Part 2 – the pricing practices that could cost you dearly

Our last blog established that ‘price’ is understandably important when buyers are trying to get the best deal. However there is increasing concern that some suppliers might be using pricing tactics that could misrepresent the overall costs of buying from them.  We suspect that this is in an attempt to win business by giving the impression that their ‘deal’ is best when the reality could be very different.

Previously we outlined the logical and understandable criteria that buyers tend to apply when trying to decide which supplier offers the best deal, these being:

• Net prices for a basket of core products (the total price for a selected range of regularly used goods);
• Catalogue discounts (the percentage discount off a supplier’s catalogue retail price for items that don’t form part of the basket of core products); and
• Rebates (the value a supplier is prepared to give-back, sometimes based on spend thresholds and which may even be paid up-front before an order is even placed).

These are sensible tests that should allow the most competitive deal to be identified. Unfortunately there is increasing concern that some of the biggest and most well-known suppliers are manipulating these tests, and despite appearances they could be distorting competition and costing customers dearly. These suppliers make reasonable-sounding claims that their size gives them the buying power to offer low prices, big discounts and pay rebates, but this could be a ploy to condition buyers into believing that it’s only these suppliers that can offer the best deal. We suspect that this is in readiness for the application of a series of simple, but disingenuous pricing practices that are designed to give the impression that a great deal is being offered. We know these suppliers’ deals look tempting, but this may be just an illusion to help them win business.

Are customers being misled and ultimately paying too much?

The pricing practices about which there is such concern have been researched since 2008 and since then around 35,000 products have been tested. The results suggest that some suppliers could be misleading buyers into believing they have been offered the best deal when this may not be the case. These conclusions are based on simple, yet overwhelming evidence concerning the manipulation of catalogue and retail prices.

Catalogue prices vary widely and there is a vast body of evidence to show that the prices published in some of the largest suppliers’ catalogues can be hugely more expensive than others.  Whereas, for example, our catalogue is based around manufacturer’s recommended retail prices, some other suppliers seem to be ignoring these guidelines and creating their own versions of recommended retail prices (‘RRPs’) or suggested selling prices (‘SSPs’). The most recent research suggests that two of the most well known suppliers are massively inflating their prices.  For stationery and general office products their starting prices are on average between 35% – 80% more expensive than ours.  When it comes to toners and cartridges their starting prices are around 60% more expensive.

Where this is the case then these suppliers can:

• Make considerable extra (some might argue, ‘excessive’) profits from their customers when purchases are made from their catalogues.
• Use these excessive profits to subsidise or offset the low prices (or loss-leaders) in the core basket that is so influential when choosing a supplier (we believe that core prices are often far too cheap because customers are expected to overpay for other products).
• Offer large discounts that mask the impact of vastly more expensive starting prices, hoping that buyers will be impressed by the size of the discount and won’t realise that it could be very important to check the starting prices from which these discounts are deducted.
• Because there can be a hugely more expensive starting point customers can still be charged far too much, even when attractive-sounding discounts are applied.
• Make handsome profits and expect that customers themselves should overpay for many products merely to fund their own rebates.

The net result can be that buyers are charged far too little for the basket of goods upon which much of their perception of ‘price’ is based. Combine these low prices with attractive-sounding catalogue discounts and generous rebates and the illusion of a great ‘deal’ is created. But if this deal is only possible because the supplier expects to overcharge for the goods that aren’t under immediate scrutiny then it could be argued that this is disingenuous.

The outcome is that suppliers can mislead buyers into thinking they have the best deal when it can be difficult, if not impossible, to be sure they aren’t being deceived or won’t end up paying far too much.

This might make for uncomfortable reading, but unless these practices are exposed buyers cannot take preventative measures. If buyers feel awkward because they weren’t aware that these practices existed then we’d urge them to banish such thoughts immediately! That’s because without the benefit of the 8 years research that’s now available it would have been almost impossible to understand these tactics, let alone guard against them.  The important thing is what buyers do about it once they are armed with the knowledge.

From 2014 there has been a disturbing new trend with some no longer printing RRPs in their catalogues. While we can speculate that this might be an attempt to disguise even more heavily inflated RRPs or simply dispose of the evidence it does beg a quite reasonable question – If there is nothing to hide then why are buyers being denied visibility of basic, yet crucial pricing information?

What can you do & what next?

While we don’t believe that these practices are actually unlawful there is a debate as to whether they are ethical. Regardless of any excuses that suppliers might offer, these practices make it extremely difficult for buyers to effectively compare suppliers to be certain of getting the best deal.  These tactics can distort competition and hijack buyers’ logical price tests to give the impression that it’s only the biggest suppliers than can offer a great ‘deal’. Buyers may be misled into choosing a more expensive supplier who won’t necessarily deliver the savings or value for money anticipated.

MBM apply best practice audit principles to review the products you use and the prices you’ve been charged.  You’ll get an honest and transparent assessment of where costs can be controlled and reduced and we’ll show you if prices that are too low have been offset by excessive charges elsewhere.  We simply refuse to overcharge you for a wide range of goods to subsidise cheap core prices or pay rebates that were merely designed to give the illusion of competitiveness.

If you’re wondering how some suppliers have been getting away with using these tactics then our next post will attempt to explain this.  For those buyers who might believe that they aren’t affected because they have a high percentage of products ‘on-core’ then one of our subsequent posts will show that even high core compliance is no guarantee of best value.