Sales on the Net and double price

EC

Compared to the development of VN sales on the Net, which has always been announced and never proved, we see the initiatives of the manufacturers multiplying. The redefinition of relations with the networks, which this change would bring about if it were to become clearer, would imply a transfer of margins. This is one of the issues at stake in the current renegotiation of the European regulation concerning franchises: it concerns the legality of double pricing practices for which some people are militating. We understand more and more why.

 

Thierry Koskas explained to Autoactu on 27 November how, with the help of Covid, PSA is trying to speed up its learning curve in terms of VN sales via the Internet: well beyond the configurators, trade-ins, financing and discounts are now likely to be obtained online. Of course, he hastens to reassure dealers by stating that "along the way, the customer chooses a dealer" and that, from then on, "he will receive the information and the car will be allocated to him for registration and delivery". Similarly, he specified that the "average discount" applied online was "defined in agreement with the network".
 
In the twenty years that the hypothesis has been considered, we have become accustomed to these discourses and procedures and we understand that, in a slowly changing landscape where the share of sales likely to be made in this way will remain a minority, we must be very careful strategically and politically.
 
Nevertheless, if the builder commits and invests financially in this canal, one can well imagine that he has thought about what he could gain from it: if the main part of the commercial work is done "centrally" and that the network is satisfied with ensuring the eventual testing and delivery, one can well imagine that - as Florence Lagarde wrote - this would in the long run bring about a "redefinition of the relationship with the network".
 
This is one of the important issues at stake in the renegotiation of exemption regulation 330/2010 which governs franchises in the EU - and, therefore, since 2010, car distribution that has come under this "general regime" - which is currently underway. Indeed, for obvious reasons, selective distribution is by its very nature a priori not very compatible with sales on the Net which, by definition, ignore the "territories" to which franchise agreements are generally attached.
 


Moreover, even if it is always possible for the franchisor to contractually regulate the way in which its franchisees structure their e-commerce sites, the usual justification for selective distribution, which is that the brand can only be properly promoted and presented if a series of conditions, ranging from the architecture of the sales areas to staff training, are met, seems to be falling by the wayside.

 

Consumers whose interests were allegedly promoted through these commercial organisations derogating from ordinary competition law indicate, when they buy on the Net, that they do not hear it with that ear and make the whole edifice stagger. The threat of "platformisation" then hangs over the sector thus "digitised". 
 
The report from the Commission to the Council and the European Parliament on e-commerce noted that one of the effects of the development of e-commerce and the fear of seeing phenomena such as "booking.com" or "e-bay" develop on commercial practices had been :  
"Increased use of 'selective distribution' systems, whereby manufacturers set the criteria that retailers must meet in order to be part of the distribution network and any sale to unauthorised retailers is prohibited. Manufacturers explicitly recognise that they are using selective distribution in response to the growth of e-commerce, as it gives them greater control over distribution networks, particularly in terms of quality of distribution, but also in terms of price". 
 
Because the national and European competition authorities were very afraid that these practices would deprive consumers in many sectors of a real development of Internet offers not desired by franchisors, case law, such as the general franchise regime as it evolved between 1999 and 2010, has rather - as Joseph Vogel noted 5 years ago - preserved the interests of digital players and blocked the franchisors' desire to limit the Internet sales of their franchisees. 
 
The position of both the judges and DG Competition is fairly well summarised in a 2016 European Business Law Brief by these few lines:
"At the end of the very famous Pierre Fabre Dermo-cosmétique judgment, the principle was enshrined that it is forbidden to prohibit Internet sales in a selective distribution network but that it is possible, on the other hand, to require as part of the selection conditions (i) the holding of a physical point of sale if such a requirement is justified in view of the characteristics of the product in question and (ii) that websites be subject to quality standards comparable to those applied to offline distributors".
 
For J. Vogel, who is used to defending the interests of manufacturers, Brussels can now be reassured that it can stop actively campaigning to preserve the interests of the platforms. He wrote on this subject as long as five years ago:
"Many legal and economic factors therefore militate today in favour of greater neutrality of competition law in favour of the internet channel, which must not be over-protected compared to sales in physical shops".
In other words, contrary to the position that may be expressed by e-Bay, which considers that vertical restrictions are exempted a little too readily, it would be time to let franchisors organise their own distribution on the Net and/or that of their franchisees more freely. 
n this perspective, the key point, in the automobile industry in particular, could well be, in the renegotiation, the treatment that will be given to "double price" practices.  These practices consist in "agreeing that the distributor pays a higher price for products intended to be resold over the Internet than for products intended to be resold otherwise"(1) .

 

Their justification is that the commercial service rendered to the brand and to the customers is not the same in one case as in the other: at the same customer selling price, leaving a higher margin to the one who "does the job" than to the one who does not seems logical and, in a world where distributors would be tempted to give more and more importance to the digital channel, this would be an incentive for the franchisor to defend his physical channel and its primacy. 
 
For J. Vogel :
"The Commission's position therefore seems very strict: it prohibits dual pricing depending on whether resale takes place on the Internet or in shops, but also percentage differentiated remuneration aimed at remunerating services specifically rendered by sales in physical shops".
 
And he concludes on this point:
"Competition law should recognise the legitimacy of this type of differentiated remuneration. Failing this, it crosses the line between competition law and administrative regulations a priori favourable per se to physical distribution by refusing to recognise the value of services rendered by physical distribution not rendered by Internet distribution. It would in any event be desirable for this question to be decided by an authoritative court decision and if possible by a judgment of the Court of Justice".
 
Originally, therefore, it is a device which is rather designed to safeguard physical distribution in a context where it is feared that distributors may be tempted to move too quickly towards the digital whole.
In 2021, when the review of 330/2010 is completed, the configuration which, in the automobile industry, will underlie the debates on dual pricing will probably not be this one but the one which is taking shape with the development of initiatives such as that of PSA among automobile manufacturers: apart from the fact that the customer becomes without ambiguity via this channel the customer of the manufacturer and no longer that of his dealer, the challenge is for the manufacturer to increase in its accounts a major part of the margin which it still has to leave in those of its networks. The double price is necessary for this. It will be at the heart of the debates.
 
(1) EU Commission, 19 May 2010, Guidelines on Vertical Restraints: OJEU No. C 130, 19 May 2010, paragraph 52-d. 
 

 

 

The weekly column by Bernard Jullien is also on www.autoactu.com.

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