Leegin V. PSKS Means Little for High Tech Anti-Competitiveness Pricing
The Supreme Court finding of Leegin v PSKS over manufacturers setting prices will have little impact in the computer software and hardware markets because many anti-competitive practices have been in effect for years.
Leegin v PSKS, the US Supreme Court case No. 06-480 involved a lawsuit of Texas based boutique owners (retailers) Phil and Kay Smith vs a California based Leegin Creative Leather Products company. The Smiths sued Creative Leather Products after Creative Leather Products cut off the supply of their products to the boutique retailer because of discounting the Smiths applied to the Creative Leather Product’s Brighton shoes and accessories. This was a case on appeal after the Smiths had already won $3.6 million.
In the United States, a 1911 precident setting case made it illegal to set prices. Although numerous experts have commented that manufacturers have so little clout in retail to make a difference - those cited as exceptions are both in the computer industry: Apple and Microsoft.
But really, price controls have been a matter of fact for some time now, through the use of high manufacturer’s pricing, rebates, abuse of Market Development Funds (AKA “MDFs”), restrictive measures on use of logos and trade dress…and the list goes on.
Manufacturers have a long list of reasons why they would want to maintain high prices in the channel, but one that is particularly frightening to retailers is the reallocation of relationships - moving the customer relationship from the reseller to the manufacturer. Computer software, and to a lesser extent, computer hardware, have been rapidly moving in that direction for some time, beginning with End User License Agreements that establish a direct relation with the vendor - as a result of the initial customer sale by the reseller. Much computer software is purchasable online and can be downloaded immediately from the software vendor. Because many of the barriers to direct purchase have been removed, most software vendors are in competition with their own channel partners for the first sale; remove deep discounting, and its more likely that the first sale can become a direct sale.
Apple and Sony both have significant, direct retail presences that are built around their premium brands- it isn’t just a matter of perception, these companies are direct-to-customer, face to face resellers. Why would anyone enable a competitor to compete on price?
Sony in the Channel
ShinyLittle Gadgets pointed out that you can find the same product through multiple retail venues for Sony products that are healthily discounted off of the SonyStyle price. Sony, like most other manufacturers put broad categories of products into the channel, and each product-to-channel can have variable terms and availability (product, venue, venue-by-country, etc). The most flexible terms are going to be on product skus that they are willing to strategically sacrifice in the non-SonyStyle channel. Although SonyStyle and the SonyStyle stores are comparable to Apple and the Apple Stores in their consumer orientation, Sony has a far more complex channel mix that requires greater channel flexibility, especially in the laptop market, which includes both consumer oriented products as well as business products - each of which have their own channels. Sony has to continue to sacrifice more pawns in the channel as a result and are happy to do so, while they remain dependent on non SonyStyle retail for serving the consumer market.
