Tripartite promotional assistance plan featuring rewards to customers

No. 135. Tripartite promotional assistance plan featuring rewards to customers.

The Commission was requested to render an advisory opinion concerning the legality of a tripartite promotional program featuring the sale by a promoter to grocery retailers of books in ADVISORY OPINION DIGESTS 1039 which customers can paste labels from suppliers' products and receive a cash reward depending upon the number of labels coIlected.

Under the plan, manufacturers wil be solicited for permission to show reproductions of their labels, box tops , etc., within the pages of the books at no charge. The promoter wil then offer the books for sale to all retailers within the boundaries of the initial test area. The retailers can then distribute the books in any manner they choose, either by mail, house-to-house, or at their stores. They may offer them as a bonus for a certain purchase or for purchases of a specified amount.

Consumers wil be invited to buy and try the products shown and to paste or otherwise fasten the actual label or other product identification over the designated space in the book. The books are redeemable for cash at the issuing retailer s store and the value depends upon either the total number of product identifications returned in one type of book or whether all product identifications are returned in the other type of book. The retailer advances the cash reward to consumers redeeming books issued by him. The promoter will then reimburse the retailer the fuIl amount advanced and in addition pay him a checking and handling fee, which wiIl vary depending upon whether it is a completely filled or partiaIly fiIled book. The promoter wiIl then invoice suppliers based on the number of product identifications returned. This invoice wil include an amount suffcient to cover the cash reward to the consumer, and fee to be paid the retailer and a payment to the promoter for his costs plus his profit.

Retailers stocking all the items shown on the inside pages, or wiling to do so, wil be offered a choice of the two types of books. First, a book offering a cash reward based on the number of product identifications returned. The consumer can fasten one or more of the product identifications in the book and return it to the retailer for a cash reward. Second, a book offering a flat cash reward for completely fiIling the book with all identifications shown. Retailers stocking one or more of the items shown , but not all of thcm , wil be offered the book where redemption value is based on the number of identifications returned. The consumer can make purchases anywhere and fill as many spaces as desired regardless of limit to items stocked by the issuing retailer. Retailers using either type of book can choose from individualized covers or preprinted stock covers and wil have a choice of using a- name coined by the promoter or a name of their own choosing. The cost to the retailer wiIl vary according to the type and quantity of books purchased. The promoter has advised that 1040 FEDERAL TRADE COMMISSIOK DECISIONS the differences in costs of both the standard and individualized covers is solely attributable to differences in the cost of printing and distributing different quantities and that the books are to be sold to retailers at cost.

The promoter wi1 mail an " Offer to Retailers" to all grocery stores, supermarkets, headquarters of each local , regional and national chain, wholesalers and the area headquarters or warehouses of each cooperative or association within the geographic area, as their names can be found in trade and telephone directories, route lists, etc. Realizing that some stores might be missing from these lists and also that other types of retailers might be offering at least some of the products shown, the promoter wi1 run an advertisement in every daily newspaper within the area outlining the features of the books and offering to furnish a copy of the notice to any interested retailer. In any county where there is no daily newspaper, the notice of advertisement will be run in a weekly newspaper of general circulation. The Commission advised that while it believed the promoter had done a commendable job of devising a plan which contained alternatives which should prove to be usable in one form or another by every customer of the participating suppliers, there was still lacking the element of proportionally equal treatment of those customers as required by Sections 2 (d) and (e) of the Clayton Act, as amended. In brief, these sections require that whenever a seller makes payments and furnishes services for the benefit of one customer, he must make those payments or services available on proportionally equal terms to all competing customers. If a situation such as this, where a number of suppliers wil be making payments to the promoter which will inure to the benefit of their customers, the responsibility rests on the promoter and the suppliers to see that the promotional assistance thereby rendered is made available on proportionally equal terms to each competing customer of each participating supplier. The Commission s concern with this proposal stemmed first from the fact that the retailers wil be charged different prices for these books depending upon the quantities ordered. In one sense, this could be viewed simply as a sale from the promoter to the retailers and thus subject to the cost justification defense which the statute makes available to one charged with a discrimination in price. Rovlever, the Commission found it conceptually impossible to lift this transaction out of the whole and view it as a separate price discrimination problem. The proposal involves one essentially promotional program in which the parts cannot be separated from the whole. While it is true that the promoter wi1 sell the books to ADVISORY OPINION DIGESTS 1041 the retailers , he wil do so at cost and this would not be possible were it not for the fact that he wil derive his profi from payments made by the suppliers. Thus the Commission ruled that the entire plan was keyed to payments which emanate from the suppliers and this being all parts must be judged according to the standards set forth in Sections 2 (d) and (e) of the Act. This brought the Commission into confrontation with the fact that the defense of cost justification is not available to one charged with a violation of these Sections. It followed, in the Commission view, that there was no way to escape the conclusion that the smaller dealers were not being afforded proportionally equal treatment when they had to pay more for the books than did their larger competitors. The opinion acknowledged it to be true that these prices are equally available to all in that all wil be charged the same price for the same quantities. But is is equally true that all will not be able to buy in the same quantities. Since the retailers profits from this plan will equal the amount by which their payments for redeeming books exceed their cost of purchasing such books, the Commission could not view the plan as being available on proportionally equal terms so long as there is a disparity in the prices they must pay in order to participate. In this connection, the Commission made it clear that it was only concerned with the prices charged for the books with standard covers since those were the real base of the plan. The purchase of books with individualized covers appeared to be purely optional with the retailer if he cared to spend more in order to more closely identify the plan with his own store.

A second respect in which this proposal was held to be deficient under the law stemmed from the fact that the large retailers were apparently to be offered both the fully completed and the partially completed book plans, while the smaller retailers were to be offered only the latter. In the Commission s view, both plans must be affrmatively offered to and made available to all retailers before the overall plan could be said to be available to all competing customers on proportionally equal terms. The opinion singled out two additional factors of the proposal which should be borne in mind if it is to be conducted within the law. The first concerned the fact that grocery retailers wil be notified by mail and all other customers of the participating suppliers wil be notified by advertisement. While the statute prescribes no particular method by which the availability of allowances or services is to be communicated to a seller s customers, it is clear that the duty rests upon such seller to see that all competing customers are informed. A plan can only be said to be available to a customer if he knows about its existence. If the method of notification chosen actually reaches all competing customers, there could be no objection to the plan on that score. However, the promoter was cautioned to keep in mind that the suppliers could incur liability if it subsequently developed that some did not as a matter of fact receive notice because of the method chosen. The second factor stemmed from the fact that was proposed initially to test the program in nine contiguous counties. Even though this is a test area the promoter was advised to be careful here not to discriminate against customers located on the fringes but outside the area selected since they may be actually competing with those who are participating. In such situation, the existence of competition prevails, not geographic or political subdivisions, and the fringe area customers, if any there be, who in fact compete must be afforded an equal opportunity to participate. (File No. 673 7096, released July 19, 1967.

Modified July 11 , 1968, 69 F. C. 1211.