Examination of Witnesses (Questions 120-139)|
6 JUNE 2007
Q120 Chairman: What you can do is
send us a copy of that when you have got it done properly. 
Mr Stewart: Yes, we will do.
Q121 Chairman: Is that okay?
Mr Houghton: I think the issue
has been making sure that all the legal side has been watertight.
Q122 Chairman: Of course, okay. Last
December the OFT concluded that putting Trust Accounts in place
would be unattractive to agents and costly to consumers because
you have agents in use. How much will the Trust Accounts cost
and how will these costs be met?
Mr Stewart: We estimate that the
initial set-up costs of the Trust Accounts will be in excess of
£100,000. We obviously have not finished the process yet
so we are still yet to accumulate the final cost bill. There will
be some administration costs associated with the running of the
Trusts and administering the process so far, but we hope they
will not be too significant.
Q123 Chairman: Will the establishment
of the Trust Accounts affect your ability to benefit from the
interest earned on these accounts?
Mr Stewart: No, they will not
be because we are entitled to the interest earned on the Trust
Q124 Chairman: When do you expect
the new Christmas Pre-payment authority to become operational?
Mr Houghton: The company has actually
been formed now. We have three independent directors identified,
so we anticipate a meeting shortly. We have actually formed the
Q125 Chairman: Do you have Derek
Mr Houghton: Derek Walpole, Suzy
Hall and we have a prospective candidate, who is a chartered accountant.
Q126 Chairman: But not named yet.
Mr Houghton: He is named, a guy
called Graham Parrott.
Q127 Chairman: How will the Authority
be funded and what proportion of the funds will come from the
Mr Houghton: The Authority will
actually be called an Association now, for legal reasons, and
it will be funded by the members. Currently it is a company limited
by guarantee and there are currently two membersthat is
Park Group and Variety Christmas Club.
Q128 Chairman: You have 90% of the
market, have you not, effectively yourselves?
Mr Houghton: Effectively we will
be funding the majority of it, yes.
Chairman: Peter Viggers.
Q129 Peter Viggers: You use agents
to make collections; what are the costs and benefits of your reliance
on agents? How many customers per agent, on average?
Mr Woods: The average is about
four customers per agent; we have 104,000 agents this year.
Q130 Peter Viggers: What commission
do you pay and do you make it clear and overt?
Mr Woods: Yes, we make it very
clear. Every agent is given a guide which details how the commission
rates are structured and it varies by product category, but on
average it is probably about 4% on vouchers and somewhat higher
if they order other product.
Q131 Peter Viggers: Every agent is
given a commission statement, what about the customers?
Mr Woods: Customers do not get
Q132 Peter Viggers: No, but they
pay it. Do customers know how much commission they are paying?
Mr Woods: Customers do not pay
commission; we pay commission to the agents for collecting the
money and sending the orders in.
Q133 Peter Viggers: So the customer
indirectly pays the commission?
Mr Woods: No, the customer pays
the agent and we pay the agent commission.
Mr Houghton: Just to clarify,
the majority of our sales are voucher sales and we sell vouchers
a pound for pound and the commission comes out of the margin that
Q134 Peter Viggers: Yes, but the
person who is making the payment is the customer; does the customer
know how much he is paying to you indirectly by way of agency
Mr Woods: I guess probably not
unless they send for an agent pack, in which case they will get
the leaflet that explains what agents' commissions are.
Q135 Peter Viggers: I am sure there
is nothing to hide here. The fact is from what you say that the
customer does not know when he is approached by an agent with
a view to becoming a customer, is the customer told how much commission
the agent will be paid?
Mr Woods: I would guess not. The
agent and customer relationships tend to be very close. Our agents
are not cold callers. The four customers will probably be friends,
family or work colleagues and, being honest, I guess they are
probably not interested in what commission the agent earns at
all. But they could find out what our commission structure is
very simply by either logging on to the website or sending off
for a recruitment pack.
Mr Houghton: If a customer trades
for themselvesand an increasing number of people actually
order for their own consumptionthey do earn a commission
themselves as well. So it is obvious from the literature that
we have, if they read it, that there is a commission available
and they can trade for themselves. When you look at the TV adverts
that we make we invite people to join rather than to become an
agent, so the average commission is actually about 4% and it is
close to that for people who trade for themselves as well.
Q136 Peter Viggers: But just to underline
the point which I think is clear already, the arrangements tend
to be quite close and quite friendly between families or neighbours
or friends and the customer, when approached by an agent, does
not know the amount that the agent will be receiving as a result
of the customer signing up.
Mr Houghton: I cannot confirm;
I do not know.
Q137 Mr Love: Can I turn to the interest
payment that we commented on earlier? It has been suggested to
us that people who take part in Christmas savings schemes are
not particularly concerned about not receiving any interest. What
is your own experience of that? I start with you, Mr Houghton.
Mr Houghton: I think the level
of interest they can actually earn is relatively small by saving
with a bank or a building society. Actually if they do it through
an agent the agent actually does all the work for them, so they
see it as a small price to pay for the service of somebody coming
round to collect the money on a weekly basis, meet and have a
chat, go and pay the money in for them and when we deliver the
goods they see them deliver the goods.
Q138 Mr Love: Do your agents report
back to you any demand from their customers or their friends for
some form of interest payment?
Mr Stewart: Nothing at all.
Mr Woods: No.
Mr Houghton: We have regular panel
meetings and questionnaires to check on customer satisfaction.
Q139 Mr Love: Is it a similar experience
in relation to other pre-payment schemes or is it in relation
to interest? Do you provide interest in any other of the pre-payment
schemes and, if you do not, is there any feedback from that?
Mr Houghton: We only operate the
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