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10 Reasons Your Minimum Advertised Price Program Could Be Upsetting Your Resellers

Written by: Eugene F. Zelek, Jr.

Abstract

To combat resale price erosion and protect your brand value, you have probably implemented some form of reseller pricing program—most likely built around a Minimum Advertised Price (MAP) policy or a Minimum Resale Price (MRP) policy. (If you haven’t yet drafted and deployed such a program, you’ll want to start investigating your options as soon as possible.)

Establishing a policy and enforcement system to manage reseller pricing can provide enormous strategic advantages for a manufacturer or brand owner. It can help preserve margins for key retail partners, strengthen reseller relationships, prevent channel conflicts, and ultimately safeguard a brand’s value in the marketplace against the detrimental effects of resale price erosion.

At an attorney I have specialized for years in channel management and resale price setting, and I have helped hundreds of organizations, across many industries, draft and execute MAP and MRP policies. The fact that some (although still far too few) manufacturers today understand the importance of systematically protecting their products’ pricing on the retail market is, generally speaking, a positive development.

But as I have also found in working with so many businesses that have rolled out their own reseller pricing programs, there is clearly still a great deal of confusion about what these programs should entail, what manufacturers can and cannot do from a legal standpoint, and even how to determine which type of reseller policy to implement in the first place.

This paper will address 10 of the most common missteps manufacturers make when structuring, drafting, and executing their reseller pricing programs. It is important to know where these common pitfalls are, because they can undermine your all-important relationships with your entire resale channel.

  1. Selecting the wrong policy for your company

Often the problem with a manufacturer’s reseller pricing program traces back to the very beginning—with choosing the wrong policy to enforce based on the business’s specific circumstances. Let’s clarify the terminology, so you can better understand the differences between these policies.

Although the term MAP is often incorrectly used as a catchall to mean all types of reseller pricing programs, a Minimum Advertised Price, or “MAP,” policy is one in which the manufacturer or supplier sets a minimum price only for its resellers’ “offers”—meaning advertisements and promotions. MAP policies never cover the actual selling price; resellers are free to actually sell the supplier’s products for whatever price they choose.

A Minimum Resale Price, or “MRP,” policy is far broader, allowing the supplier to set minimum prices on its products for all offers and even the actual resale price.

Typically, a manufacturer will opt for a MAP policy—covering advertised prices only—when the company’s main concern is preventing public pricing of its products that it worries will undermine its brand and upset key retail partners.

Key takeaway: If your company’s primary concern is what prices for your products will show up during a consumer’s Internet price shopping, then you might want only a MAP policy. If you want to control the actual sale price of your products, you will probably want to implement an MRP policy.

  1. Drafting your reseller policy as an agreement (or inadvertently turning it into an agreement after the fact)

According to a strict reading of the law, a manufacturer may draft its MAP or MRP policy either as a one-way statement or as a two-way agreement signed by both the manufacturer and its resale partners. Based on a landmark 2007 US Supreme Court decision (Leegin Creative Leather Products v. PSKS, Inc.), resale price agreements, which had for the previous 100 years been deemed “per se” (intrinsically) violations of antitrust law, are now subject to the more relaxed “rule of reason.” This means a court could find that a resale pricing agreement is perfectly legal.

What’s important to understand, however, is that, at least in the United States, these agreements are still risky and impractical.

One problem is that, although US federal law no longer deems a resale price agreement as inherently and always illegal, several states—California, Illinois, Maryland, Michigan, and New York—still treat them as per se illegal. This means that if your business has a competitor, reseller, or a customer in one of these states, and that party launches an antitrust challenge based on your pricing agreement, you could face a difficult legal battle from that state’s attorney general’s office.

A second problem with drafting your reseller pricing policy as a two-way agreement is that every time you need to update your policy (to change pricing, to add new products, to alter a clause, etc.), you will need to obtain updated signatures from all of your resale partners. This will be time-consuming for both your company and each reseller, and will likely frustrate them and undermine your relationship with them if it happens too frequently.

Key takeaway #1: For both legal and business reasons, the smarter approach for either your MAP or MRP program will be to draft it as a unilateral policy. When you publish a one-way statement, you will be legally free to update it as often as you want without ever having to obtain a reseller signature, and you will be giving your company greater legal protection against an antitrust challenge. There can be no resale price agreement, after all, if the policy is drafted and enforced unilaterally.

Key takeaway #2: A related problem is when a manufacturer drafts its MAP or MRP as a unilateral policy but then engages in behavior—such as granting special treatment to certain retailers after having conversations with those companies—that in effect turn the policy into an agreement. So you’ll also need to train your staff on how to deal with requests and complaints from resellers that avoid any behavior that could later be challenged as an agreement.

  1. Putting enforcement responsibility on your distributors or wholesalers

MAP and MRP policies are generally drafted for your retail partners only, not for your distributors. They are designed to control advertised and sales pricing for end-user consumers, not wholesalers or other third parties in your supply chain.

