Polk defends minimum price policy

Television Digest with Consumer Electronics, March 16, 1998

Policy was designed to cope with changing landscape in which all consumer products are sold, Polk Pres. James herd said in Feb. 11 letter informing dealers of change. Letter said: "In a fast-paced market place where the geographical limitations which once defined a consumer's shopping pattern are rapidly changing, we believe this policy will also encourage healthy competition in the marketplace as consumers choose from among the competing brands and dealer-assembled packages which represent the best value." Letter said policy applies to "select group" of Polk home products, but Herd told us as much as 80% of Polk home audio line is affected.

Minimum price benchmarks vary by product, according to price sheet we obtained. For example, $6,000-list RT Series tower speaker system in rosewood veneer must command minimum resale price of $5,000. Final dealer net cost of system is $2,500 after "prompt payment" discounts and ad allowances are factored in.

Under "unilateral" policy, Polk said it would refuse to supply affected products to dealers who violate rules, company backgrounder said. Supplies would be terminated on "per-unit basis," Herd told us, meaning shipments would be suspended only on individual models sold in violation of new policy. Rules state that dealer is free to make own ad and pricing decisions, "including choosing to comply with" new policy "to avoid termination" of supplies. However, Pok said it "reserves the right" to "terminate immediately" sales of affected product sold in violation of rules. Backgrounder says company believes new policy "will promote the proper positioning" of products against competitive goods" and will "facilitate the provision of high levels of customer service associated with the sale of those products by giving full-service dealers the economic incentive to provide that service and protecting those dealers from 'free riders.'"

Polk first alluded to new policy in letters in late Dec. informing dealers of brand's impending move into Circuit City. Timing of new policy and move was coincidental, Herd said. He said dealer reaction has been either positive or "nil."

However, smattering of accounts we polled criticized policy as violating their agreements - allegations Herd denied strongly. Critics cited phrase in agreement barring Polk employee or representative from "authority to enter into any agreement or understanding respecting the price at which dealer resells products or to coerce dealer or Polk to enter any such agreement or understanding." Herd responded that supplier's right to impose pricing policy "unilaterally" has been protected by courts. He said distinction is that Polk and others are barred from "vertically" negotiating agreements or understanding on price at which goods are to be resold.

Herd indicated Polk won't monitor dealers with heavy hand. Q&A sheet accompanying Feb. 11 letter says company assumes dealers who carry affected products will follow rules. However, Polk said it will "conduct an independent review of the dealer's advertising and selling practices" if it receives tips on possible violations. Dealer "is under no obligation" to inform on another account, but is barred from discussing violations with offending retailer. Polk will stop supplying affected product to all stores in chain even if only one store is guilty of violation. Dealer is free to bundle affected product with other goods, "but any advertised or final discount or savings to the customer for purchasing the bundled products must be attributed to the other products," not gear covered trader new policy.