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July 05, 2004 02:00 AM

Buying group? Marketing group? What's the diff?

Miles Moore
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    Deciding whether to join a tire marketing or a tire buying group depends as much on a dealership's needs as on the differences and attractiveness of each of those types of programs. But one reason to belong often rises to the top of the list: profitability.

    Harry B. Ray, an attorney with the Chattanooga, Tenn., firm of Husch & Eppenberger and a legal expert on buying and marketing groups, has a quick definition on his Web site, www.buyinggroups.com.

    Buying groups, according to Mr. Ray, ``focus upon reducing the acquisition cost of products, thereby enhancing the ability of their members to compete with larger players.

    ``Marketing groups focus upon developing programs to assist their members in the promotion and sale of products,'' he said. ``Usually, these marketing programs are far superior to what an individual member could produce and are provided at a much lower cost.''

    But aside from the general differences between buying and marketing groups, how do executives of tire buying and marketing groups define the difference? Which is more useful to an independent tire dealer trying to make up his or her mind whether to join one or the other?

    And-along with the obvious benefits they offer-what are some of the pitfalls to belonging to a buying or marketing group?

    Belong to one, the other, both?

    It's no surprise that officials from buying or marketing groups tout the superiority of whatever kind of group they represent.

    Memphis, Tenn.-based American Car Care Centers Inc. is a marketing group, said Dave Crawford, ACCC director of marketing, who works from its Baltimore offices.

    ``The difference we see is that a buying group brings buyers together to get discounts, and that's all they provide,'' Mr. Crawford said. ``We provide marketing support programs and offer a lot of other things, too. We offer lower prices since we have 19 pretty big distributor-members. But we also provide national warranties, parts programs, oil and battery programs, marketing tools, national promotion, a national profile and many other things as well.''

    A marketing group, according to Mr. Crawford, offers enormous benefits to a small independent dealer. ``A large retailer may not need marketing tools,'' he said. ``But for smaller independent dealers, I feel very strongly that they should belong to a marketing group. They get the best of both worlds with us.''

    But sometimes even small dealers don't feel the need for everything a marketing group offers, according to Dan Beach, president of Oxnard, Calif.-based buying group Tire Alliance Groupe (TAG).

    Members of a marketing group, Mr. Beach noted, usually bear that group's signage and operate under the group's identity, which is part of the point of belonging to a marketing group.

    ``With a buying group such as ours, the members are not interested in an identity,'' he said. ``Many of our members have their own identity, but they want to compete with Sears and other large retailers price-wise. Collectively we can negotiate product agreements that will allow them to do that.''

    There also is significant overlap between marketing and buying groups, both in membership and in the features they offer, Mr. Beach noted. ACCC and TAG both offer proprietary, branded tires and other products that can only be bought through them.

    TAG has many subgroups in its operations-among them, the Independent Tire Dealers Group, made up of smaller dealers, that has become a core member of TAG, Mr. Beach said. Also, a number of dealership chains with their own marketing groups-such as Sherwood Park, Alberta-based Tirecraft Auto Centers Ltd.-also belong to TAG.

    Perks and pitfalls

    Whether a tire dealer belongs to a buying or a marketing group, such membership can be crucial to profitability, Mr. Ray noted on his Web site.

    ``A well-run group creates efficiencies of scale which not only benefit its members, but also benefit the public by reducing the pressure to increase prices, and, in many instances, result in lowering the prices,'' he wrote. ``In some cases, the benefits a member receives from his group can mean the difference between survival or failure.''

    Nevertheless, along with the rights and privileges a tire dealer gets from his group, he also faces certain pitfalls if he's not careful, according to Mr. Ray.

    One major problem involves the Robinson-Patman Act, an antitrust law on the books since 1936 that makes it illegal for retail chains or groups of stores to conspire to buy or sell products at lower prices than their competitors.

    Marketing and buying groups alike must be extremely careful to avoid any semblance of violating the Robinson-Patman Act, Mr. Ray said during a phone interview with Tire Business from his Chattanooga office.

    ``If a dealer was going to a meeting of his group members, and they were discussing the prices they should charge for their tires, he should either change the subject or leave,'' he said. ``They should avoid at all costs any discussion of pricing.''

    A major lawsuit filed by independent auto parts wholesalers against major chains-based on Robinson-Patman antitrust claims and settled in 2003-serves as a warning to all marketing and buying groups in any industry, Mr. Ray said.

    There also are anti-boycott laws a marketing group and its members can run afoul of, according to Mr. Ray. ``If you bring some of your customer suppliers into your group, that's an implied boycott against your other suppliers,'' he said.

    Sometimes the difference between a marketing group member and a franchisee can be razor-thin, Mr. Ray said, and being a franchisee means a whole new group of legal hurdles.

    If your group charges a fee for participation; has a trademark to identify the business and its members; and provides significant control over your business, significant marketing assistance, or both, chances are the Federal Trade Commission will consider it a franchising group and you a franchisee, Mr. Ray said. That means your business will come under the FTC's Franchising Rule, as well as under laws in several states governing franchises.

    Yet if the marketing or buying group is well-run and has a firm grasp of the laws involved, it and its members should be able to avoid all these legal pitfalls, he added.

    ``One way a prospective member can protect himself is to see if the group has an antitrust guide,'' he said. ``He should see if the group's legal counsel is well-versed in antitrust law. If the legal counsel comes to group meetings, that's a good sign.''

    Once the legal questions are answered, the matter of choosing a marketing or a buying group depends pretty much on the group's operations and the needs of the prospective member, Mr. Ray said. ``A lot of groups tend to promote marketing over buying,'' he said. ``On the other hand, if they're not buying their products at a good price, all the marketing in the world won't help.''

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