Success Strategies in Channel Management. Legal Issues. Legal Constraints on Marketing Channel Policies. Market Coverage Policies. Pricing Policies Discounts. Product Line Policies Promotional Allowances and Services. Product Policies. Exclusive Dealing.
Success Strategies in Channel Management
Legal Constraints on Marketing Channel Policies
Market Coverage Policies
Product Line Policies
Promotional Allowances and Services
In addition, suppliers might wish to allocate different accounts to different intermediaries.
This limits intra-brand competition; the customer sees only one seller of the firm's value offer, not multiples. This policy can also facilitate segmented pricing, charging higher prices to segments of buyers with a higher willingness to pay for the firm's value offer.
Such policies have an economic as well as a service rationale. As mentioned in the context of market coverage policies, permitting multiple channels to compete for the same customer makes it possible that one channel will bear the cost of providing valued service outputs to the customer, whereas another channel closes the sale.
The free-riding channel does not bear the costs of channel flows necessary to provide the demanded service outputs, but does get the sale and the profit from the customer. In the long run, profits and economic viability will suffer in the cost-bearing channel.
Prices and price levels can be influenced in many ways throughout marketing channels. In fact, we have just finished discussing two of them - market coverage and customer coverage. Because these policies are both aimed at reducing or restraining the amount of intra-brand competition, the indirect effect of the reduction is, in theory, supposed to be an increase in the price of the brand from its level in the absence of the policies.
In other words, restrictions on intra-brand competition are indirectly supposed to result in higher prices and, thus, higher gross margins. Obviously, price competition induced by inter-brand competitors can upset this arrangement.
Two policies that have a direct effect on price - price maintenance and price discrimination. We separate the discussion of the two because they have very different motivation, implementation, and anti-competitive concerns.
RPM inhibits competition between stores carrying the same brand.
If a producer deems service to be essential, it can be required of all retailers through dealership contracts, rather than through minimum RPM.
Despite these arguments, setting minimum resale prices remains a legal activity as long as it is not done as part of a concerted effort among multiple parties.
Legal control over resale prices by producers is possible under various conditions:
Act unilaterally; statements and actions should come only from the producer.
Avoid coercion; don't use annually renewable contracts conditioned on dealer adherence to producer's specified resale price. Vertically integrate; form a corporate vertical marketing system.
Avoid known discounters; establish screening and performance criteria difficult for discounters to meet.
Exclusive dealing lessens inter-brand competition directly, because competing brands available from other suppliers are excluded from outlets.
To be illegal, such arrangements must have a tendency to work a substantial, not merely remote, lessening of competition in the relevant competitive market. "Substantiality" may be determined by taking into account the following factors:
The relative strength of the parties involved
The proportionate volume of commerce involved in relation to the total volume of commerce in the relevant market area
The probable immediate and future effects that preemption of that share of the market might have on effective competition within it
The duration of the contracts
The likelihood of collusion in the industry and the degree to which other firms in the market also employ exclusive dealing
The height of entry barriers
The nature of the distribution system and distribution alternatives remaining available after exclusive dealing is taken into account
The issues on which courts are most likely to focus are whether -
(1) there are two distinct value offers;
(2) the seller has required the buyer to purchase the tied value offer in order to obtain the tying value offer;
(3) the seller has sufficient market power to force a tie-in;
(4) the tying arrangement affects a substantial amount of commerce in the market for the tied value offer; and
(5) whether the tie is necessary to fulfil a legitimate business purpose.
However, these structural per se criteria are not likely to be satisfied for sellers with relatively small market shares, especially when the tying value offer is unpatented.