Fun Factory CEO Frederic Walme recently sat down with XBIZ to discuss the company’s latest efforts in enforcing a Minimum Advertised Price Policy to reduce undercutting on Amazon.com and among competing retailers.
What is the buzz about Fun Factory’s new MAP enforcement “movement”?
MAP for us is a way of preserving the integrity of Fun Factory, ensuring its longevity and building its credibility. —Frederic Walme, CEO of Fun Factory.
Over the last year Fun Factory has become one of the industry leaders in Minimum Advertised Price Policy enforcement. Today, it is virtually impossible to find Fun Factory bestsellers discounted anywhere on U.S. or Canadian websites. If and when our products are found anywhere under MAP, we usually manage to bring them back to MSRP within 48 hours max. This is our commitment.
In the last few months, other high-end toy manufacturers have reached out to us and asked to take a look at our new MAP policy documents as well as our new 2013 Retail Sales Agreements. Entrenue also reported that manufacturers asked them how Fun Factory achieved the results it did enforcing MAP and bringing all its products up to MSRP across all retail channels in just a few months. Fun Factory is happy to support other manufacturers wishing to control their own pricing and brand image. Fun Factory also wants to thank the entire Entrenue team for their support and efficiency in helping us enforce our MAP policy.
In the last 18 months, since I’ve taken office at Fun Factory USA, we’ve experienced a more rapid growth in North America as a brand. Many smaller online retailers have gained interest in carrying Fun Factory and have picked up the line. These retailers, many of them on the Amazon platform, found that discounting our products and undercutting well-established retail giants was their only way to gain market shares. The result was that by winter of 2012, many Fun Factory products were priced below MAP online.
Our reaction to this was simple. We gave our retail customers a choice to either abide by MAP and sign a new Retail Sales Agreement or discontinue their relationship with us as a re-seller.
How did you do it and how long did it take?
It took us only a few months to clean up the marketplace entirely such that all Fun Factory items were back at MAP online. In the process, we were obliged to cut a number of retailers off in December 2012 and January of 2013. These retailers were typically unable or unwilling to insure that our products would be advertised at minimum suggested retail price on their platforms.
At this stage, we have locked and limited the number of Amazon dealers athorized to carry our line and we have new retail customers fill out an elaborate application with strict conditions. Every week, we have to turn down requests from new retailers wishing to pick up our line because we do not feel it would be safe for our MAP.
Why is MAP important to you?
MAP for us is a way of preserving the integrity of Fun Factory, ensuring its longevity and building its credibility. Additionally, MAP is our way of offering retail partners a chance to compete in a fair environment. We do not want to allow our retail channels to engage in destructive price wars to the bottom against each other. These price wars ultimately hurt everyone’s margins and put companies out of business.
We believe no retailer can properly promote Fun Factory if they are making small mark-ups on our products. We choose to partner with retailers whose pricing strategy rests on a high mark-up model. At this stage we cannot sell our line to retailers seeking to penetrate the market by pricing our products below MSRP. Retail partners who are compatible with our business model and brand standards typically chose to grow and compete by focusing on expanding their presence in new markets (opening new stores) or by investing in building educational content and running aggressive marketing and PR campaigns. These retailers are typically selective with regards to what products they re-sell because they invest marketing money in each line of product they carry and pick products made out of the best materials, designed in the most innovative way using superior technology. These retailers also typically think of their sales associates as educators, not just sales clerks. Lastly, said retailers always spend budget on creating a great purchasing experience in-store and online, using our signage and trademarks (logo, POS etc.) in compliance with Fun Factory corporate visual identity guidelines.
What do you tell people who accuse you of price fixing?
I tell them we are channel branding, not price fixing!
There is nothing illegal about having a Minimum Advertised Price policy in North America. All this policy stipulates is that as the manufacturer, we reserve the right to cease shipping products to retailers advertising our products below MSRP. In short, we chose to protect a few select retail partners whose business strategy rests on making enough money to build their own brand as a retailer and educational platform.
Sexual wellness and high-end pleasure products are still relatively new to our society. In order to help legitimize the need for these products in the market, build a respectable image for the novelty industry and promote sexual freedom and equality in our world, Fun Factory chooses to sell its products only through sex-positive channels that truly invest in educating the public about sexual wellness and high-end sexual technologies. MAP is not price fixing it is part of our sustainable approach to business.
How has your business changed since the Fun Factory MAP “crusade”?
Because we let go of some retailers who could not abide by MAP, we lost the revenue that used to come from these retail accounts. However, overall, we are experiencing growth as a result of going on this MAP “crusade!” The retail partners who are still with us benefit greatly from this operation. Any business we lost by cutting off certain retail outlets simply transferred over to our current retail partners. We believe our image is stronger and products more desirable now that they are only found on the best retail platforms.