Is Fair Trade the Answer to TV Price Cutting Problem?
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"Fair Trade" was a policy established in the post-WWII era in response to what consumer retail groups considered business-ruining cost cutting by dealers who offered to sell products at or barely above cost in order to steal profit from other stores. So−scheming stores planned to make up for the low profit margin with high sales volumes. Doing so drove a lot of the local competition out of business, leaving the crafty dirty dealers to later raise prices. Stores that had manufacturer-sanctioned service shops often got screwed because they were obligated to repair items like TVs and radios that were bought from another dealer who did not do service work. Profit margins on repair work - at least from honest shops - were typically very low, so the owners depended on new product sales to help raise the bottom line. It all caused a very contentious environment in the fledgling television industry. This article does a good job of detailing the situation. Note: There is a modern-day version called World Fair Trade Organization, as well as numerous other groups. Is Fair Trade the Answer to TV Price Cutting Problem?
Sales Consultant This type of advertising is familiar in the television field, yet you will notice the exception made in referring to Fair Traded items. Would the Fair Trading of most makes of television receivers eliminate or minimize price cutting in the television field? This is the question discussed by the author in the article. Other industries have proven beyond a doubt that Fair Trading reduces cut-throat price cutting. There is little doubt but that price cutting is the number one problem facing the television dealer today. As the department manager of one of the country's leading department stores put it recently: "We can't afford to handle television receivers in the current market. We're seriously considering discontinuing their sale. "Just about everyone who comes into this department talks in terms of a discount of from 15 to 30 percent that they have been quoted by some dealer. With overhead, personnel, and advertising, it costs us 30 to 35 percent to handle an article. So how can we possibly afford to continue handling merchandise that must be sold in the face of cut-throat competition that is working on a margin of from two to twelve percent above cost?" Or consider the comment of a small appliance dealer. Asked if he felt the pressure of price cutting, he answered, "Feel it? Are you trying to be funny? If someone were to come in that door and offer to buy a television receiver without asking for a discount, I think I'd drop dead of surprise!" "They usually tell me quite frankly where they can buy it for about what I pay for it. So what can I do? Chase them out the door? Oh no! I bargain and use all the salesmanship I can. " "But don't kid yourself, it's tough going; because regardless of how much salesmanship I use, the prospect still knows the dealer down the street will give him the same set at a discount. So I usually end up giving him a discount, too, or a free installation - or sometimes both." The problem of price cutting is not a new one. It has been faced in recent months and years by every major industry as the sellers' market has changed to a buyers' market. In many industries, such as the drug field, the photographic field, and the liquor field, price cutting has been kept under control - at least to the extent that there is no cut-rate advertising, and the great majority of sales are made at list so that the dealers are able to operate on a normal margin of profit that permits sound growth and adequate servicing. Yet, in the field of television, price cutting has grown to such proportions that millions of dollars in profit have been lost, and good will forfeited, creating a widespread uncertainty in the minds of the general public as well as the dealers as to its future. To quote a recent statement issued by the Philadelphia Retail Merchant's Credit Association, "Discount selling in the television field has reached such proportions that it is not only a menace to the new industry, but it is also detrimental to all retailing." What has brought about such a difference between these two pictures? What have the drug, photographic, and liquor industries done that the television industry has failed to do? And could the same solution that has been successful in minimizing price cutting in these other fields be applied in the television field as well? It is very obvious that a retail merchant must make a profit to stay in business, and the only way he can do this is to sell his merchandise or services at more than they cost him.
