A marketing manager should try to understand the legal environment--and know how to work within it. Legislation and legal cases often tend to focus on pricing matters, because prices are highly visible elements of the marketing mix. Business managers have a lot of freedom to charge whatever prices they choose--subject to the forces of competition. But they must be aware of and work with the restrictions that do exist. Ignorance of the law is no excuse. The penalties for violating pricing laws are tough--even jail!

This exercise is designed to increase your understanding of the basic federal laws (Sherman Act, Robinson-Patman Act, Federal Trade Commission Act, Wheeler-Lea Amendment) related to pricing matters. The intent is not to make you a legal expert--but rather to be sure you understand the kinds of pricing activities which might be illegal.

Assignment

The following five cases describe pricing activities which might be judged illegal in certain circumstances. Study each case carefully and then answer the questions that follow. Be sure to identify the law (or laws) that are most relevant to each situation as it is described.

1. Maple Farms Dairy produces a line of milk products and sells them directly to retailers in a three-state area. Recently, one of Maple Farms' major competitors--a large national firm--offered to sell one of Maple Farms' retail accounts its brand of white milk for $1.50/half gallon, which was 10 cents less than Maple Farms charged for its brand. When the retailer threatened to stop carrying Maple Farms half gallons--and instead stock only the national brand--Maple Farms offered to sell that retailer its regular white milk for $1.40 per half gallon. When the national firm accused Maple Farms of "price discrimination with predatory intent," Maple Farms replied that it was simply "meeting competition in good faith."

Who is right in this case--Maple Farms or its competitor? What law(s) would apply?

2. PharmCo, Inc.--a large manufacturer of pharmaceuticals--sells its consumer products exclusively through drug wholesalers--who sell to retail druggists. Wholesalers are allowed a "chain discount" of 35 percent and 10 percent off of the manufacturer's suggested retail list prices. The wholesalers are then expected to pass the 35 percent discount on to retailers. Recently a large retail drug chain approached PharmCo about buying direct. PharmCo agreed to sell direct to the chain--and offered a discount of 35 percent. However, the chain wanted the additional 10 percent usually given to wholesalers. PharmCo felt this would be unfair to those retail druggists who must buy through wholesalers--and refused the chain's request on the grounds that such a discount would be illegal.

Do you agree with PharmCo? Why or why not? Be sure to identify what type(s) of discounts or allowances and which law(s) are involved.

The Better Business Bureau (BBB) recently received a telephone call from an angry consumer who wished to complain about Best Deal Electronics--an electronics discount chain with nine stores in the surrounding four-state area. The consumer had gone to Best Deal to buy some items listed in an "inventory clearance sale" advertisement. The first item was a "top-name" color TV marked down from $450 to $200. Upon arrival at the store, he found only one of the featured TVs in stock--a floor model in very poor condition. The salesclerk apologized--and suggested that the customer buy one of the store's other models at "regular everyday low prices" ranging from $199 on up. The consumer then asked to see a video camera that--according to the ad--was "originally priced at $1,295" and "now reduced to only $795." The salesclerk pointed to a dusty camera in a case near the back of the store. On closer inspection, the customer realized that the camera was a three-year-old model that did not have any of the features found on new cameras--even one that regularly sold for less than $795. An official from BBB sympathized with the consumer and said that his agency had received many similar complaints about Best Deal. He went on to say, however, that there was very little anyone could do--other than to avoid shopping at such stores.

Comment on the Better Business Bureau's analysis of the above situation. Are Best Deal's pricing practices deceptive and/or illegal? Can anything be done in such situations?

Libby Corporation produces a wide line of calmed foods--including "Early," one of the leading brands of canned corn. The wholesale selling price for a case (48 cans) of Early corn is $9.60--which includes a 5 percent trade discount for the wholesaler. Libby also gives a 10 percent quantity discount to wholesalers who buy in carload quantities. Wholesalers normally pass the quantity discount along to their customers in the form of lower prices. The identical corn is also sold to a few large food chains for use as dealer brands. The cans are sold under different labels at $8.00 per case (minus the 10 percent quantity discount if earned). Libby allocates 3 percent of its net sales of Early corn toward national advertising.

Suppose the Federal Trade Commission were to take a close look at Libby's pricing methods to see whether the manufacturer was violating federal pricing legislation. What aspects of Libby's pricing policies do you think the FTC might question based on what is presented above? Why? What laws might be involved?

5: Gabriella Denton, a rising manager at Archer America Corporation (AAC), has just been given responsibility for pricing products sold in AAC's Corn Products division. Because the division's products are based on corn, the firm's costs vary a lot depending on the cost of corn, which is set in the agricultural commodity market. In light of that, Denton has always wondered how the firm has been able to maintain consistently high prices and attractive profits. However, she is told that another executive, Pepe Moralez, will help her to better understand the firm's pricing approaches. Moralez says that as far as he is concerned the firm's customers are the enemy--they're the ones pushing for low prices. He also argues that competitors in the same industry are friends--because it's in their interest as well as AAC's interest to keep prices high. Moralez suggests that he and Denton play golf with the pricing manager for a competing firm and make it clear that they have very similar interests in the worldwide market.

What would government lawyers think about Moralez's comments? If the meeting with the competitor takes place, what law would be most relevant?

Answer rating: 100% (QA)

1 Although the price war initially entailed more sales initially owing to the drastic price drop by almost all the stores The whole strategy is good for sudden impetus for sales but in long run it was ... View the full answer