- May 1, 2023
- Posted by: lmwalsh
- Category: Industry Trends
Renewed enforcement could force channel practitioners to rethink program structures and partner engagements.
By Larry Walsh
Channel programs are built on progressive “gives-to-gets” systems of tiers, tracks, and point systems. The more productive and “qualified” partners are, the more they earn in price concessions (discounts), incentives (rebates, SPIFs), and resources (marketing materials, market development funds).
Many people believe that these systems that profile and segment partners based on what they do and how well they do it is a means of complying with an ancient law, the Robinson-Patman Act of 1936, which states that suppliers must sell “products” to all customers at the same price. Tiers and other such channel program mechanisms are the means of getting around that equity requirement. By establishing qualifiers, vendors can segment partners into like groups and set prices for those groups. In other words, vendors set standards for being a Gold partner, and all Gold partners get treated equally, while Silver partners are treated equally with less compensation and resources.
Sounds like a channel truism so far. But it’s not that simple.
DOWNLOAD: Inside the Revived Robinson-Patman Act
Channel strategists, planners, and managers built programs with the idea that they were compliant with Robinson-Patman during an extended era of lax enforcement. The U.S. government — principally through the Federal Trade Commission — hasn’t pressed the law since the late 1980s. Until the end of 2022, the FTC had prosecuted only two Robinson-Patman cases, lulling the entire private sector into a false sense of compliance security.
The regulatory climate is changing fast. The FTC now has three active cases and signals that it will bring more. The Biden administration sees the Robinson-Patman Act as a means of protecting small businesses and curbing inflation. Over the past two years, as inflation spiked, businesses started raising prices even if their input costs remained stable. At the same time, unequal pricing gave an advantage to large businesses that could negotiate better deals with their suppliers based on volume. The result is high pressure on small businesses while large corporations thrive (or so goes the argument).
The Robinson-Patman Act is a tortured document. Difficult to understand. Difficult to comply with. Difficult to enforce. It applies only to products, not to services. However, the law is ambiguous about what constitutes a product and what constitutes a service in the digital age. The letter of the law obliterates any notion of tier structures or working around pricing equality through back-end incentives.
After reviewing the Robinson-Patman Act in detail, and having at least one of our clients amend its channel program to make it more compliant with the regulatory requirements, Channelnomics determined that the revival of this New Deal-era law represents a significant problem for the IT channel and all economic segments that sell through indirect models. Channelnomics estimates that few channel programs will meet the regulatory standards if they come under scrutiny. Coming into compliance will mean restructuring programs, policies, processes, and systems — all of which will take extensive time and money, causing significant disruptions to partner relationships and channel productivity.
Channelnomics drafted its latest report, “Inside the Revived Robinson-Patman Act,” to inform the channel community about what the federal government is doing on pricing regulatory enforcement, dispel misunderstandings of the law’s requirements and exceptions, and stimulate thinking about what it takes to bring a program into compliance.
Download a complimentary copy of the executive summary of the report via the Channelnomics website here: Download
Channelnomics is also providing Robinson-Patman Act compliance briefings to Channelnomics IQ members. Non-members may request briefings on a first-come, first-served basis.
The channel has few direct regulatory oversights. The revival of the Robinson-Patman Act could force channel practitioners to rethink their program structures and partner engagements. Our report will provide you with the foundational information you need to start a new compliance journey.
Larry Walsh is the CEO, chief analyst, and founder of Channelnomics. He’s an expert in the development and execution of channel programs, disruptive sales models, and growth strategies for companies worldwide. Follow him on Twitter at @lmwalsh_CN.