Given recent moves by the OFT in seeking evidence of possible collusion by suppliers and retailers in fixing shelf-prices, there is a real danger that the NAM/KAM role could evolve into bureaucratic, over-cautious attempts to avoid failure, at the expense of proactive business development.
Realistically, it is unlikely that the OFT believes that major suppliers and retailers have met in ‘smoke-filled rooms’ to determine the retail prices of well-known household brands. Given the scale of possible penalties involved, it is equally unlikely that companies knowingly placed themselves in positions that could have resulted in fines of up to 10% of global turnover.
What has probably happened is that a retailer has conducted an email-audit of their supplier relationships, identified examples of correspondence that, with the benefit of hindsight, came close to, or over the limits regarding pricing legislation, and then volunteered the findings to the OFT in exchange for immunity from prosecution. This has resulted in ‘raids’ on major retailers and up to 100 suppliers, by the OFT, seeking email evidence of similar transgressions.
In turn, this will present the OFT with an opportunity to make an example of a high-profile supplier via a large fine, in order to establish the principle that the Government will not tolerate any deviation from current pricing legislation.
Strictly speaking, all suppliers now need to audit what could be three-to-five years of email history, in order to identify any evidence of possible transgression, however naïve or unintended the act. In the process it is possibly worth bearing in mind that every email sent to a customer probably reached its destination. The scope of such audits and resulting actions are obviously a matter for the suppliers concerned… In practice, if all suppliers and their customers complied to this degree, the resulting burden on the OFT in the current business climate would be unmanageable.
In terms of future practice, it would probably be more productive for companies to take a pragmatic approach to clarifying the strict application of pricing legislation to their categories and customer-base and ensure that all customer-facing executives adopt a consistent and legally defensible stance on all future pricing discussions with the customer (see Macfarlanes’ paper on legal pricing). It is obviously crucial that all email records reflect the strict application of this policy, as it is unlikely that the OFT will do second chances…
It is even more important that companies resist the temptation to retreat to the centre of the ball-park in all pricing discussions, becoming risk-averse whilst having to compete with suppliers that adopt a more proactive approach, secure in their knowledge of the legal limits, and playing up to the edge, but staying within the letter and spirit of the law.
This message needs to be communicated at all levels and to all functions within the company, in order to avoid the need for expensive and time-consuming auditing of emails in the future, and free up resources to optimise real business opportunities that arise because others are sitting and waiting…
A wake-up call of this severity can present real opportunities for a company to re-audit its entire business approach, re-classify its trading relationships, measure all aspects of its dealings with customers, and aggressively capitalise on its demonstrable strengths by optimising its risk-reward relationships.
Business is all about calculated risk, measured financially in terms of investment and return. Companies need NAMs and KAMs that have the tools and are able to apply them in optimising their trading relationships with major customers that are capable of working to their own agenda, if necessary at the expense of partner-suppliers, when immunity counts….
