price, and then find it listed on Amazon three months from now for $200 less, we will be pissed as our value proposition (Jerry Work's wonderful term) has been eroded. Festool does not punish its best customers. Instead, they offer us an introductory discount.

I like it the way it is.

 

[Ned]

...
Let the free market work like it should!
...

Ummm, Festool, the company, IS a part of the free market.  If the retailers don't like Festool's requirements, they can pass on buying their products for resale.  When the gov't steps in and puts limits on things, then it's no longer a free market.

PaulD

Thank you, Paul. 

A free market includes a particular manufacturer having contracts with its customers (the retailers) with the kind of conditions Festool does.  No one is forcing any Festool retailer to be one.  No one is forcing any Festool end user to be one.

The free market represents the collected judgment of all of us as to what something is worth.  It is the best that we can do.  Any government action is an interference with the process that makes those judgments less accurate.

Note that I said collected, not collective.  That word gives me shivers.

Ned

 

[Dan Lyke]

I'm all for spending less money, but I'm actually not unhappy with Festool's strategy and pricing. The way I see it, fixed pricing does a few things to our advantage.

Fixed pricing means that Festool isn't competing based on price. So we're less likely to see quality traded for price the race to the bottom that's so prevalent in markets where price is a primary motivator. That makes Festool a brand I can trust more than many other tool brands.

It also means that we're unlikely to see cheaper versions of what, at first glance, appear to be the same product, but aren't if you read the fine print carefully. We definitely see this at retailers like Wal*Mart, and, although I haven't gone out and run this to ground yet, I'm pretty sure we see at Lowe's and Home Despot: Brand names we recognize, specific products and models that are similar to ones we think we're buying, but aren't actually the same models and same quality we can get elsewhere.

And it means that the dealers have to compete based on something other than price, so they can afford to hire knowledgeable salespeople who can give us actual guidance and suggestions, or let us try out the tools in their showrooms, or even just carry real inventory.

On overall price... we're looking at building some chairs for the dining room. We've been going to furniture stores, sitting in chairs, seeing what we like, because we're at they very least going to make sure that we have to custom chairs that fit us. In the process we've been noting build quality, wood type, and price, and it turns out that when we get to actually cutting wood it's going to be fairly easy to convince my sweety that we need a Domino: The price is about the same as one mid-range mass-produced chair, and by the time we build six chairs we may even have saved enough over buying high quality furniture (if we could find it in a store and not actually have to find a good woodworker to build it for us) to compensate us for our own woodworking time.

Even though we write off that time right now as therapy.

 

[Ron Pegram]

If a bottom feeder retailer sells Festool cheap and provides no service - they won't stay in business long. A free market takes care of things naturally, without interference from govt or a manufacture.

Sorry, Mr. Hockey but I can't agree with this and that's because the Internet brings us all closer together, including poor firms with good firms.

If McFeely's posts an intuitive training video, there's nothing stopping someone from somehow grabbing it and using. We can watermark it, call our name out 1,000,000 times and there are still firms who will try to use our materials to facilitate their sales. There is one particular retailer who has taken our images more than once now. We work hard to do something and someone steals it.

Our technical support line doesn't validate whether you're a McFeely's customer. Just the other week, we had a fellow who requested we ship a repair part because he had received a Festool item that was damaged in transit. When we couldn't find his order, he admitted he bought from someone else who wouldn't ship that part. Of course, by then, we had spent a reasonable amount of time trouble-shooting his problem.

So someone with no service and no effort could still have customers who decide to 'borrow' McFeely's resources to use in making their decision and still use the low-cost provider to buy their products. The Internet makes that possible. 1-800 numbers make that possible. AND those resources make that possible to a large degree. Sure, you could always go to one local retailer for information and go to another to buy the item but you had to spend your time in transit. Now, you can 'steal' resources effectively and efficiently.

What would McFeely's do if we had to compete on price? Less margin would inevitably mean less services. No one wants that.

