Channel Development Pricing Agreements

Legal Issues – Channel Development Pricing Agreements

The creation of the single market has brought many advantages to companies throughout Europe who can export with ease to customers throughout the EU – something that was impossible just 50 years ago. However, as in every walk of life, freedom brings with it tremendous responsibility. In this case, the responsibilities that companies have to exploit the free movement of goods, capital and labour without compromising consumers’ freedom to put their suppliers into competition with one another.

The EU hates price controls, cartels and restrictive practices aimed at artificially maintaining price levels, either through price-maintenance agreements or by restricting supply in order to drive prices up. The continent is littered with examples of companies that have felt the wrath of the regulator in this regard.

So, bear in mind when you’re putting together your pricing or discount structures for Europe, that restrictive practices (like agreeing minimum resell pricing with your distributor) are likely to land you in the worst can of trouble.

Differential pricing can also be a major problem because, as a supplier you are not allowed to create advantages or disadvantages for competing distributors through your pricing strategy. Does this mean that all EU distributors have to be able to buy at the same price? Basically, if they can theoretically compete with one another, yes!

Now you could certainly argue that a Tesco store in Spain doesn’t compete with a Tesco store in Wolverhampton and that you can therefore offer them different pricing. This argument is reasonable and probably wouldn’t cause you any difficulties. You can also allow your pricing to reflect transport costs if your ship DDP or sales volumes. But if you sell a product that can easily be sources across national borders, then you need to be very careful.

For example, if you’re selling machine parts to OEMs in Germany that could buy them as easily from a distributor in France as in Sweden. Then you have to make sure that neither the German, French or Swedish distributor has a competitive advantage over the others that is based on price.

If you’re in doubt, get professional advice before you start setting prices and creating precedents. It’s a hotly monitored area in EU practices and you’re responsible for knowing what you’re doing within the freedoms created by the single market. For more information visit http://www.qupact.com