Robinson-Patman Act is not a very commonly used phrase in the marketer’s arsenal. But, I think every marketer who engages in pricing actions of sorts should be aware of this act.
In the marketing world today, from a pricing standpoint, we dabble more in terms of MAP, List Price, MSRP, Invoice Price, IR, POS rebate, BER, price-skimming, gross margins, SPA (special pricing agreements), BOM, Cost-plus etc. There are some promotional terms also thrown in as they also represent pricing action.
In all of this noise, the notion of the Robinson-Patman Act (RPA) is lost. I bring this up because this act was referenced more than one time by my friends in legal when I engaged in pricing actions. While I am no legal scholar, I did go back and research this act. And I found it very interesting that the genesis of this act stems from the days of the New Deal (1936 to be precise). Actually, RPA is an amendment of the Clayton Act from 1914. It was an act that was very impactful for its time and is still used in full force.
Very succinctly put, the act lays out the foundation to prevent foul play with regards to pricing agreements between the manufacturer and ‘buyer (wholesaler, retailer, distributor)’ that would willingly disadvantage competitors. In other words, the law sets forth an even playing field when it comes to pricing. In other words, ‘preferential’ discounted pricing for the same product by the manufacturer is not allowed. Put another way, the manufacturer cannot price discriminate.
This act does not obviate price-fixing, where representatives of manufacturers go on junkets or sit in smoke filled rooms and essentially decide on the ‘offer’ price of products or services. By doing so, they also tacitly decide not to ‘actively’ compete in the marketplace by carving out territories or markets for each participant. In the case of price-fixing, manufacturers hold the market hostage and keep the margins to themselves rather than allowing the market to decide on the price. Again, this is a big no-no, but it does occur every now and then.
Ok, back to Robinson. Given that RPA disallows any favorable pricing, how do manufacturers reward or incentivize their top buyers? That’s when MDF’s, Co-Ops and VIR’s come in handy. Loyalty reward programs is also yet another way to help circumvent pricing anomalies. These programs are not offered to every partner. Partners who qualify, can essentially apply dollars from these programs towards pricing. MAP helps create a pricing floor, but often there is enough margin left in the channel (retail, wholesale, distribution, online etc.) to allow for pricing discrepancies to creep up. For price sensitive markets, this is a big deal as sometimes a few percentage points can swing the deal on way versus the other. For price insensitive markets, marketing programs (MDF’s, Co-Ops etc.) are for the most part applied towards sales incentives.
I have also seen instances where manufacturers are willing to create exclusive SKU’s for their top buyers and price them lower. These SKU’s are often very similar to the commercially available SKU’s, barring a few differences (often very cosmetic). This is another way to jump around the RPA hurdle without too many questions being asked.
RPA does not stipulate on end-user pricing where price-discrimination can be liberally applied, but it does stipulate on pricing that originates directly from the manufacturer to it’s direct non-end-user partners.
Anywho, marketers definitely be aware (and beware) of RPA and it’s repercussions on pricing.