Commercial contracts solictor at Gordons law firm Charlie Smith explores the dos and donts of price control

When one of the UK’s largest independent bathroom suppliers Ultra Finishing was fined £786,688 by the Competition and Markets Authority (CMA) after it admitted to engaging in Resale Price Maintenance (RPM), it was a wake-up call to any brand operating on the wrong side of the law.The company issued RRP prices to its retailers for online sales of its Hudson Reed and Ultra brands, but also threatened retailers with penalties if they didn’t price items at or above the ‘recommended’ price. This included charging relevant retailers higher prices, withdrawing the retailers’ rights to use images online or ceasing supply entirely. The CMA ruled that these actions, undertaken between 2012 and 2014, amounted to RPM.

The fine, which includes a discount because of Ultra’s admission and agreement to co-operate with the CMA, serves as a reminder that it is unlawful for a brand owner to specify the prices at which a distributor sells their goods. It also raises the question of what brands can do to control their own image in the supply chain?

Controlling the situation

Sponsored Video

Quarter sawn Tulipwood

It is easy to see why a brand would want to make sure its goods are not sold for a price which does not reflect their brand image and where they sit (or would like to sit) in the market. If goods are sold too cheaply, it can devalue the brand and this remains a common worry for any company when setting up a distribution network. This may not always be an issue, of course, and the growth of the discount and value retail sector has blurred the lines of pricing initiatives for many FMCG and consumable brands.

However, for brands with higher ticket price items, or those with a more high quality target audience like those in the kitchen and bathrooms sector, it is vital to maintain a reputation – and this, unsurprisingly, is intrinsically linked to price. Of course they must do what they can to protect their brand integrity but stipulating a minimum price would mean that consumers are unable to shop around for a good deal as price is directly controlled at the top of the supply chain.

What can be done?

So, how far is too far? I am often asked how far a brand owner can go to control the price of their goods sold through a distribution network and there are certainly some tactics that brands can employ. Enlisting the services of professionals such as retail specialist lawyers, particularly those with varied experience of different retail sectors, can help to exploit the opportunities without falling foul of the law.

In brief, brand owners can stipulate a maximum price at which the goods can be resold and they are also permitted to specify a recommended retail price, although distributors do not have to adhere to this. They can even set up a selective distribution network where they can enforce carefully considered objective criteria on their distributors. However, they cannot – as we saw in the case of Ultra Finishing Ltd – set a minimum price for the goods. It seems there are still some brands who need educating of that fact.