We must begin this story by commending the Competition Commission of Pakistan (CCP). It seems that the regulatory law enforcement authority has finally woken from its slumber after more than a year and a half in which it did not issue a single order.
The CCP normally ends up issuing at least a handful of orders every year. In the years preceding the interlude, the body issued between 8-11 orders annually. So it was strange when the CCP went missing in action from January 2023 to the 31st of July 2024.
The month of August, however, has marked a bit of a resurgence. In the span of the month of August, the CCP issued three different orders finally breaking its dry spell. However, the CCP might be a little over eager getting back on the horse.
One of the three recently passed orders has to do with the paint industry. The complaint was originally filed by Nippon Paints against Diamond Paints. In their complaint, Nippon claimed that Diamond was using deceptive marketing tactics. What misrepresentation was Nippon claiming? According to them, Diamond Paints was being deceptive by not disclosing that their paint contains ‘tokens’. Now, if you’ve lived through the early 2000s and the campaign by Master Paints that followed, you’ll know tokens are a pretty contentious issue in the paint industry. But why would Nippon claim Diamond is engaging in deceptive marketing techniques by not disclosing in their television ads that their paint has tokens?
Because the CCP is of that opinion. In fact, the CCP had demanded these declarations in an earlier order some years ago. It just so happened that the entire paint industry decided to not really implement it and nobody seems to have followed up. Until Nippon decided to one-up Diamond in this way. Now, the dynamics in the entire paint industry’s marketing departments are changing, and tokens seem to be on everybody’s mind. So let’s start there.
The token story
It all started in the mid-1990s, when a small boom in construction, combined with a large number of new entrants in the paint manufacturing market, led to a serious increase in the level of competition in the paint market in Pakistan. Companies were desperate for market share and willing to offer massive discounts in order to be able to get it. According to market research conducted by Nippon Paint Pakistan, 60% of paint buying in Pakistan is conducted by the labourer doing the actual painting. Another study found that 70% of consumers and painters stated that the advice of the painter was critical to the decision of which paint was purchased for a paint job.
Under these circumstances, while offering a discount on the wholesale or retail price of the paint would help somewhat, the companies looking to entice more buyers of their paints had to find a way to make sure that it was the labourer who got the discount, even though he was not the one paying for it.
The token was an innovative practice invented in the mid-1990s, and it was meant to solve the decision-maker/purchaser dichotomy. Before the anti-token campaign by Master paints, which was followed by litigation in Competition Commission of Pakistan, tokens were strictly speaking not illegal and soon every company realized the sheer genius of the scheme. Paint manufacturers started placing tags or stickers on each paint box with an amount of money written on it. That tag or sticker came to be known as the token, and could be redeemed at any paint retailer or wholesaler for cash. In order to ensure that it is the painter and not the homeowner who gets the cash from the token, paint companies place the token inside the paint bucket at the bottom, in a concealed packet underneath the actual paint. This is designed to ensure that the person doing the painting would be the first person to be able to access the token.
With the introduction of the token, the labourer all of a sudden saw their incentives flipped. Prior to the advent of the token, the labourer would either buy the cheapest paint or the one with the highest quality, or else a good combination of price and quality, depending on the needs and ability to pay off the person getting their house painted. Now, however, the labourer did not care about price or quality, but instead about which paint company was offering the highest redemption value for the tokens on their paint boxes. In other words, the painter was being offered a bribe.
Naturally, the paint industry did not want to advertise this. Ideally, the concept of tokens would have gone unmentioned. Sort of secret only known by painters and not by those buying the paint. But there was one company that was not using tokens in their products: Master Paints. As a result, painters started recommending people don’t buy it, and their business suffered. What they decided to do was launch a marketing campaign that pointed out the presence of tokens in other brands. This was the origin of the iconic “Token se Zara Bach Ke” tagline from one of the most recognisable ad campaigns of that time period. And that is when the CCP first got involved.
Token disclosures
In 2011, the Competition Commission of Pakistan, then chaired by activist chairman Khalid Mirza, decided to take action against the practice of placing tokens that were clearly designed to benefit the labourer at the expense of the end consumer. Over a period of seven months, beginning in June 2011, almost all of the major paint manufacturers in Pakistan submitted public documents explaining their marketing practices of using tokens for the very first time. The hearings were a fascinating insight into the corporate culture of the companies involved in the paint industry.
