Pricing strategies

Understanding resale price maintenance (RPM)

- February 4, 2009 2 MIN READ

If you’re involved in the wholesaling of goods to retail outlets, you need to know about resale price maintenance. Here’s how to ensure you don’t fall foul of the RPM prohibition.

Did you know it is illegal for a business to prevent one of its retail customers from selling its products below a particular price? (This is stated under section 48 of the Trade Practices Act, if you must know.)

Wholesaler soloists who sell “luxury” goods such as cosmetics and clothing can contravene this. Say a soloist supplies an exclusive brand of perfume to a retail outlet. If that retail outlet decides to discount the perfume, it’d be illegal for the soloist to put pressure on that retail outlet to put their prices back up or to cease supplying them.

Other retailers can often be the ones who try and force the wholesaler to have a word with the discounter. Faced with the prospect of losing a number of retailer customers, the soloist may be tempted to either cease supplying the discounter or try some gentle persuasion to get that retailer to increase their prices.

The maximum penalties for contravening section 48 are very high: $10 million for a corporation and $500,000 for individuals. The maximum penalty is only likely to be imposed against a large corporation engaging in blatant resale price maintenance (RPM) conduct, rather than a small business. But even a smaller fine can have significant consequences for a small business.

Enforcement of resale price maintenance  is a high priority for the Australian Competition and Consumer Commission. The ACCC has recently taken a number of cases against businesses, which engaged in RPM, including actions against small businesses.

Recently the ACCC settled legal action against Oobi Baby Pty Ltd, a seller of infant toys and clothing products. Oobi was a small business with four employees (including the sole director and her husband) and an annual turnover of approximately $950,000. However, the company was ordered to pay a penalty of $40,000 and ACCC costs of $10,000. Its own legal costs were probably around $20,000.

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For soloists that are supplying retailers with products there are a few simple things to remember to avoid being caught out for RPM.

  • If you want to maintain a high sale price for your products, make sure you check out your prospective retailers very carefully before agreeing to supply them. In this way, you may be able to screen out potential retail discounters. You have no obligation to supply product to a known retail discounter, but once you start supplying them there are significant risks if you terminate supply.
  • If your retail customers approach you with a demand that you to stop another retailer customer from discounting your products, tell them that you cannot as such conduct is illegal and refer them to the ACCC website.
  • The only way to set minimum retail prices is to supply products to your retailers on a consignment basis. This means that you retain ownership in the product until it is sold to the end consumer. Before entering into consignment selling arrangement, ensure you get professional advice from your accountant and lawyer.

Is resale price maintenance likely to affect your business? Or perhaps you’ve already been caught in a tricky situation between two competing customers. Let us know below.

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