Request In the case of supplier responsibilities engendered by this method, we submit that all participating…

ADVISORY OPINIONS WITH REQUESTS THEREFOR 1043 1040 Request In the case of supplier responsibilities engendered by this method, we submit that all participating suppliers, regardless of size, would be hard pressed to provide the record and audit overview required, in part because of the multi-faceted distribution channels employed. in reaching their retail customers; these variations in distribution would present a formidable challenge to supplier-participants to isolate product sales on a per store (retailer-participant) basis. We recognize that the Commission’s searching inquiry into the possible employment of another method of proportionalizing payments is not intended to foreclose other approaches which would also insure proportionally equal treatment of all retailer-participants in the program. Our review of the substantial difficulties inherent in a promoted products method of arriving at proportionalization, by no means exhaustive in its coverage, indicates, however, that such an approach would not have the beneficial effects tentatively anticipated by the agency, and would render program implementation economically impractical to the small retailer and small supplier. In an effort to be fully responsive to the expressed concern of the Commission for a change in the proportionalization method, MARPOS has carefully studied other alternatives which might be acceptable to the Commission. Accordingly, the company would modify its program so that the basis of proportionalizing payments would be one of the following methods: (1) payments would be based on actual (not average) annual gross dollar volume of sales per location, eliminating the bracket classifications while retaining the present maximum volume, payment ceiling feature of the plan; or (2) payments would be based on the number of transactions per retail location for specified periods. In either case, computation of payment would be derived through the application of a uniform percentage factor. Proposed Alternative Methods of Proportionalization A method which bases program payment on actual annual gross dollar volume of sales would favor the smaller retailer-participant in view of the maximum payment limitation (ceiling limit for outlets exceeding $3 million actual annual gross volume), and minimum payment “zero plus” factor.

The Commission staff has indicated concern that, to the extent gross volume of sales reflected privately branded sales by large retail outlets, such as chains, this method would favor these large outlets over smaller retailers not carrying private label goods. The establishment of a maximum level for payment should effectively attenuate the impact 1044. FEDERAL TRADE COMMISSION DECISIONS Request 79 F.T.C.

of private label sales in the actual annual dollar gross volume basis of computation.* Correctively, the “zero plus” minimum would raise even the smallest retailer-participant to a point where he would receive a fair payment.

Turning to the second alternative—number of transactions—we again note that the use of number of transactions per location as the basis of proportionalization would also tend to favor the smaller retailer, whose dollar sales per transaction typically are lower than that for larger retailers. MARPOS is prepared, in this regard, to determine actual number of transactions on a per store basis for the specified periods. As was the case with the first alternative method discussed above, while the bracket classification system would be eliminated, the minimum-maximum limits would be retained. This latter factor would further insure favorable treatment of the smaller participants under the program.

There are noteworthy advantages in the employment of either actual annual gross dollar volume of sales or number of transactions per store for specified periods vis-a-vis predicating payments on the retailerparticipants’ sales or purchases of the products advertised. First, either suggested method permits smaller and regional suppliers’ greater access to point-of-purchase advertising. If payment were based on products advertised, out-of-store media advertising of national suppliers, such as television, radio and newspapers, would provide an unintended impact of the MARPOS program by focusing larger retailer sales efforts on major product brands, to the exclusion of those of smaller and regional suppliers. This would be the case, since the combined effect of national brand advertising would assure greater sales of such products, thereby resulting in higher program payments to the large retail outlets participating in the program. Secondly, the use of products advertised for computation of payments would encourage the larger retail outlets with greater shelf space to shift product exposure in favor of the product lines of national suppliers, as a means of obtaining larger payments. MARPOS intends to assure that equal access to its program is provided to large and small suppliers alike. In particular, the small retailer with limited shelf space, who must carry a line of competing products for his customers, would be unable to give greater shelf exposure to prod1 The Commission is, of course, aware that a substantial number of grocery supermarkets have annual gross dollar sales in excess of $3 million. It is these large stores which typically carry private brands.

1040 . Request ucts advertised in his store by MARPOS and would thus be disadvantaged over the larger stores with shelf space to adjust to take advan-— tage of promotions with payments based on gross sales or purchases. Thirdly, basing payments on either the actual annual gross dollar volume of sales or the number of transactions not only aids the smaller or regional supplier, but also favors the smaller, participating retail outlets. With respect to the latter, the fairer treatment accorded the smaller retailers would serve to encourage their participation, without imposing a prohibitive recordkeeping cost factor on them. Other Aspects of Proposed Program Under Review Several additional points were raised in our conference of June 17 which deserve attention here. Although previously indicated in the March 8 Request for Advisory Opinion, we want to emphasize that participating retailers will not be required to carry advertising for products not sold in their respective locations. Consistent with the company’s good faith efforts to insure that its program is fair and reasonable in its application, MARPOS is pre- . pared to report periodically to the Commission’s staff the manner in which its program is being implemented. .

* * * * * * * In conclusion, we should like to emphasize that the MARPOS program has been developed by Don Fedderson Productions, a firm which produces the My Three Sons, Lawrence Welk, and other television shows. The Fedderson executives are careful and thorough; they have never had any past difficulty with federal agencies. They made it clear to their counsel and to the Commission’s staff that they intended to extend themselves to the limit in complying with all prior guidelines of-the agency in developing the MARPOS promotion, since the company is undertaking substantial investment in designing and testing the program.

Every effort has been made to follow every Commission staff suggestion to the letter, including informal clearance of every word of revised drafts. During this period of nine months, Don Fedderson Productions has invested in good faith nearly $600,000.00 in design and redesign of machines, field testing of machine operations, securing consumer reaction, and other steps necessary to ready the program for actual operation. If clearance of the MARPOS program is granted, the same degree of good faith and care will be taken in actual operation of the program, including making its results and any problems known to the Federal Trade Commission, or making such ad- Request 79 E.T.C.

justments as may be necessary to comply with the law as interpreted

by the Commission and the Courts.
Sincerely,
Arent, Fox, Kinter, Piorxin & Kaun.
(S) Harn W. Krnrer.
(S) Lawrence F. Hennesercer.
(S) Satvatrore A. Romano.
Letter of Request
Marcu 8, 1971
Dear Mr. Torin: :

Under a separate letter of today’s date, we are submitting a Request for Advisory Opinion on behalf of our client, MARPOS Network, Inc., which addresses itself to a promotional program under consideration by that company. We are submitting the March 8, 1971, Request for Advisory Opinion in lieu of our earlier Request for Advisory Opinion of February 2, 1971, and, accordingly, we are withdrawing the February 2 Request letter and seek Commission review and action only as to our Request

letter of March 8, 1971.
Sincerely,
Arent, Fox, Kinrer, Pourxin & Kann.
(S) Earn W. Kinrer.