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Published on February 15, 1999

MICHELIN MOVES TO CONTROL PRICING

Michelin North America has taken a bold step in trying to maintain the value and retail profitability of one of its popular light truck lines—the BFGoodrich Radial All-Terrain T/A and its successor the newly introduced Radial All-Terrain T/AKO. For the first time in memory, a tire company is attempting to enforce minimum retail prices for one of its tire lines.

Whether Michelin has the courage and ability to make this new policy stick remains to be seen, but it is a gutsy move that independent tire dealers ought to appreciate.

Michelin is calling its plan the Maximum Value Policy.

The company intends to establish minimum prices unilaterally on various sizes of the tires and then enforce them in the market using an independent auditor.

Under the policy's guidelines, retailers remain free to advertise or resell the tires at any price they choose. However, Michelin said it will cancel all orders and halt further sales to any retailers that don't heed the price minimum.

Wholesalers, meanwhile, will serve as order takers and deliverers of the products and will receive a fee for doing so. They are prohibited from wholesaling the products, even in small quantities.

These restrictions apply only to the All-Terrain T/A lines and not other tires sold by Michelin.

Michelin has its own reasons for doing this, of course. In part, it wants to protect the high-quality image and brand equity of this "premier line.''

Despite the popularity of the All-Terrain T/A, many retailers price it aggressively and, in some cases, are selling it below cost as a loss leader, the tire maker said.

For tire dealers who are accustomed to razor thin margins and declining tire prices, Michelin's move should help their bottom line.

With Michelin controlling the minimum price, all retailers that sell the All-Terrain T/A lines are guaranteed respectable profit margins.

Nor will they see the tires advertised below the minimum price, regardless of purchase quantity. Whether it's a mass merchandiser, warehouse club or another independent, all must follow the Maximum Value Policy. If they don't, Michelin said it will terminate their purchasing privileges.

In enforcing this pricing structure, the company risks offending its tire customers, some of whom may consider it their right to set prices as they see fit.

That's a chance Michelin seems willing to take as it tries to shore up the image and profitability of this important line.

But if dealers and other tire retailers make more money under the new guidelines, we suspect problems will be few.

Michelin's attempt to elevate the All-Terrain T/A lines out of the commodity status will be closely watched.

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