The most forthright was Nippon Paints Pakistan, which admitted that it started the practice in 2009, two years after entering the Pakistani market and discovering that tokens were standard market practice. They admitted that the target of the token is the painter, and not the end consumer and that the purpose is to persuade the painter to buy their paint, or recommend to the homeowner to buy their paint.
That’s right, this is the same Nippon Paints which has now used the CCP’s 2011 judgement to go after Master Paints. Remember, Master was the only paint brand not using tokens, which means Nippon too relies on them.
After three hearings over a period of seven months, the Commission issued an order on January 13, 2012, and found that the use of tokens without proper disclosure constituted deceptive marketing practices, and was a violation of Section 10 of the Competition Act of 2010. The commission ordered paint manufacturers to begin prominently disclosing both the existence and the redemption value of tokens on the paint buckets. The order read as:
“The disclosure with respect to the token on the paint pack as mentioned at (i) above should be made with the use of bright/conspicuous colours distinct from the colour of the packaging of the paint pack and should be printed in clear, bold and legible size.”
The decision was made. One can argue over whether or not it was a good one or not. After all, what exactly is the point of these disclosures? They don’t really determine or have anything to do with the quality of the paint. On top of this there is an advertising angle here. The CCP usually gets involved when there is deceptive marketing involved. What is deceptive about not disclosing the presence of tokens? These were all questions that some paint makers still had on their minds. Even though the decision was made, the CCP’s order was very quietly ignored. However, multinationals like AkzoNobel (formerly ICI), Nippon and a few local companies in the interest of best practice decided to follow this. That is where the CCP’s latest order comes in.
Nippon has a bone to pick
The paint industry in Pakistan has many players and they aren’t always the nicest to each other. Nippon decided it would go for Diamond and filed a complaint with the CCP. The subject of a complaint was a regular television advert for its product ‘Durasilk’ run on various television channels. There is a back and forth between Diamond and Nippon whereby Nippon made this complaint, and Diamond responded by saying Nippon’s use of the term “Asia’s Number 1 Paint” is also deceptive marketing.
But the CCP was quick to make a decision on Nippon’s complaint because there was already a decision from them with precedent. It is, however, interesting to see the defence that Diamond Paints put up because it has some good points to make. Diamond’s lawyers pointed out first that the complaint fails to explain how the TVC misled consumers regarding the product. Then there is the other problem. Every TVC is limited in its time and other print ads are limited in their space. Are paint manufacturers now expected to use longer ads and spend money on ad space to run disclosures not regarding their products but the presence of what is an industry-wide practice?
It was the sort of case that could have gone in either direction. However, the CCP ruled in the favour of Nippon. The CCP bench emphasised that proper disclosure of tokens is critical for customers. Marketing techniques that include redeemable coupons have a substantial impact on customer purchasing decisions. They also slapped Master Paints with a fine of Rs 50 lakhs. But in the aftermath of this decision, the effects will be felt beyond just Diamond Paints.
Could it come back to bite everyone?
What this means is that all paint ads are now fair game. Master Paints, for example, could have a field day finding TVCs without appropriate disclosures and complaining about them to the CCP to have their competitors fined and give them negative press. Even Nippon Paints, which filed the case, admits that they might possibly have to rethink their marketing strategy in the wake of this decision.
A company representative tells Profit, “It might affect Nippon too. But as far as the disclaimers are concerned, Nippon has never participated in deception marketing knowingly. All the content and products (that contain tokens) have always been disclosed – on cans and in campaigns so we don’t see a reason why the competitors shouldn’t do it too. It definitely affects business as it discourages people to buy products with in-can incentives but customers have the right to know. For customers who want products without tokens, we have a separate product range to accommodate them too.”
“Our hope is ideally every brand should start to include disclaimers in their campaigns at least on wider mediums. This change will help customers understand the market and little more and make an informed decision.”
The decision of CCP essentially makes life difficult across the board for manufacturers in the paint industry. In the days to come, it will be interesting to see if matters go back to a quiet agreement between all parties to ignore the decision, or whether they will now have to take the decision more seriously.