In the case of cars when you are driving on a highway you maintain a range of speed and ensure that you don’t drive to fast or drive too slow in case of marketing similar strategy is adopted by manufacturers which is called resale price maintenance where the manufacturers make an arrangement with distributors to keep the price of the products produced by the manufacturer within range and do not engage in aggressive price wars with each other and if they do so than the manufacturer will stop doing business with such distributors or resellers. In order to get a better idea about this term, one should look at some of the advantages and disadvantages of resale price maintenance –
Advantages of Resale Price Maintenance
Same Price
The first and foremost advantage of resale price maintenance is that the price of the product will be the same at all places for all type of consumers and hence as a consumer, you will never have this fear of thinking that you would have got the product at cheaper rates if you had bought the product from a different reseller.
Brand Image
Another benefit of resale price maintenance is that it helps the manufacturer in maintaining the product or brand image in the eyes of the consumers because once the consumers know that price of a particular brand or product remain the same and does not fluctuate too much then there is no reason to doubt the pricing practice of the product in question. In simple words just like a stable mind is required to be successful in life while an unstable mind can cause havoc in the same stable prices of products ensures that the brand image of the company does not get destroyed due to wide price fluctuations.
Equality with Resellers
In the case of resellers not all resellers or distributors are the same and if the company is not following resale price maintenance than distributors who are financially strong will be able to sell goods at a thin profit margin which is not possible for small resellers and thus they are at a disadvantage while in case of resale price maintenance all resellers will have to sell the product of the manufacturer at price specified by the manufacturer and there is no scope of any inequality between the resellers due to their market share or financial position.
Disadvantages of Resale Price Maintenance
Reseller Losses Pricing Power
The biggest disadvantage of resale price maintenance is that the reseller does not have any pricing power because according to this arrangement the reseller has to sell the product at the price range fixed by the manufacturer. In simple words, if in the case of a marathon your both shoes are tied together then you will not be able to run properly in the same way the reseller due to fixed price range will not able to do business properly due to the absence of pricing power.
Lack of Competition
It kills competition because the biggest weapon of any seller in the case of marketing is the price of the product and if this weapon is not available with you then you will not be able to compete properly. In simple words, resellers can compete only on the basis of the service they provide and not on the basis of the price they charge resulting in resale price maintenance devoid of any competition.
Manufacturer Domination
In the case of resale price maintenance, it is tilted too much in favor of the manufacturer and there is manufacturer domination which in turn leaves the scope of consumers facing the problem if the manufacturer decides to keep the price high and makes an arrangement with resellers which ensures that the reseller will also be not able to do anything resulting in exploitation of consumers as well as resellers by the manufacture.
As one can see from the pros and cons of resale price maintenance that while it has its positives but at the same time it suffers from limitations and that is the reason why any manufacturer thinking of using this strategy for its products should carefully read the above points and then only should take any decision.