One exception, of course, is if you have distributors who also have their own dealer (retail) operations—meaning they sell both to end users and to other dealers. But even in this context, your MAP or MRP policy will apply only to your distributor/dealer’s “dealer” side the house and will have nothing to say about how it sells to other your other retailers.

A common mistake manufacturers make is handing their reseller pricing policy over to distributors and expecting those intermediaries to enforce the policy for them. Worse still, some manufacturers demand their distributors develop their own MAP or MRP policies and enforce those policies with retailers buying the manufacturer’s products. This could actually constitute a price agreement, which could be deemed illegal price fixing for an MRP policy and even legally problematic for a MAP program.

Key takeaway: As a manufacturer, you cannot expect your distributors or wholesalers to monitor and enforce your reseller pricing policy with their dealers for your company; that is your responsibility. But one way you can more effectively protect your channel is to create an Authorized Dealer Network, in which you can limit the companies to whom your distributors may sell to those in your network. You can also create a Do-Not-Sell List of dealers you’ve had problems with in the past, and let your distributors know they cannot sell your products to businesses on that list.

  1. Relying on verbal-only policies

Some manufacturers make the mistake of simply telling resellers about the minimum pricing they are willing to allow and the consequences for violating those minimums—without putting any of this information into written form.

This approach is problematic for several reasons.

First, the manufacturer will have no way of proving such a policy even exists if the company can’t point to any documentation showing that it does.

Second, without a written record explaining what exactly is expected of them—a document they can refer to later, and to show new employees—how can a retail partner actually know that it is following the policy?

Third, because a reseller might have to check in periodically with the supplier for a refresher about its verbal-only pricing policy, or to ask questions about it, that policy’s terms are likely to change over time as well as with different resellers. This can all lead to legal problems because the policy could be interpreted as an agreement (manufacturer and reseller had to keep discussing it, after all) and because the manufacturer might inadvertently be enforcing it inconsistently.

Key takeaway:Put your reseller pricing policy in writing.

  1. Stopping short of enforcing in-the-cart pricing for online retailers

Many manufacturers mistakenly believe that forbidding online retailers from offering lower in-cart pricing would be illegal, because they incorrectly view a shopping-cart price as the sale price. But this is not true—and including a guideline in your MAP policy that disallows retailers from using language such as “see cart for best price” is perfectly legal.

This is because when a visitor to an eCommerce site places a product into her shopping cart, she is still technically shopping. She is under no obligation to buy. Indeed, according to a Baymard Institute study in 2015, nearly 70% of all online shopping carts are abandoned without a purchase.

Key takeaway: Although your MAP policy does not need to extend your minimum advertised prices to your retailers’ online shopping cars, if you want to control the prices even in the cart you are legally free to put this demand in your written policy. It is only at the checkout price that your MAP policy can no longer legally control your resellers’ pricing—because checkout is considered the final sale price.

  1. Believing that MAP and MRP policies cannot legally be enforced in Canada

For many years, any attempt made by a business in Canada to establish or affect resale prices was deemed “per se” illegal, regulated under the country’s Competition Bureau. But in 2009, the Canadian government amended its Competition Act, effectively decriminalizing price maintenance and introducing a more relaxed “adverse effect” standard—something similar to the “rule of reason” principle introduced in the US a couple of years earlier.

Moreover, Canada does not have a comparable split between federal law and state law to the one we have in the US (remember, New York, for example, still treats any resale price agreement as per se illegal). This means that, generally speaking, a MAP or MRP policy or agreement that would be considered lawful in the US would also be deemed lawful in Canada as well.

Key takeaway: Do not overlook the need to monitor and enforce your reseller pricing policy with your retail partners in Canada, if your company also does business there. If drafted and executed properly, these policies can be perfectly legal in that country, just as they are here.

  1. Drafting a policy that signals a lack of resolve about enforcement

Often manufacturers draft MAP or MRP policies whose language fails to communicate clarity, seriousness, or a willingness to stand behind the consequences it describes for violations. Sometimes this is due to concern that if the policy comes across as too strict or sternly worded, it could turn off resale partners.

But a wishy-washy or superficial policy can be far worse. It can invite bad behavior from some resellers because they don’t fear the manufacturer will actually go through enforcing its consequences. Plus, it can turn off the company’s most important, most reputable retail partners—who plan to adhere to the policy but fear when reading it that they will be unfairly undersold by some competitors who won’t comply.

With this in mind, here are a few examples of the common ways a reseller policy can communicate lack of seriousness—all of which you want to avoid:

  • “May” vs. “will”:

Using “may” in describing either the policy’s instructions or consequences signals the manufacturer is not prepared to enforce the policy, and it gives license to resellers not to take it seriously.

  • Lack of sting:

Like using “may” instead of “will,” coming up with enforcement consequences without serious bite can have the counterproductive effect of tempting resellers to violate the policy because they don’t fear what will happen if they do.

