Posted in Marketing and Strategy Terms, Total Reads: 300
Definition: Price Maintenance
Price maintenance is a phenomenon in which manufactures and their distributors agree to sell a product at or above the price floor or at or below the price ceiling, failing to which either of the two parties can stop doing business with each other. Usually price maintenance is done when the goods are essential or regulated goods like kerosene, pharmaceutical drugs, liquors etc. The price maintenance is applicable to all the direct parties dealing with the manufacturer or others who are indirectly associated with the manufacturer. The effect of price maintenance is usually seen towards the retail end of the supply chain.
There are several reasons because of which a manufacturer may enter into a price maintenance agreement with its distributors. The manufacturers may want to maintain price consistency throughout the region in which they are operating. Also, the manufacturers may want their distributors to earn profit and in turn maintain their own profits. The manufacturers claim that price maintenance is necessary to maintain their profits and in turn help their company to function in the long run.
The advantages of price maintenance is that the manufacturers can be certain that their product is not being sold below a certain price, thus ensuring image stability in the minds of customers (For e.g. Apple products are not sold below a certain price). This ensure good profit volumes for the company. However, it is said that price maintenance is anti-competitive and sometimes the manufacturing firms manipulate the prices of the products being sold in the market. Also, price maintenance limits the flexibility of distributors to give discounts on the products.