Ron

 

[Tech]

Here's a tool guy's perspective: Although I'm a huge fan of true free market practices, I do see a value in the current system. Anyone care to weigh in on what predatory pricing has done to the American tool market? As tools get cheaper and cheaper, brands get diluted with several versions, major players merge to form huge tool corporations, I see choice and real competition going by the way side. Sure, you can buy one in yellow gray, green, orange and red, but where is the innovation.( Most of us know, or we wouldn't be here. )
More than once, we've looked at items, only to find THE major internet retailer selling the same for few dollars above cost or in some cases below our cost. Their technical spec's may or may not be up to date and they may or may not have the item.  Six months later they do offer the item. Festool offers a level field and attracts dealers that in for long haul. Those types of dealers generally give better service because they understand the benefits and values of product and not just the fact that they can make x% margin on y items. Anyone?
As a friend of mine says: I'll guess I'll get down off of my Soap Opera!

 

[stvrowe]

If a bottom feeder retailer sells Festool cheap and provides no service - they won't stay in business long. A free market takes care of things naturally, without interference from govt or a manufacture.

Sorry, Mr. Hockey but I can't agree with this and that's because the Internet brings us all closer together, including poor firms with good firms.

...

Our technical support line doesn't validate whether you're a McFeely's customer. Just the other week, we had a fellow who requested we ship a repair part because he had received a Festool item that was damaged in transit. When we couldn't find his order, he admitted he bought from someone else who wouldn't ship that part. Of course, by then, we had spent a reasonable amount of time trouble-shooting his problem.

So someone with no service and no effort could still have customers who decide to 'borrow' McFeely's resources to use in making their decision and still use the low-cost provider to buy their products. The Internet makes that possible. 1-800 numbers make that possible. AND those resources make that possible to a large degree. Sure, you could always go to one local retailer for information and go to another to buy the item but you had to spend your time in transit. Now, you can 'steal' resources effectively and efficiently.

What would McFeely's do if we had to compete on price? Less margin would inevitably mean less services. No one wants that.

Ron

Well said Ron.  My wife and I owned and operated a retail store in the sewing business for 11 years and witnessed first hand all of the items you mentioned.  We sold high end European made machines.  Our objective was to offer the best product, the best training, and the best service possible.  This equation did not result in the best price as we wanted to serve the long term best interests of both ourselves and our customers.  Our competitors however, chose to offer only low price, little to no training on the use of the machines, and no trained or certified service personnel.  Some non-stocking dealers actually sent customers to our store so they could see and get demos on the machines they were about to purchase from the other dealer.  I would venture to say that well over 90% of all potential customers made their purchase on price alone.  These folks never bother to think beyond the joy of the "bargain".

You wouldn't believe the number of people who would come in even after they purchased a machine elsewhere wanting us to demo a particular technique or provide training at no charge.  Now mind you, they wouldn't tell you they had already bought elsewhere but this always became obvious within about 30 seconds.  Some would come in insisting we provide warranty service at no labor charge for machines purchased elsewhere (in the sewing machine business, warranty labor is the responibility of the selling dealer). 

Because of these experiences, I like the Festool model.  With price removed from the equation, the choice of a dealer becomes soley one based on the service the dealer provides.  This maintains the integrity of the product line, ensures the dealers can make a viable income, and acts to weed out those dealers who provide poor to non-existent service.  If dealers were allowed to undercut the Festool established price, customers would be hurt, Festool would be hurt, good dealers would be hurt and the only ones that would be happy is the poor dealer who walked away with the cash from the sale. 

Steve

 

[mr_hockey]

...
Let the free market work like it should!
...

Ummm, Festool, the company, IS a part of the free market.  If the retailers don't like Festool's requirements, they can pass on buying their products for resale.  When the gov't steps in and puts limits on things, then it's no longer a free market.

PaulD

Paul,

The Festool retailer is NOT the market. You & I (the customers) are the market.

The Festool retailers are the channel of distribution that Festool decided to use for the US market. They could have gone direct, company stores, reps, TV infomercials....

At the end of the day WE are the market & Festools pricing policies are very advantageous for dealers --- at the expense of customers in the way of higher prices.