  • Too many strikes:

The retail partner needs to see real consequences, from their very first violation, and a clear point at which repeated offenses will get them kicked out of your network altogether. Listing too many “strikes” is another way of signaling weakness and a willingness to keep working even with a serial offender indefinitely.

  • Restarting the clock:

If a retailer knows your company will reset their violation scorecard back to zero every year, you are giving them license to regularly violate your policy—which will be particularly tempting during big selling seasons, such as the holidays. Better not to advertise a regular policy reset in your policy. (You can always announce it to your resale channel if you’d like.)

Key takeaway: For your reseller pricing policy to be effective, and for it to have any credibility with your resale channel, you need to draft to be to clear both in its rules and in your promised consequences for violating those rules.

  1. Showing ambivalence in policy monitoring and enforcement

Sometimes a manufacturer will draft and publish a reseller pricing policy—even one that steers clear of the wishy-washy language I just described—but then become apprehensive about actually monitoring their resale network’s behavior or addressing a violation when they learn about it.

This can be due to concern that calling out a policy violator could damage the manufacturer’s relationship with that reseller. Or it can simply happen because the manufacturer doesn’t believe it has the time or resources to devote to actually enforcing its policy. Both of these represent flawed thinking.

As for worrying that enforcing your MAP or MRP policy could harm your relationship with that reseller, consider what not addressing the violation could do. Instead of possibly creating some short-term friction (for a completely legitimate reason) with a company that just violated your policy, you might create much longer-term credibility damage with all of the resellers who haven’t violated your policy.

And as for the issue of time and resource constraints for policy monitoring and enforcement, consider that there are automated solutions—such as TrackStreet—that will handle much of the work for your company.

Key takeaway: There is really no excuse for failing to implement a program for comprehensive monitoring of your products and brand across the Internet, at all times, and aggressively dealing with violations.

  1. Developing a policy that’s too rigid

Some manufacturers draft reseller pricing policies that have so little flexibility that they create enforcement problems of their own.

If your policy doesn’t allow any room even for the ability to temporarily relax the rules for seasonal promotions—or even for an innocent mistake by a reseller—your team might be less willing to enforce the policy at all. And if they do enforce such a rigid policy, your company could be missing out on revenue and important moments for partnership-building that they won’t be able to allow—because those opportunities violate your rules.

Key takeaway: While you don’t want your policy to come across as too weak or unserious, you do want it to have at least some flexibility to allow for exceptions when the circumstances call for them.

  1. Failing to build a broad brand protection program around the policy

Many manufacturers make this final mistake. It might be the most common pitfall for a supplier looking to set up a reseller pricing program. The company drafts and publishes (and perhaps even enforces) its MAP or MRP policy, but fails to build the other important processes around the policy that would give the company much more comprehensive brand protection.

Here are just a few of many examples of complementary strategies to help you protect your brand and reduce resale price erosion include:

  • Creating an “Authorized Dealer Network”

This gives you more control over (and more visibility into) which companies are able to buy your products for resale. Such a program can help you limit rogue resellers and pricing policy violations.

  • Cutting off inventory to discounters

Another strategy worth considering is to simply stop doing business with resellers you find repeatedly underselling the rest of your retail partners, offering deep discounts without your permission, or engaging in other practices you find could harm your brand.

  • Creating different categories of reseller pricing

You can also protect key retailers’ margins by creating multiple categories of resellers based on the services they perform. For example, if your brick-and-mortar retailers offer in-store product displays or train their salesforce on your products’ features and benefits, you can offer them rebates or credits—which will allow them to sell at prices that compete with your online-only retailers and still earn their margins selling your products.

As you can see, there are many ways to deploy a reseller pricing program incorrectly—or at least less than optimally. But when it comes to such mission-critical assets as your brand value and relationships with your most important retail partners, investing the time to roll out such a program the right way will repay your company large dividends over time.

About the Author: Eugene F. Zelek, Jr. ([email protected]) is Senior Counsel in the Chicago office of Taft Stettinius & Hollister LLP. He specializes in sophisticated legal counseling, transactional and litigation work in marketing-related legal matters, particularly resale pricing, differentiated pricing and reseller relationships, as well as strategic alliances, supply arrangements, advertising, licensing, branding and new product development. Gene has helped design, implement and enforce more than 350 successful MRP and MAP policies in many different industries.

About TrackStreet: TrackStreet is a leading provider of SaaS-based brand protection technologies used by more than 100 brands to protect brand value, enforce distribution policies, and increase channel sales. Used across a variety of marketplaces, TrackStreet technology monitors the Internet to provide its customers with actionable, quantifiable, trackable, historical, and real-time data that directly impacts their reputation and profitability. TrackStreet is backed by Okapi Capital, Stage Venture Partners, SaaS Venture Capital and several eCommerce-related angel investors.

 

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