Robinson-Patman Act Revival: Implications for Consumer Products Manufacturers

| min Lesedauer
consumer products manufacturers

Recent reports indicate that the Federal Trade Commission (FTC) is starting to scrutinize manufacturers in the consumer package goods (CPG) industry for potential price discrimination against retail channel partners under the Robinson-Patman Act (RPA). Over the past month, the FTC has reached out to numerous retail partners, to obtain information around how they purchase and how much they pay for certain consumer products. This is a signal by the Biden Administration of an increased focus to ensure manufacturers’ pricing structures and agreements with retail partners are lawful and equitable.

We outline some of the potential implications – both risks and opportunities – for consumer products manufacturers, who may consider looking at their existing list pricing and trade investment structures through this lens.

What is the Robinson-Patman Act?

The Robinson-Patman Act, sometimes called the “Anti Chain Store Act,” was enacted in 1936 to protect businesses by preventing manufacturers from charging different prices to retailers if doing so threatens to harm competition. The purpose of the RPA is to promote a level playing field between smaller retailers and larger chain stores and prevent predatory pricing by bigger chains.

New and current FTC Commissioner Alvaro Bedoya has made the policy decision to revitalize the largely dormant Robinson-Patman Act and make it a top priority for the agency. In his November statement, Bedoya shared his views that the lack of enforcement in recent years has led to a steep increase in prices offered by small businesses as big retailers have made use of economies of scale to undercut them.

While the scope of the investigation is currently limited to one particular product category, this case could serve as a blueprint for further probes at other manufacturers, regardless of industry. Efforts to drive fairer and more equitable competition is already strongly felt within the European markets. The US may be moving toward a similar level of enforcement.

What does the RPA mean for manufacturers?

With this increased scrutiny, it has never been more imperative for manufacturers to take stock and have transparency into how their prices are structured and set up. It is especially important to know why and how different customers may be receiving different list or net prices. Any pricing, discounting, and trade terms made available to retail partners must be legally defensible, fair, and achievable across the board.

Some initial indicators that you may be at risk and will need to revise your current pricing and terms structure, include, but are not limited to:

  • Lack of a standardized price list, or no clear justification for maintaining differentiated price lists
  • No clear and consistent structure for determining discounts and/or trade investment levels across retail partners
  • Retail partners only segmented based on size, and not by strategic intentions and behaviors
  • A significant number of “unconditional discounts” as opposed to performance-based terms
  • Discount terms given to retail partners that are not achievable across different customer groups
  • Lack of transparency and documentation around discounts awarded or true net pricing across customers

Turn this new focus into an opportunity

Reconsidering existing pricing, discount, and trade terms structures to ensure they are legally compliant and justified is not only a crucial step to manage risk, but also best business practice.

The most successful commercial structures are ones that align both the manufacturers’ and channel partners’ strategic objectives by incentivizing both sides to help achieve clearly defined goals, regardless of size. Restructuring to a more performance-based system for determining pricing and discounts/trade for retail partners will ultimately help manufacturers uncover margin leakages and drive better efficiencies on their customer investment.

In addition to increasing discipline around pricing and discounting, manufacturers should ensure systems and processes are in place to help monitor and adapt based on changing market environments.

It has historically been challenging for manufacturers to renegotiate established terms and pricing with retailers and this might be a unique point in time to ride the wave, given the external push factors.

Three next steps for manufacturers

Executive leaders should consider kickstarting the process of assessing and refining or resetting their existing list price and trade terms architectures. This will both protect the business against legal challenges and risks, as well as ensure commercial structures are strategically designed to align with broader go-to-market strategies.

  1. Assess and manage your risk. Create transparency where there is none, review your current terms and conditions and discount structures, and look for opportunities to improve.
  2. Have a clear view of your business priorities: Assess your overarching goals and how they should be reflected in your customer strategy.
  3. Develop a holistic pricing structure: Engage cross-functionally with key stakeholders, including marketing, sales, finance, and legal.

Bringing a strategic lens and increased rigor to pricing management will not only help manufacturers navigate this increased scrutiny, but also minimize profit leakage. Though the RPA may be shaking up the CPG industry, this is an opportunity for manufacturers to develop pricing and trade terms strategies that enable growth while being equitable and lawful.

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