EXAMINING THE FUNERAL RULE
The 1992 amendment to the Funeral Rule created opportunities for third-party casket sellers in storefronts and on the internet to sell caskets/funeral supplies to the general public and also prevented funeral homes and funeral directors from charging a ‘handling fee’ to those who purchased caskets, containers, urns or other ancillary products from a third party. This amendment to the rule has caused much debate, animosity, and litigation in the industry.
This article will briefly examine arguments that were made to the Federal Trade Commission(FTC) by the Casket & Funeral Supply Association of America (CFSA) and the National Casket Retailers Association (NCRA) in 2002. The NCRA argues that the market is unfair and does not allow for true competition while the CFSA contends that the market is fair and welcomes the increased competition. There is also a January 2006 study published by the Yale School of Management and NBER which examines the effect of the rule and other regulations in states on competition in the market. The focus of the Yale study is the effect of funeral homes influencing the viability of third party casket stores by adjusting the price of their service offerings and lowering prices of caskets to, in essence, bar entry into the market by these retailers.
While the comments submitted by the CFSA and the NCRA to the FTC are mostly opinion pieces, they give great insight into where these organizations stand regarding this matter. The study, on the other hand is supported by empirical evidence that supports their findings, however, the data they collected is limited and does not offer broad conclusions, but merely a glimpse that could be the justification for more data collection and study in the future.
The remarks by Betty Brown, Vice Chair for the NCRA were submitted to the FTC in September 2002. View Betty Brown's Remarks.
Ms. Brown of the NCRA presents a rambling disorganized series of arguments, accusations, broad statements and other information in her arguments to the FTC. She begins her arguments by communicating her attempts to be recognized by “the NFDA & their like associations” and participate in the conversation of advocacy & outreach to the funeral industry, but states that repeated attempts have been met with no response. She says ”this appears to be counted as one of our biggest hurdles, [sic] even on the internet.”
The core of her argument is that the major three players in the casket manufacturing/distribution industry and most funeral directors are artificially keeping prices high and blocking third party casket suppliers from competing in the marketplace. Her complaints are that retail casket stores and internet sellers are unable to buy from the top three casket companies without using brokers (therefore cutting into the retailer’s profit) and that, when working with a customer, they are undercut at the last moment because the funeral director has an unfair advantage because they have the ability to bundle the casket/other products and their professional services. She concludes her submission with a NASCAR stock car racing analogy that claims (if understood correctly) that some competitors in the funeral industry ‘race’ are being cheated by successful larger corporations.
George Lemke, Executive Director of the Casket and Funeral Supply Association of America, Inc.(CFSA) submitted his comments to the FTC in October 2002. View George Lemke Comments.
Mr. Lemke, in his comments as a representative of CFSA, addresses internet sales of caskets, availability of caskets to third party sellers, cremation as an alternative and offers some general comments about the issues in the industry. His arguments are concise and well organized and touch on areas within and without the FTC and the Funeral Rule.
He avers in his comments on internet sales that, in many cases, third party sellers misrepresent the actual ‘savings’ they offer consumers. He states that “care must be taken to ensure that accurate price comparisons are being made” as well because of variations in material, design, hardware and other variables that affect the prices of caskets. Although he feels that the prices are being misrepresented, he welcomes “rigorous research” into pricing differences as long as the design of the study represents true comparisons of products in design, materials and quality.
The CFSA’s position appears to be one of allowing and even encouraging competition. They aver that anyone who wishes to sell funeral supplies on the open market should be able to determine price points where they would like, apply discounts when they like, and that the consumer will, based upon those criteria determine the success of those outlets.
As far as the argument over the sale of caskets from manufacturers to third party sellers is concerned, the CFSA “believes that manufacturers or distributors have the right to determine the product to be sold and to whom that product will be sold as long as those decisions are made independently by the manufacturer or distributor.” It does not have an opinion on the individual rights of the manufacturer to or not to utilize brokers of their goods/services. The CFSA feels that, again, the consumer has the right to shop for goods just as the manufacturer has the right to ‘shop’ for sales channels. Also of note in the comments regarding this issue, Mr. Lemke avers that the consumer branding of caskets is not a major factor in the market as many customers are not overly aware of the differences in brands. He also responds to the insinuation that caskets and funeral supplies were not available to internet sellers by simply stating that “were products not available, Internet sellers and third party sellers would not be able to sell caskets at all.”
The comments on cremation are an aside to this argument, but can be found in their entirety in the document. In Mr. Lemke’s general comments, he summarizes his arguments by stating that the Internet and third party sellers are operating under a disadvantage – their innate inability to provide the value added services of handling and preparing the body for burial. This disadvantage, however, is not an example of unfair business practices; it is an example of free market differentiation of services. (Example: You can go to a coin-operated car wash and have your car simply washed, but full-service car washes exist that will detail your car and offer other value added services.)
Mr. Lemke holds the belief that the Funeral Rule has worked. He states that if it were not working, many of the arguments about Funeral Homes/Directors lowering their prices or coming up with good/service bundle prices and manufacturers protecting their brand place in the market by being selective about brokers would not exist. He feels that more research should be done that would prove his suggestions that the actions taking place in the market are signs of a healthy open market and not one being controlled in an unfair manner.
The study by Judith A. Chevalier and Fiona Scott Morton in February 2006 titled State Casket Sales Restrictions: A Pointless Undertaking? can be found in its entirety at mba.yale.edu/faculty/pdf/ScottMortonF_caskets.pdf .
This 2006 study by the Yale School of Management looks at the effects of funeral goods regulations on the entire funeral market. They take a sample of data from various states that have a variety of levels of regulation on the sale of funeral goods to determine whether or not there are monopolistic trends on the market. Although they were able to gain some insight into the market, the main determination of the study was that more data needs to be gathered to make a clear determination.
The main focus of the study was on whether or not regulation on who is able to sell caskets and to whom they may be sold creates an unfair market climate. They examined states with heavy regulation, those with light regulation, those with recently removed regulation and those with no regulation. They found that funeral homes/funeral directors hold an advantage simply because they are able to bundle goods and services. The rents they garner from the sale of caskets and the rents they garner from services are inextricable. The study determined that, in many cases, the lower price offered for purchase of a casket creates a higher price offered for the associated service. This determination from the data shows that the overall spending on a funeral remains constant while the only shift is in the margins from goods to services.
These findings indicate that the increased competition has lowered prices/margins on funeral goods, but has not, based on the evidence, affected the overall price of a funeral. The study suggests further research into the subject.
The funeral rule that opened the casket market and disallowed funeral directors from charging a fee for using funeral goods from a third party has caused quite a stir in the industry. Cries of foul from third party suppliers, battles in courts, hearings by the FTC and questions of a fair market abound. The issue at hand is whether or not it is fair to provide a value-added service bundled with a sale of goods. Funeral directors have put much work into attaining and maintaining certifications. They in-turn are able to offer services that third party suppliers are not able to offer. There is not a question of fairness, but a question of entrepreneurship. If third party suppliers created an offering or a value added service that set them apart from competitors, the market would balance itself out, as opposed to legislating a manufactured ‘fair’ market.