Letters from key men in industries upholding Fair Trade agreements strongly support the Act. Uncontrolled, unwarranted price cutting will not allow him to do this. What might normally be a thriving, successful business can very rapidly go on the rocks if everything must be sold at a discount. Only as the leech-like influence of discount selling is eradicated will a healthy retail opera-tion be possible in the television field. As was mentioned before, other major industries have at one time suffered from the same blight of indiscriminate price cutting that now plagues television. Yet today, they are in a continually improving position which permits them to sell the greater part of their stock at list prices, upheld and protected by agreements between dealers and manufacturers. This has been made possible by the Fair Trade laws of their respective states and the Miller-Tydings Amendment to the Sherman Anti-Trust Act. In all of our United States, except for Missouri, Texas, Vermont, and the District of Columbia, Fair Trade laws have been passed which permit the manufacturer of a product "which is in open competition with commodities of the same general class produced by others" to enter into contracts with dealers (or wholesalers) to sell the product at the price named by the manufacturer. Moreover, in many states, not only the manufacturer, but a vendor, who has exclusive distribution, coupled with a sufficient interest, tantamount to ownership, may Fair Trade a product. In either case, however, once a price has been established under Fair Trade, it becomes binding on all dealers, whether they have signed the contract or not, and if, thereafter, they willfully and knowingly advertise or sell such a commodity at less than the specified price, it is unfair competition, permitting legal redress by an injured party. To illustrate: Let us suppose (as is the case in Chicago) one of the distributors has established a line of television receivers at certain list prices, under Fair Trade laws. Let us further assume (as has occurred) that a dealer advertises or is known to have sold one of these sets at less than the agreed price. What happens? An injunction is immediately obtained restraining the dealer from making any further cut-price sales, and should he continue, he is open to punishment for contempt of court. Some courts punish for contempt by fine, and some by imprisonment. Resort to court action is, however, seldom necessary in enforcing Fair Trade regulations. Or let us take a recent case in the photographic field. Mr. Justice Walter, in the Supreme Court for New York County, recently handed down a permanent injunction against a dealer who used phrases such as "store demonstrator" and "like new" as a subterfuge to permit him to sell Fair Traded products at less than list. Justice Walter spoke of such practices as being "nothing more than a ruse to defeat the law," and forbade the dealer to continue such practices to evade charging and advertising list prices. In other words, in the framework of the Fair Trade laws, there is a power which when properly applied and enforced is capable of establishing and maintaining list prices for any commodity that is Fair Traded. First, it should be made clear that while Fair Trade laws, when enforced, prevent uncontrolled and unwarranted price cutting, they do not prevent price adjustments at any time the manufacturer may deem it advisable. If he feels that a 20 percent reduction in the price had been made possible by lowered manufacturing costs or better distribution, the reduction is made. But it is made available to all the dealers, on the same basis. Second, Fair Trading does not permit a manufacturer to hold his prices up at an excessive level, because he is permitted to Fair Trade his product only if it is "in open competition with commodities of the same general class produced by others." Naturally, the desire to sell against such competition will prevent his placing his Fair Trade prices any higher than he would normally do. Fair Trade does, however, permit the manufacturer to know that his goods will be sold at the Fair Trade price and that he can keep his faith with legitimate dealers by using the law to enforce observance of this price. In fact, the effect of Fair Trading has been to keep prices considerably below the normal trend. To quote John W. Dargavel, Secretary of the National Association of Retail Druggists: "Above all, Fair Trade has enabled the drug industry to achieve a price performance in the public interest, unequalled, to my knowledge, in any other industry. By 1939, over-all prices in the drug field, under Fair Trade, had dropped one percent from pre-Fair Trade, depression prices. This was revealed by a study made by staff members of the University of Minnesota's School of Business Administration and published by the Druggists Research Bureau in 1940. The study analyzed the effects of Fair Trade on the prices of 50 leading trademarked products in 42 Fair Trade states. "During the war and postwar inflation, an unprecedented 'holding of the price line' was achieved. The Fair Trade prices of 7334 drug products rose only 3.1 percent in the period