In a special feature that first appeared in Appliance Retailer magazine, Patrick Avenell looks at Narta’s failed bid to set minimum advertising prices (MAP) on selected products, most notably Beko home appliances.
When Beko first launched in Australia in November 2011, it was intended to be a broad, mid-market “European” brand. Foundation managing director Mike Goadby showed off a ‘brand pyramid’, placing Beko on a competitive plane with Blanco, Bosch and Whirlpool.
When product starting arriving in early 2012, Beko quickly slotted itself into the market as a de facto house brand for Narta members. Although Goadby originally said the industry was “totally and utterly fed up with price, price, price”, Beko itself become the subject of price competition. One vocal but relatively small Narta member complained that the bigger members were too cheap in their cataloguing of the brand, creating what they believed to be unnecessary competition and price erosion.
In the same way that Harvey Norman can source a product range exclusively from a supplier and then coordinate all advertising to have an identical price, with any discount then negotiated at the store level; Narta applied to the ACCC in September 2012 for authorisation to unilaterally set a minimum advertising on some Beko products.
Narta requested approval for three types of product: house brands, new release or premium products and Narta exclusives. The inclusion of new release products in its request indicated Narta was casting a wide net on what products it would set minimum prices — potentially new TVs, PCs and gaming consoles — or any other category subject to steep and rapid price declines.
To justify its request, Narta offered a long of reasons: it is at a competitive disadvantage to single banner buying groups (‘Harvey Norman’ and ‘The Good Guys’), brand protection for suppliers, technology life cycles are very short and margin pressure is impacting the “viability of some retailers”.
Ultimately, Narta’s central and most convincing argument is that other retail groups can already coordinate advertising prices on group buys because they have one universal trading name. Even though Narta members operate under separate shingles, the group buyer should have an equal right to set a minimum price in the various catalogues.
Interestingly, Narta indicated to the ACCC that it wanted to set different MAPs in different geographic regions, “to reflect local market retail considerations”, according to ACCC documents.
During the application process, Beko representatives attended a conference with the ACCC, in which it submitted that “an ability to offer marketing consistency, including a MAP, was important to it as a supplier in the current economic climate”.
Although Beko was the focus of the application, there is considerable evidence in Narta’s submission that its future plans, had authorisation been granted, were wide-reaching. Narta pointed out that its inability to coordinate advertised prices is inhibiting its ability to source some flagship products. It specifically mentions Sony 3D TVs, Electrolux coffee machines, Panasonic plasma panels and Sharp’s enormous screen TV range as not being made available to Narta members at launch.
Narta received support from the Australian Retail Association (ARA).
“ARA understands that in the current wholesale market Narta is no longer able to source some premium product lines and exclusive products that are being supplied to Narta member’s major retail competitors,” said executive chair Russell Zimmerman. “Narta members being limited in their product offering in comparison to their competitors in this market is a significant competitive detriment.”
To emphasise the level of competition at store level, Zimmerman attached a Bing Lee invoice showing he had received an 11.8 per cent discount (equal to $199) on Beko laundry appliances, at its Carlingford outlet. He claimed that he did not ask for a discount.
Broadly speaking, the ACCC will only grant authorisation if it determines that the public benefit will outweigh the public detriment.
The ACCC rejected Narta’s application in its final determination, dated 11 April 2013. Its reasons included a belief that minimum advertising prices would result in higher retail selling prices and that having the ability to set MAPs would not make Narta more attractive to suppliers of exclusive products.
“The ACCC considers a MAP will reveal to each Narta member, as well as other retailers, the lowest price at which all Narta members will advertise MAP products,” read the ACCC’s final determination. “This will reduce the strength of price competition between retailers.
“A MAP will eliminate Narta members’ downward flexibility on the advertising price of a MAP product, leaving only room for an increase in advertising price above a MAP. Without a MAP, Narta members are likely to compete more strongly with each other, including by lowering the advertising price of Exclusive Products.”
The ACCC did concede, however, that MAPs could result in more overseas suppliers entering the Australian market, while rejecting Narta’s suggestion that MAPs could deter a supplier from switching to an agency model, which is inherently less competitive.
Narta can appeal this decision to the Australian Competitions Tribunal or the Federal Court.