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Jay Eckhardt Q&A: Legal expert shares advice for navigating online distribution

While many brands and retailers wish they could better control product prices, there’s a fine line between what’s legal and what's not. Attorney Jay Eckhardt explains.

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Throughout the next month, SNEWS will recap its coverage of Outdoor Retailer Summer Market 2012 with select stories from the O.R. Daily we published at the show Aug. 2-5. It’s an opportunity for you to catch up on stories you might have missed in O.R.D., and for us to update and upload the articles to our searchable archives.

This SNEWS Outdoor Retailer Summer Market recap is brought to you by Cordura:

The Internet has made product distribution both a harder and easier job for the outdoor manufacturer, says Jay Eckhardt, an attorney with Stoel Rives LLP.

On one hand, online retailers can cause headaches, slashing product prices almost immediately in the highly price-competitive online marketplace. On the other hand, the web also gives power to the manufacturer, who now can quickly scan the marketplace to see how pricing is holding up.

Eckhardt, a technology and intellectual property legal expert shared his expertise on product distribution during a seminar at Outdoor Retailer. While many brands and retailers wish they could better control prices, there’s a fine line between what’s legal and not. 

Where are outdoor manufacturers experiencing the most difficulty in managing their product distribution?

No question — distribution to Internet retailers generates the biggest challenges. In the online marketplace, presentation, service and price can vary widely. And while brick-and-mortar retailers may invest in presentation and service, and provide critical opportunities for customers to touch, feel and try products, plenty of Internet retailers operate as anonymous online shops, with little investment in quality goods or service. (There are, of course, many exceptions). A “sell to all buyers” strategy results in inconsistent representation. Selling to carefully chosen distributors and retailers makes it a lot easier know where your products will show up for sale, and makes it possible to monitor how your product is represented.

The Internet has made it easier for the consumer to compare prices on outdoor products. Has it also made it easier for manufacturers to track their retail prices?

Search engines make it easy to find the market price of just about any product. Aggregators and marketplace websites that bring together groups of sellers make it even easier to find a range of prices for any given product. Before the Internet, price comparison required a major investment —it would take hours to call and/or visit retailers. Now it takes seconds. For manufacturers, this is often an exercise in frustration, as a quick search frequently reveals radically different pricing. And while it’s easy to find the range of prices, it’s not always so easy to figure out who is selling your products. An anonymous retailer selling through a marketplace-type website may just be dumping a few product samples at a clearance price. If you don’t have visibility through your distribution chain, you won’t know whether the seller has one unit or hundreds of units to sell at that price.

There’s a fine line with price policies and what could be viewed as price fixing. What can manufactures do to avoid price erosion? What can’t they do?

Here’s where things get tricky. Under state antitrust laws in over half of the 50 states, it’s unlawful for a manufacturer and a retailer to agree on the retail price that the manufacturer’s products should be sold at. While not the case in all jurisdictions, reaching “agreement” on resale prices can potentially generate legal claims from customers, competitors or even state regulators. But there are lawful methods to influence or even control resale prices. For example, minimum advertised price programs can be employed to manage the advertising of prices and discounts (not actual sales prices). Unilateral price policies can be implemented to terminate distribution to retailers that actually sell below suggested retail price (Apple provides a perfect example of such a policy, try finding discounted iPods’ at a big box retailer). These policies are relatively simple in concept, but they can be very complex in implementation. Any program directly aimed at controlling or influencing resale price should be carefully vetted by legal counsel.

What outdoor products are brands most conservative with their distribution strategies? Which ones are they more liberal on?

Honestly, I’ve seen a wide variety of different approaches, even among companies that make similar products. However, I would say that a strict distribution strategy is easier to implement if you have fewer product lines in the market, and if you have more premium products. If consumers view your product as a premium brand, they will still seek you out, even if you only distribute through a limited number of retail outlets. If your brand has little or no reputation, or if you sell large volumes or large variety of products, it’s going to be much harder to implement a strategy.

Are there any other options out there for the outdoor industry beyond MAP programs and unilateral price policies?

If you sell most of your products to a national distributor, you have poor visibility or control over the presentation of your product. On the other hand, you might chose to sell only to a limited number of retailers, or to certain retailers that fit criteria that you select. While controlling or influencing price is legally risky, controlling distribution territory is very safe from a legal standpoint. So, for example, you might allow only one retailer to sell products online, and chose a limited group of brick and mortar retailers carefully chosen for their geographic locations. Bottom line, pricing programs, territory limits and dealer agreements are commercial tactics. The challenge is using those tactics as part of a strategy that protects and promotes your brand.

–David Clucas