Is Minimum Advertised Price Policy Really the Best Option for You?
Manufacturers and brand owners contact us at TrackStreet just about every day with a similar request: “Can you help us set up a minimum advertised price policy?”
Maybe you’re in a similar position. Perhaps you’ve noticed that your company is having trouble maintaining minimum price levels for your products online: Authorized resellers are undercutting each other, gray-market retailers are underselling everybody, and the general trend of your products’ advertised prices is moving downward rapidly.
When a manufacturer starts to notice that it’s experiencing this sort of price and brand erosion, often the company’s first instinct is to create and publish a minimum advertised price (MAP) policy. That’s what the industry seems to consider standard practice in these situations. It’s what they’ve heard they need. But is that always the case?
When a Minimum Advertised Price Policy Makes Sense (and When It Doesn’t)
Many brands have a fundamental misunderstanding of what a minimum advertised price policy is. As a result, they often implement a MAP when a completely different pricing policy would be both more effective and less legally risky.
Generally speaking, a minimum advertised price policy should come into play only when a manufacturer or brand is offering its resellers cooperative advertising dollars. And the policy itself should be tied directly to that cooperative ad money.
In other words, if you as the manufacturer are making available a certain amount of advertising support each month for a given reseller, you have a legal right to demand certain behaviors from that reseller in terms of how they spend those ad dollars. For example, you may ask that they advertise your products more prominently than they do your competitors’ products.
You may also demand — and here is where a minimum advertised price policy would come into play — that a reseller accepting your cooperative ad money not advertise your products below your company’s MAP price level.
In other words, a minimum advertised price policy is the right program to protect against reseller price erosion only if your company offers advertising support to your resale channel.
Note: When you implement a minimum advertised price policy based on cooperative ad dollars, you can — and should — make this a bilateral agreement, which both your company and any reseller interesting in receiving your ad support will need to sign. It’s also important to point out that when you enforce a minimum advertised price policy built around cooperative ad dollars, your only legal recourse against violators will be to withhold some of those ad dollars.
“We Don’t Offer Cooperative Ad Dollars to Resellers. Should We Use a Minimum Advertised Price Policy?”
In most cases, the answer will be no. If your company doesn’t offer cooperative ad support to your resale partners, then the program you’ll want to implement to protect against reseller price erosion is a unilateral price policy (UPP), sometimes simply called a unilateral policy (UP).
Case law and the courts have typically deemed minimum advertised price policies legal when they are built on cooperative advertising. This is because such policies create a legitimate two-way agreement, where a brand offers its resellers monetary support for its advertising and in exchange obviously has a right to assert some control over how those ad dollars are spent.
If you don’t provide advertising dollars to resellers, however, then according to the standard MAP practices you really have no legal recourse in enforcing your policy against violators. The only action you can take in a traditional MAP program is to hold back some of the advertising dollars from a reseller who is advertising product below your MAP-approved levels.
In other words, if you as a manufacturer have not offered some tangible support to a reseller, then you don’t have a strong legal right to demand how that company behaves when dealing with its own customers. And if you demand that a reseller affirmatively agrees to specific actions in such a scenario — agreeing to advertise your products at or above a certain price, for example — that could be deemed a price-fixing violation of federal or state antitrust law.
For Most Manufacturers, a Unilateral Policy is a Way to Go
The legal issues surrounding reseller pricing can get murky, and a manufacturer acting entirely in good faith can easily draft a minimum advertised price policy that actually violates the law.
For these reasons, our advice is that unless your company provides cooperative advertising money to resellers, you build your reseller pricing program not on a MAP policy but instead on a unilateral policy.
Because it is drafted as a one-way set of guidelines, a unilateral policy avoids the legal gray area of price fixing. Indeed, the courts have consistently determined that as long as your pricing policy allows your resellers to act independently — which a properly written UP will do — such a policy will be entirely legal.
If you’d like help developing your own unilateral policy and deploying it as part of a larger online brand protection strategy, let us give you a free demo!