COUPON PROBE MAY CLIP TESTING;P&G NOT EXPECTED TO BACK DOWN BUT OTHERS MAY BE CHANGING PLANS

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New York state's anti-trust investigation of Procter & Gamble Co.'s "zero coupon" test appears unlikely to uncover wrongdoing but could discourage testing involving promotion and pricing issues, legal experts and industry observers said.

"It's hard to imagine that this kind of activity would do anything other than have a chilling effect on attempts to reduce this level of promotional activity," said Stephen Paul Mahinka, a Washington, D.C., attorney who has worked for P&G on other anti-trust issues. "If you conclude there's no harm, you've still cost the companies a lot of money. You throw them into uncertainty and the marketplace into uncertainty."

OTHERS SUBPOENAED

Besides P&G, New York Attorney General Dennis Vacco also subpoenaed information from Kimberly-Clark Corp., Clorox Co. and retailers Wegmans Food Markets, Tops Markets and Penn Traffic Co. P&G launched its test in February.

P&G MOVES AHEAD

A P&G spokeswoman said the investigation has not affected the company's plans; observers said P&G is unlikely to back down in the face of an investigation. Other companies and initiatives might be affected, however.

"The unfortunate element is going to be that other companies who might have liked to have tested [reducing or eliminating coupons] will hold off," said Burt Flickinger, director of Management Horizons, the consulting arm of Price Waterhouse & Co. "At least for the short term, we'll probably see consumer goods companies taking a conservative approach in terms of how to go to market with pricing-related initiatives."

REGULATORY INTEREST GROWS

Ken Harris, a partner with Cannondale Associates, says the New York probe signals increasing interest from regulators and lawmakers in pricing and promotion practices.

"As the dynamics of the business change profoundly over the next two or three years, at each level of innovation or change there's going to be higher degrees of scrutiny," he said, citing increasing attention in Congress to slotting fees and other trade promotion practices.

Moving tests to other states won't necessarily help, either. New York is one of about a dozen states-covering most of the nation's major retail markets, including California, Florida and Texas-that historically have taken an aggressive anti-trust stance, Mr. Mahinka said.

Based on the nature of the test and the parties subpoenaed, New York appears to be operating on a "signal theory" of anti-trust violation, in which competitors signal intentions in hopes others will follow, said Joe Sims, another Washington anti-trust lawyer whose firm has worked for P&G.

"There has never been a successful prosecution to my knowledge based on the signal theory," he said.

PRESSURE FROM RETAILERS

Rumored pressure from New York retailers on other manufacturers to follow P&G's lead in reducing couponing may have played a role in triggering the probe, according to Paul Kelly, partner in Silvermine Consulting Group.

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