Legal Developments in Marketing Channels Teacher – Shahed Rahman

Introduction Channel relationships always expose each participants to various types of risk – Economic, Psychological or Social Legal risks are also involved Firms that want to manage their channel relationships with the highest efficiency must understand the law that apply to their particular marketing activities. Even making a strategy for the channel you need to know the laws.

Theory of Battle Best moment to fire a round To attempt to escape enemy fire Destroy the enemies Where and when to strike Weakening one sector of their force Calculate the risk and then make a plan

Antitrust laws Antitrust Laws seek to inhibit or prohibit certain undesirable channel member behaviors Also attempt to shape channel structure along what the government views as more competitive lines To introduce sound economic analysis and rationality into the legal decision making process

Per Se Rule Versus the Rule of reason Per se rule – Illegal ( Fixing prices, restricting or pooling output , sharing market on a predetermined basis) Plainly anti competitive practices Rule of Reason Why the practices were implemented and the effect the practices had on competition in and outside of the channel are also considered.

Traditional Legal Issues in Channel Relationships Price Discrimination Resale Price Maintenance Vertical Integration and Mergers Dual Distribution Tying Arrangements Refusal to deal and Resale Restrictions

Price Discrimination Involves the sales or purchase of a good or service at a differing price levels when the differing prices are not related to differences in the Sellers's cost Buying and selling firms can each engage in price discrimination Recent interpretations suggest the Act functions to equalize buying power so that larger channel members do not receive better deals than smaller channel members UNFAIR METHOD OF COMPETITION Injury to competition will not be inferred when the price differentials are too small to have any significant effect on sales or market shares Functional Discount ( Grey Area )

Resale Price Maintenance(RPM) When a manufacturer sets the price at which its product can be sold by independent wholesalers and retailers Minimum RPM – when the producers set only minimum resale prices, allowing distributors to charge higher prices Maximum RPM- when producers set only maximum resale prices, allowing resellers to charge lower prices

Vertical Integration and Mergers Vertical Integration occurs when a firm owns and manages organizations at more than one channel level. It emerges through the forward integration of manufacturers, backward integration of retailers. Or though out the intermediary’s up – or downstream expansion. More control over channel member behavior and prices and /or economic scale Integration can also be achieved when one firm acquires the stock or assets of another company operating at a different ( vertical ) or the same horizontal level

Dual Distribution When a manufacturer of a branded good sells that brand – or essentially the same product under a different brand name – to the same market through two or more competing channels Its not illegal but critics allege that dual distribution negatively affects independent distributors

Tying Arrangements Under a tying contract the purchaser of some good – say, a machine – agrees, as a condition of purchase , to buy the seller’s supplies of some other commodity, such as raw materials processed by the machine. Eg. – printer and paper Full line forcing – is a related issue. Known as full line pricing – when dealers must carry suppliers entire line in order to obtain distribution right of a single item. Exclusive Dealing Arrangements – an intermediary agrees to devote its efforts exclusively toward distributing the product line of a particular manufacturer

Resale restrictions Manufacturers attempts to designate to whom iand in what geographic areas their products may be sold.

Emerging Legal Issues in Channel Relationships Slotting Allowances Parallel Import Channels International Business Law

Slotting allowances Shelf space rental fees paid by the manufacturers to retailers. Cash gifts, payment in kind, such as cases of free goods to secure a space on a shelf, end of aisle display or special merchandising considerations. Help balance supply and demand of scarce shelf space Controversies because manufacturers and retailers quibble over how to divide the economic gains resulting from their channel transactions.

Parallel Import Channels Also known as grey market It was possible for American consumers to buy a new Mercedes Benz in Europe, pay to ship it home, and still save money. Come into a domestic market through a unauthorized channel. It creates the rivalry for the authorized distribution channel

International Business Law International Market – 500 Kg Guerilla Ministry of Commerce Terms and Condition International Comity

Ethical Channel Management Aim to compete strongly and to succeed but only within the bounds of sound ethical principles Sense of Fairness and justice Goal continue to profitability but only within the bounds of sound ethical principles Sensitive to legal issue during channel decision making Corporate codes of ethics