PLEASE understand, I don't have anything against Festool (I have a TS55, MFT & CT22) or their dealers. I just have a hard time with any manufacture who dictates price. A free market should be a free market and if a Festool dealer wants to offer a special price they should have the right to do so.

I will step down from my soap box....................... again

PS

Ron, Bob, Tech & Steve,
I understand what you are saying, but I have faith in the system and "bottom feeding" dealer will be put out of business. And I believe that the internet will help. (i.e. this forum would put the spotlight on poor dealers)

 

[Bob Marino]

Ron, Bob, Tech & Steve,
I understand what you are saying, but I have faith in the system and "bottom feeding" dealer will be put out of business. And I believe that the internet will help. (i.e. this forum would put the spotlight on poor dealers)

I must strongly disagree with you here. I know a hell of a nice guy, now working for Festool who did own a tool shop, spent the time with the customer, offered outstanding customer service, only to be put out of business by the internet discount house.
All I am saying, and I don't have any idea that this ruling affects Festool or Bose or Saturn at all BTW, that I would be way less likely, in fact couldn't spend the time I do now, if I thought I'd be "undercut" by another dealer.

Bob

 

[John Stevens]

A free market should be a free market and if a Festool dealer wants to offer a special price they should have the right to do so.

But if Festool wants to refuse to do business with such dealers, then Festool shouldn't have the right to do so?  This is almost like Orwell's Animal Farm:  "some free markets are more free than others."  I see your distinction between the retail and wholesale markets, but I don't believe it should make a difference.

Justices Breyer and Ginsburg would probably agree with your way of seeing things.  Justices Scalia, Thomas and Alito, and Chief Justice Roberts would probably see it the other way.  Justices Stevens, Souter and Kennedy I'm not so sure about.  Well, you can almost never be sure where Justice Stevens will end up, but that's getting way off topic.

Regards,

John

 

[bassman00]

The Festool retailer is NOT the market. You & I (the customers) are the market.

The Festool retailers are the channel of distribution that Festool decided to use for the US market. They could have gone direct, company stores, reps, TV infomercials....

At the end of the day WE are the market & Festools pricing policies are very advantageous for dealers --- at the expense of customers in the way of higher prices.

PLEASE understand, I don't have anything against Festool (I have a TS55, MFT & CT22) or their dealers. I just have a hard time with any manufacture who dictates price. A free market should be a free market and if a Festool dealer wants to offer a special price they should have the right to do so.

If the retailer is not part of the market, then how do they get the product?  You and I are at one end of the market and Festool, actually the vendors that supply Festool, are the beginning of the market.  Each retailer signs a contract with Festool to buy their products and sell them to retail customers.  That's the market.  If all the retailers think that their deal with Festool is bad and they don't carry the line any more, what happens to the Festool market? 

I don't read you as taking any shots at Festool and can understand how you feel about the pricing structure.  In fact, I'm pleasantly surprised that this discussion has remained so civil.    I'm not defending Festool.  Just the free market.

I wish I could write as clearly as Ned and John as they said it much better than my attempt.  :-[

PaulD

 

[stvrowe]

Ron, Bob, Tech & Steve,
I understand what you are saying, but I have faith in the system and "bottom feeding" dealer will be put out of business. And I believe that the internet will help. (i.e. this forum would put the spotlight on poor dealers)
[/quote]

Well, it would appear you have much more faith in the 'system' than I do.  One year ago this week, we closed our store and those "bottom feeding" dealers are still hawking their wares all at the expense of the consumer.  Now I suppose you could argue that that is just the 'free market' at work, survival of the fittest or whatever but, it is a matter of perspective.  If what you suggest were implemented, I suspect that the "bottom feeders" will eventually go out of business but only after the good dealers fall first and the reputaton of Festool is harmed.  Having experienced this scenario first hand, this is a very real concern to me as a consumer.  I am not a Festool dealer and have nothing to gain financially from keeping the current Festool pricing model in place.  I place great value on superior products and superior service and am willing to pay a "superior" price in order to preserve the first two superiors.  Like most folks, I like low prices but I also realize that good service is never free nor should it be.
Steve

 

[putttn]

This scenario of Festool's control probably won't last long.  There will be a dealer who will challenge and prevail regarding what they want to sell Festools for.  Nice for the dealers while it lasts but check the history of retail in the US and it's full of similar stories.  The manufacturers are as guilty as the retailers since they want volume too.  I agree with the dealers holding to the prices but once a dealer advertises over the internet and locally that he's discounting Festools you will see many purchasers "justify" their decision to purchase in favor of the discounter.  He becomes their "best retailing friend" and many of you will flock to him.  Called greed.

