I am receiving complaints from some of my resellers that another of my resellers has been consistently selling my products below cost. They are very quickly losing their customers and it is affecting other areas of their business too. I have tried speaking to the reseller but he says that I cannot tell him what price to charge. Is there anything I can do about this?
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Answer by Dilani Mudalige, Yokine 6060 WA
- While you can recommend a retail price to the reseller you can't put any pressure on them to charge above a particular price.
- If the reseller is not selling your products below cost as part of a genuine clearance he may be engaging in what is called loss leader selling.
- Loss leader selling occurs where goods are purchased with the intention of selling them below cost so that a reseller can:
- promote their business; or
- attract customers who are likely to buy other goods and services from the reseller.
- If you have not agreed to supply goods to the reseller for the purpose of loss leader selling you may withhold supplies of goods to the reseller while he is engaging in loss leader selling.
- However if you refuse to supply goods to the reseller and it eventuates that he is not loss leader selling you may find yourself in breach of your supply agreement or any contracts that might be in existence. Before taking any action against the reseller you should seek the advice of a lawyer who has experience with competition and trade practices law.