between 1939 and 1947, according to a study made by the National Association of Chain Drug Stores. During this same period, Bureau of Labor statistics showed that food prices have risen 93 percent; household products, 81 percent; the over-all cost of living, 59.3 percent; miscellaneous items 38.5 percent; and drug products as a whole, 15.4 percent." Third, it should not be felt that Fair Trade is a new vehicle of government control, as is sometimes suggested. As we pointed out previously, Fair Trade merely permits the manufacturer or vendor to establish a minimum price and gives him the power to maintain it, if he chooses to do so. Fourth, Fair Trade laws are merely to encourage fair trading and should be thought of as rules necessary to maintain fair competition in distribution, in just the same way that rules are necessary to ensure fair play in baseball, football, or any other group activity. Predatory, unwarranted, uncontrolled price cutting is "cheating" of the most vicious sort and will erode and destroy any industry in which it is permitted to go uncontrolled. Fifth, Fair Trade laws may not be used for vertical price fixing within an industry. That is to say, two or more manufacturers may not get together with the purpose of establishing similar prices on like products so as to control the field. Such practices are still in violation of the Sherman Anti-Trust Law, are expressly prohibited in State Fair Trade laws. But now, let us consider for a moment, what the widespread application of Fair Trade procedure could mean to the television industry. Can you imagine what it would mean to be able to talk to a prospect and to know that he could not go anywhere else and buy the same receiver for 15 to 30 percent below list? Can you imagine how much more salesmanship you would be able to use by knowing that price alone would not be the final deciding factor, regardless of what you might say? Can you imagine how much more willing and complete could be your service on a set that you had sold at a legitimate profit, and how much more recommended business would come as a result of such service? Actually, it would mean a return of the radio and television business to the status of a stable industry promising a good future to anyone who was properly trained and willing to apply himself. Today it has fallen into the hands of cut-throat price manipulators who think only in terms of rapid turnover and immediate profits (if any!). Of course, like all dreams, this one is not capable of 100 percent realization - for a time at least. But the success of Fair Trading in other fields promises that it is possible for the radio industry to gradually build into its fiber the sound elements of price regulation and to eliminate the evils of widespread price cutting. To quote Augustus Wolfman, Editor of National Photo Dealer in a special statement made for Radio & Television News: "Fair Trade, when effective, benefits every bracket of an industry as well as the consumer. It prevents destructive price competition which eventually ends in the failure of a number of retailers with consequent loss to manufacturers and possible failures among this group as well. "As far as the consumer is concerned, a series of failures of this type will first of all decrease the number of available jobs. Secondly, in order to meet the pressure of retailers who are fighting a price war, manufacturers may decrease the quality of their products in order to reduce prices, and again the consumer suffers. "As far as the photographic field is concerned, Fair Trade is not yet fully effective. However, one of the most noteworthy gains in the photographic industry, made possible by Fair Trade, is the elimination of retail advertising which contains cut prices on new merchandise. "In addition, may I point out that in a recent survey conducted by National Photo Dealer magazine, 53 percent of photographic dealers replying stated that Fair Trade was working in their areas, 26 percent indicated that it was partially successful, and only 21 percent mentioned that it was not successful. "The two principal reasons for the failure of Fair Trade wherever it is not working are the inability of the dealers to co-operate to make it work and the indifference of manufacturers towards enforcing their Fair Trade contracts. "The fight for more effective Fair Trade is still being carried on in the photographic industry and we are looking forward to achieving our goal in the not-too-distant future." The Problems of Enforcement Naturally, the application of Fair Trade laws presents problems - some of them quite serious. But, none of them are so great that they could not be solved by the same genius for organization and planning that has brought us the modern television receiver. A most important problem, as mentioned by Mr. Wolfman, is that of enforcement. Fair Trade laws in themselves impose no penalty. They are, in the terms of the lawyer, "permissible" rather than "mandatory" laws. They permit the manufacturer or vendor to establish Fair Trade prices, but they are only effective if someone enforces them. It has been definitely and repeatedly proven that where Fair Trade