That move into online sales was inspired. Sales are off the charts. But why is life never easy? Now your wholesale customers are complaining that it's a "clash of interests" for you to sell at the retail level. "Undercutting" is the accusation from your biggest customer. But surely you can pacify that dealer? Maybe some kind of arrangement not to undercut? After all, they sell your products. So it's not as if they are a competitor, right?
GBE was a supplier of posters who sold to wholesaler Trod, but began to expand its own online retail sales presence via Amazon. Following complaints from Trod about GBE's low online prices, the parties put in place a mutually acceptable arrangement. But the "fix" was an illegal agreement under competition law and attracted serious punishment on both sides of the Atlantic.
Not so fast!
As GBE's online presence swelled on Amazon Marketplace, one if its most important dealers, Trod, was getting very hot under the collar. GBE reported: "I’m constantly getting complaints about stuff on Amazon and our website and how we are supplying products to customers and then undercutting them".
They tried to sort it out. At first GBE eased off undercutting on certain products but that hurt too much. So they agreed not to undercut each other when no third party was selling below them on Amazon. No one saw this as a concern for several years. The challenge was instead how to get it to work via clever automated pricing software.
But the authorities came down hard on this illegal price fixing arrangement. The companies were treated as competitors when selling on Amazon. Law enforcement officials raided Trod's warehouse and a director's home. The UK competition authority imposed a fine, disqualified a director and issued a stark warning to all online sellers. Trod and a former director faced criminal charges in the US.
When dealers compete with you downstream…
It's easy to see how things can get heated when a supplier simultaneously sells to dealers but also direct to end-users. Although a supply agreement (and the dealer is selling your products), remember that the dealer is competing with the supplier’s end user sales.
- Promote your own products and secure the best deal with the dealer.
- Disclose the price you will charge the dealer.
You must not
- Get drawn into a conversation with the dealer about your prices for end-customers. You have to see those dealers for what they are: competitors in that downstream environment.
- Seek to influence your dealers' pricing; they must remain free to charge whatever prices they choose.
- Pass on any more commercially sensitive information than is necessary to support the supply relationship, e.g. your future prices are not relevant for that and must not be shared.
- Share pricing information about another dealer or interfere in disputes between dealers (e.g. on pricing).
You should get Legal involved
- To explore whether you can get the dealer to focus on certain areas or types of customer. There is a fine line between this and illegal market sharing so make sure to get Legal involved first.
- Before speaking with your dealers about tenders and bids.
- To consider whether you can offer a dealer a "most favoured customer" clause to reassure them that they get the same wholesale prices as similar customers.
- To consider whether any compliance steps need to be taken, such as firewalls within the company between those dealing with dealers and those responsible for direct sales.
Speak up if you have concerns about arrangements with competitors or dealers. Remember it’s your job, and potentially your liberty, on the line.