Treading on toes

[Four Cofffee]

How do others handle the following situation:

I licence a product to company A, who sell to company B. Comopany B use their existing contacts to aggressively resell to national and international end users with a few tweaks of consultancy and training. Company A also sell to companies C,D,E etc who resell under similar arrangements but on a much more low key basis mainly to local businesses.

The licencee (company A) also market and then sell the base product directly to the end user at a fixed price and I cultivate buyers for them as I go about my wider job, front their marketing, give techie advice etc. We all have a share in the proceeds, me by royalties from Company A and consultancy, Company B by mark up and selling extra services. So it is in nobody's interest to have us confusing clients and under cutting each other and the market place is vast and largely untapped so we don't need to do that.

I have an agreement with Company A as to which sectors I will try and sell in on their behalf, and we keep each other updated on who we are seeing etc. However, company B are understandably loathe to share their blue chip client list to avoid us treading on each others toes and this week we have twice ended up with meetings with the same clients. Company A and I don't want to undermine the price of company B as we sell at a fixed price and Company B obviously set a price

What do we need to do to stop duplicating the leg work and avoid bumping into one another? Agree sectors for a period?

[TooLateForAName]

I would have thought that your licences would specify what sectors the different people could sell into - is this not the case?

TBH If nothing is stopping B from selling or requiring them to register leads then I dont see what you can do. It sounds as if they have no interest in playing nice.

[Jasandjules]

I think you are mistaken. AS I read that, it's in company B's interests to get all the business, yourself and Company A do not get a slice of their profits. So you need to really agree with Company A a restrictive clause to use in contracts with Company B to limit their customer base do you not? I.e. you need to ensure that you have a certain area, be it by sector or geographical location, which Company B may not encroach on (or if they do there is a penalty clause of some kind which grants you a share of the profit?).

I may have misread it mind, I am awaiting my chinese to turn up so only 60% concentrating...

[Four Cofffee]

Jasandjules said:

I think you are mistaken. AS I read that, it's in company B's interests to get all the business, yourself and Company A do not get a slice of their profits. So you need to really agree with Company A a restrictive clause to use in contracts with Company B to limit their customer base do you not? I.e. you need to ensure that you have a certain area, be it by sector or geographical location, which Company B may not encroach on (or if they do there is a penalty clause of some kind which grants you a share of the profit?).

I may have misread it mind, I am awaiting my chinese to turn up so only 60% concentrating...

Let's say the product sells at £100 through the main retailer( Company A) but Company B get a bulk buy discount and buy at £80. Company B sells the product on wrapped in a consultancy bundle at £200. They make their mark-up and whatever they sell on consultancy/training. Company A and I share the £80. But company B has some big clients who not only are happy to pay £200, but may want to buy lots of it. They are doing all the donkey work in selling and as long as we get our £80, myself and company A are happy.

BUT: Company A also sells direct to the end uiser and to smaller user Company C,D, E etc with no discount at £100. I share the £100 with company A and those people sell it on at whatver price they can get.

But then everyone rings Purchaser P and tries to sell them the product at prices between £100 ( Company A) and £200 ( Company B). Purchaser P gets confused as to what the price is and who can sell it.

How can I, Company A and Company B avoid this without being accused of price fixing? Company B operates mainly in IT and finance sectors so could we agree not to try and sell in those sectors without first talking to the other? It is in everbody's interest that we don't undermine each others business by allowing the client to play us off against each other but we also don't want to illegally fix the price.

Edited by Four Cofffee on Sunday 7th February 10:07

[Jasandjules]

I think you need to get a corporate lawyer to draw up an agreement between the three of you to either split the markets/sectors or whatever you wish to agree with them (I don't think it's wise to have the three of you competing in the same market/sector with the same product when it is yours!) and have it written in such a way as to negate the price fixing.

It may cost you a bit in the short term but I think it will be worth it in the long term. Of course, company D may also get involved at some stage thus a contract may be prudent now?

[Four Cofffee]

Jasandjules said:

I think you need to get a corporate lawyer to draw up an agreement between the three of you to either split the markets/sectors or whatever you wish to agree with them (I don't think it's wise to have the three of you competing in the same market/sector with the same product when it is yours!) and have it written in such a way as to negate the price fixing.

It may cost you a bit in the short term but I think it will be worth it in the long term. Of course, company D may also get involved at some stage thus a contract may be prudent now?

Usually the licence holder is happy for resellers to fight it out as the customer is quite price elastic ( certainly a 20% discount wouldn't sway the decision). It is just this time when the licencee is marketing more proactively, with me backing them, that we are geting conflict. We have a clause in the main licensing contract around sectors but even that is quite loose and more of a gentleman's agreement to co-operate rather than not compete.

[Jasandjules]

I suppose there are two questions:

1. Has Company B actually mooched into those sectors they agreed not to?
2. What would you feel if they did?

(I can only imagine that an issue has already arisen for you to ask in the first place).

Therefore, I can only think it prudent to get a more formal contract (I can tell you know that many court cases occur as a result of "gentleman's agreements" or "agreements between friends" etc.. because whilst 9 times out of 10 all is well, it is that 1 time when it goes wrong that problems arise.. And once a business relationship starts to grate.......

[Four Cofffee]

Jasandjules said:

I suppose there are two questions:

1. Has Company B actually mooched into those sectors they agreed not to?
2. What would you feel if they did?

(I can only imagine that an issue has already arisen for you to ask in the first place).

Therefore, I can only think it prudent to get a more formal contract (I can tell you know that many court cases occur as a result of "gentleman's agreements" or "agreements between friends" etc.. because whilst 9 times out of 10 all is well, it is that 1 time when it goes wrong that problems arise.. And once a business relationship starts to grate.......

Yes, I contacted 2 'gatekeeper' organisations to find the Chair of Company B has booked in for lunch with their HR manager and had been at the other one the day before! Not a major problem per se but it made us both feel a bit foolish as we try to paint a picture of co-operation not competeition.

[Jasandjules]

Ok, so were those companies in the sectors which you had an agreement over? If so, I assume it was Company B who overstepped?

I can't imagine Company B agreeing to say for example provide you with their customer list and/or potnetial customer base, so that you don't both go after the same clients.......... Which I suppose would be another way to do it..

BTW I ought to point out I've never run a business, I am making this up as I go along (but hopefully it makes a little sense)..

[Jasandjules]

What did you decide to do in the end?