laws are properly and consistently enforced, uncontrolled and unwarranted price cutting is reduced to a minimum and cut-price advertising is eliminated. Therefore, where such enforcement is lax or entirely lacking, the resulting failure cannot be charged to Fair Trade laws but rather to the failure to enforce them. Actually, when an article is Fair Traded, anyone who is injured by the price cutting may obtain the necessary injunction to cause the offending party to cease. However, because of the legal complications and the expense involved, it is hardly practical for a single dealer to undertake such enforcement, and it is generally done by the manufacturer or a distributor. For example, in the case already cited in Chicago, it is the distributor who initiates the enforcement, though it must be admitted, since his is the only line in that area that is Fair Traded, it is in some ways a thankless task. On the other hand, many of the photographic dealers in the Chicago area have organized themselves into the Chicago Area Photographic Retailers Association under the leadership of Mr. Harry Graw, President of the General Camera Company. Since most of the items sold in photographic stores are Fair Traded, the primary task of this group has been to police their markets and to see that Fair Trade prices are upheld. To do this they have hired shoppers who periodically check on the prices at which various items are being offered, and when it is established that price cutting has been practiced, preliminary warnings are given; if these are ignored, the matter is turned over to the Association's legal counsel. A similar plan of procedure has been adopted by the Guild of Photographic Dealers of New York, Inc., and other groups are gradually being formed over the country in an effort to give protection to dealers who wish to carryon a legitimate retail business. While cases where manufacturers in other fields, have successfully used Fair Trade to control price cutting are too numerous to list here, one of special interest to us in the television field is the recent suit of Allen B. DuMont Laboratories to restrain R. H. Macy and Company from advertising and selling DuMont television receivers at cut prices. Legal action was instituted against Macy's after the store ran newspaper ads in New York papers offering DuMont sets at 20% off. At the time of publication of Radio & Television News, Macy's had been legally restrained from representing themselves as DuMont dealers. DuMont has disfranchised eight or ten dealers for price cutting in the past, but this is the first instance of legal action to protect the manufacturer's price structure. As previously mentioned, because of the limitations of space, it has been quite impossible to completely present the story of the possible advantages and the problems of Fair Trading as a means of controlling price cutting in the television industry. We have, however, sought to establish the basic principles involved and to illustrate the manner in which it has been successfully applied in other fields. Naturally, there are many questions that will arise in the minds of our many readers, and we refer them to two sources from which they may obtain additional, accurate information on the matter. They are: The American Fair Trade Council, Inc., at 11 E. 44th Street, New York 17, N. Y. and the Bureau of Education on Fair Trade at 205 East 42nd Street, Suite 1909, New York 17, N. Y. In closing, we feel we can do no better than quote a special message to Radio & Television News readers from Mr. Don White, Executive Secretary of the National Association of Visual Education Dealers whose group has the benefit of many years of experience with the problems of price control. "The best way I know to explain the effect of Fair Trade on the audio visual business is to compare it to the Bible. That is, not everyone abides by the rules it sets up, but we'd be in a dickens of a fix if we didn't have it at all. "Most of the products in the audio-visual field are now covered by Fair Trade contracts. Our experience with these has been that when properly enforced, they serve to protect the manufacturer, the dealer, and the customer. "The manufacturer is protected against the loss of his good name, which occurs when his product is price-cut. The dealer is protected against cut-throat competition and can afford to get out and develop sales, confident that he will not lose them to price-cutters. And the customer is protected because he knows he is buying the Fair Traded product at the lowest price at which it can be sold by any reputable dealer. He is relieved of the necessity of 'shopping' for a better price. "In these days of competition for every consumer dollar, each industry needs to build up, at the dealer level, a hard-hitting and effective sales force - not just order takers, but a sales force that can create the desire to buy. "The only way such a sales force can be maintained is through protection against price-cutting. And a solidly enforced Fair Trade contract is the only sound means of providing that protection."
Posted November 16, 2021 |
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