Laundry Care Manufacturers Fined Over Price Fixing

Procter & Gamble and Unilever, Western Europe’s largest and third largest laundry care manufacturers respectively, have been fined a total of £281 million – £93 million for Unilever and £188 million for Procter & Gamble – for their part in laundry detergent price fixing.

The price fixing, which according to the European Commission was seen in Belgium, France, Germany, Greece, Italy, Portugal, Spain and the Netherlands, also involved Western Europe’s third largest manufacturer Henkel. However, Henkel blew the whistle on the cartel and alerted the European Commission, and, as a result, escaped a fine for its part in the operation. The investigation was launched in June 2008 and both Procter & Gamble and Unilever acknowledged their complicity in the price fixing, and were given reduced fines as a result of their admission and willingness to help the watchdog’s investigation.

Companies come together over the environment

The European Commission concluded that the cartel, which operated from 2002 to 2005 in powder detergents, stemmed from an initiative meant to reduce the environmental impact of powder laundry detergents. The initiative, which was spearheaded by trade group, the International Association for Soaps, Detergents and Maintenance Products, required industrywide coordination to succeed.

The three companies implemented a voluntary initiative to move consumers from standard powder detergents to more compact alternatives, reducing the environmental impact of laundry detergents in terms of delivery, manufacture and packaging costs. It was in discussing this initiative that the companies also agreed to standardised decisions on pricing, with an eye on protecting their market shares. All three agreed not to lower detergent prices despite shifting to smaller pack sizes. According to Euromonitor International statistics, the three companies involved in price fixing account for 57% of the Western European market sales in terms of value.

Potential for further action to come

Unfortunately for the manufacturers involved, in its statement on the decision, the European Commission also made the following comment: “Any person or firm affected by anti-competitive behaviour as described in this case may bring the matter before the courts of the Member States and seek damages. Even though the Commission has fined the companies concerned, damages may be awarded without these being reduced on account of the Commission fine. The Commission considers that meritorious claims for damages should be aimed at compensating, in a fair way, the victims of an infringement for the harm done.”

This leaves the door open for rival manufacturers or even consumers to seek damages against the manufacturers, so the price fixing story may yet have a chapter to play out.

Corporate campaigns bring increased accountability

While the decision by the European Commission made headlines in the business media, it is open to debate whether the companies’ actions will affect consumer purchasing choices. Modern consumers are becoming increasingly savvy, demanding transparency and accountability, and a growing number are making purchasing decisions based, in part, on the credentials of manufacturers. However, while no consumer ever wants to feel they have paid over the odds for a product, given that the price fixing agreement is acknowledged to have ended six years ago, it is unlikely that the average consumer will change his brand allegiances now in light of these revelations.

However, given that home care manufacturers are increasingly looking to associate themselves more strongly with the brands they produce, with corporate advertising recently entering the world of home care, any future misdemeanours could have a more far-reaching effect than simply leaving the manufacturers with fines to pay. Procter & Gamble announced its first ever corporate branding campaign early in 2011 and Unilever was one of the first to focus on its corporate awareness, adding corporate branding to packaging and advertising in 2009, with Reckitt-Benckiser following shortly after.

Through corporate campaigns, manufacturers hope to capitalise on consumers’ pre-existing trust in an individual brand, expanding this trust to encompass other brands in their portfolios. The thinking is that if a consumer trusts and rates a brand and then learns that the brand’s manufacturer is behind other brands, then he will be more open to thinking positively of those other brands.

However, it is safe to say that the same is true in reverse, and, should consumers become disillusioned with a manufacturer because of their conduct in one category, this negative opinion can easily cross over onto the manufacturer’s other products and a consumer’s opinion of the manufacturer as a whole. Manufacturers hoping to make gains by going down the route of raising awareness of their corporate identity must ensure that now, more than ever, their behaviour across the board is whiter than white.