BrainTrust Query: Should manufacturer-dictated pricing be allowed in the internet age?
By Bill Bittner, President, BWH Consulting
On Monday, the U.S. Supreme Court was scheduled to hear oral arguments on the appeal of a historical precedent set in 1911 that automatically outlawed manufacturer-dictated pricing. Manufacturer-dictated pricing has been considered a violation of Sherman Antitrust Laws because it does nothing else but inhibit competition. The hearing was based on a petition by Leegin Creative Leather Products, Inc. They argued that manufacturer-dictated pricing should be evaluated on a case-by-case basis, instead of automatically declared illegal.
Leegin built a successful family business and introduced the Brighton brand of women’s belts. The strategy for the Brighton brand has been to focus on specialty stores offering high customer service. Leegin felt it was important to avoid disappointing customers who may have found the brand deeply discounted and regret an earlier purchase, so they introduced the “Brighton Retail Pricing and Promotion Policy.” It ensures retailers that Leegin would only do business with those who agreed to follow the pricing policy. Leegin felt that by assuring the retailer a “fair return” on all Brighton products, retailers would promote them and provide the full service that luxury brand consumers expect. This approach seems to have worked because the brand has been very successful.
This particular case rose out of a dispute with PSKS, which operated Kay’s Kloset in Lewisville, Texas. Leegin learned that PSKS was selling all of their products below suggested pricing, which was in direct violation of their pricing policy. Leegin suspended all shipments to PSKS, which, in turn, filed suit alleging the pricing policy violated the Sherman Act. Lower courts have found for PSKS, so Leegin has now appealed to the Supreme Court.
After hearing the arguments, the Supreme Court will take several weeks to make their decision. Presenters in the case included the current administration speaking on behalf of PSKS against the use of manufacturer-dictated pricing.
Questions: What is your opinion on manufacturer-dictated pricing? Should manufacturers
have the right to maintain control over pricing? What relevance does this hold
for internet vs. brick and mortar pricing?
When I saw this case mentioned, I
thought it had a lot of relevance for today’s shift from brick and mortar
to online retailing. It’s probably too much to say it would be the end of the
internet if manufacturer-dictated pricing were allowed. But you can see where
I am coming from, if you think of brick and mortar stores as the ultimate in customer
service, providing an informed sales force with locally stocked inventory
to immediately satisfy customer needs. This as opposed to the anonymous purchase
over the internet that requires package exchanges over several days to affect
the sale and any returns. Online retailers can offer discounted prices because
of their lower operating costs resulting in lower margin requirements.
But what if retail prices were dictated by the manufacturer and there was
no price discount on the internet? Would customers still shop online or would
they prefer to pick up products for the same price at their local store?
Supreme Court case tests minimum price rule – International Herald Tribune
- Brief for Petitioner Leegin Creative Leather Products, Inc. (PDF format)
- Brief for Respondent PSK Inc. D/B/A Kay’s Kloset, Kay’s Shoes (PDF format)