 

[bassman00]

puttn - I agree.  However, that will depend on the supply/demand ratio.  If Festool is running near full capacity with no intention of increasing output and all the products that hit our shores sell quickly, we won't see a change.  Why should they?  Can't sell what they don't have.  This is the case with a bunch of companies in the musical instrument arena.  However, if Festool stock starts piling up at the retailers, I can see some wanting to turn it into cash ASAP regardless of pricing limits. 

I personally don't care how the pricing is derived.  I weigh price, function and support to arrive at my perception of value.  If it's a good value and the function is needed or improves on what I have, I'll buy.  If not, I won't.  Simple.

PaulD

 

[putttn]

Greed Paul.  It will hit Festool just like it's hit most manufacturers.  If publicly held, stockholders will start demanding more growth, more profit.  There will be one retailer, (let's call him xyz), who starts selling at a big discount and we'll all start buying from him.  XYZ starts making more sales and Festool will embrace him because they make the same amount of money on each unit whether it's from him or some other retailer selling low numbers and they will use him as an example to other dealers.  Since XYZ is selling such big numbers he will be able to demand concessions like advertising co-op and special incentives.  Soon, other dealers will realize that their inventory is just sitting costing them interest $ so, they too start discounting to meet the price.  Since Festool is the manufacturer they will gear up to increase production and in doing so they too have added pressures to sell more units.  If you think Festool is a nice little niche manufacturer then why are they expanding in countries throughout the world?  Why did they go to Woodcraft stores nationwide to sell their products?  They aren't going to be content with the same sales numbers each year, nor are the owners. 
I saw this happen to Mercedes-Benz.  In the 60's nobody knew much about them other than they were well made and expensive.  By the 70's they had expanded the dealer base and were selling everything they could send to our shores.  They also, demanded their dealers to sell at sticker and to not discount the "Star".  Back then it was great for the owners because 7 years was the average ownership and resale values were astronomical.  Back in Germany there was demand for more sales, especially in the US so MBZ awarded more dealerships.  Supply started to exceed demand by the end of the 80's and early 90's so dealers started discounting heavily.  MBZ abandoned their MSRP demands and embraced dealers who sold the big numbers.  Now you can buy a MBZ for just a little over cost and guess what, MBZ could care less because they've made their $$ when they sold it to the dealer. 
I personally dislike this scenario and I would hope that greed/growth doesn't hit Festool like most all others, but I really think it's just going to be a short time and we'll see one dealer seperate and become XYZ.

 

[Bob Marino]

Greed Paul.  It will hit Festool just like it's hit most manufacturers.  If publicly held, stockholders will start demanding more growth, more profit.  There will be one retailer, (let's call him xyz), who starts selling at a big discount and we'll all start buying from him.  XYZ starts making more sales and Festool will embrace him because they make the same amount of money on each unit whether it's from him or some other retailer selling low numbers and they will use him as an example to other dealers.  Since XYZ is selling such big numbers he will be able to demand concessions like advertising co-op and special incentives.  Soon, other dealers will realize that their inventory is just sitting costing them interest $ so, they too start discounting to meet the price.  Since Festool is the manufacturer they will gear up to increase production and in doing so they too have added pressures to sell more units.  If you think Festool is a nice little niche manufacturer then why are they expanding in countries throughout the world?  Why did they go to Woodcraft stores nationwide to sell their products?  They aren't going to be content with the same sales numbers each year, nor are the owners. 
I saw this happen to Mercedes-Benz.  In the 60's nobody knew much about them other than they were well made and expensive.  By the 70's they had expanded the dealer base and were selling everything they could send to our shores.  They also, demanded their dealers to sell at sticker and to not discount the "Star".  Back then it was great for the owners because 7 years was the average ownership and resale values were astronomical.  Back in Germany there was demand for more sales, especially in the US so MBZ awarded more dealerships.  Supply started to exceed demand by the end of the 80's and early 90's so dealers started discounting heavily.  MBZ abandoned their MSRP demands and embraced dealers who sold the big numbers.  Now you can buy a MBZ for just a little over cost and guess what, MBZ could care less because they've made their $$ when they sold it to the dealer. 
I personally dislike this scenario and I would hope that greed/growth doesn't hit Festool like most all others, but I really think it's just going to be a short time and we'll see one dealer seperate and become XYZ.

Just so you know, Festool is a privately owned, and actually I think, familay owned business. They have a way different business model than the one you are imagining here. They look at things differently, they are in it for the long term, not next month's sales sheet.
About 2 months ago, a customer emailed me that the price of the Domino was too high and most hobbyists will not get one for that reason. He said that he had years of experience in the marketing of high end autos, if memory serves, and that  Festool could sell way more Domino units if they cut the price, essentially make the profit on quantity. The reply was that yes, Festool could sell more Dominos lowering the price, probably making up the same or more profit in quantity, but  they aren't interested primarily in selling Dominos if they couldn't support it. The price had to be the right mix to ensure quality in the tool, not just for a few months, but under commercial use.
  Bob

 

[putttn]

Bob, I'm glad to hear that Festool is privately owned.  It sure helps in the marketing/sales plan.  If they can keep the supply/demand ratio right we will all win.  While I'm sure none of us are relying on resale value, it is a consideration in purchasing some items.  I always feel better and can justify expensive purchases if I know there is a good resale value.  The real cost of an item is really the cost minus whatever that item can be sold for down the road.  If I pay $400 for a Festool item and know that three years from now I can sell it for $300 I can justify the purchase.  Throw in a good dealer who's willing to answer my stupid questions and spend time explaining woodworking to me and that's certainly an added value that I'll never get at the big box stores.  I purchased a Ryobi drill before I knew about Festool and I don't expect I could sell it for 20% of what I paid for it three years from now. 
Hope the owners of Festool stick to their game plan and don't get greedy!

 

[greg mann]

Hope the owners of Festool stick to their game plan and don't get greedy!

They have come to this game plan after being in business for many, many years so I think it should stick.

 

[mr_hockey]

If the retailer is not part of the market, then how do they get the product?  You and I are at one end of the market and Festool, actually the vendors that supply Festool, are the beginning of the market.  Each retailer signs a contract with Festool to buy their products and sell them to retail customers.  That's the market.  If all the retailers think that their deal with Festool is bad and they don't carry the line any more, what happens to the Festool market? 

I don't read you as taking any shots at Festool and can understand how you feel about the pricing structure.  In fact, I'm pleasantly surprised that this discussion has remained so civil.    I'm not defending Festool.  Just the free market.

I wish I could write as clearly as Ned and John as they said it much better than my attempt.  :-[

PaulD

Paul.

I agree that it is really good this topic has remained civil

 

[Ned]

If publicly held, stockholders will start demanding more growth, more profit.

You need to distinguish here between types of stockholders.

A mutual fund, retirement system, or other institutional investor can only be in it for the money, now.  The managers' very jobs depend solely on what can be got now.  Even those "socially conscious" funds wouldn't last long if they didn't make money for their customers.  Such funds cannot be concerned with the long-term health of the companies they are riding.  For this reason, I believe that institutional investors do constant harm to the society.

By contrast, if you or I were to buy stock in a company, we might, just might, think of it as if we were owners--which in fact we would be.  As good owners, perhaps we would support strategic, long-term thinking from those who manage on our behalf, even at the cost of a diminished dividend check.  Individual owners can choose to support long-term viability or short-term extraction, in any proportion.

I am delighted that Festool is a privately-held company.  While the media may depict families running businesses as beset with inbreeding, incompetence, and vicious intra-family competition, there's a lot to be said for a sturdy family tradition.  DNA is more important than MBA.

Ned