Benefits
Your brand may benefit from the Minimum Advertised Price policy because it:
- Avoids downward pressure on pricing from large retailers.
- Allows for better control of margins.
- Keeps authorized distributors happy.
- Decreases the “showrooming” effect when prospective buyers go to the brick and mortar store just to check out the product, knowing they can get a lower price online.
Are MAPs Legal?
Most business people know that “price fixing” is illegal. However, "price fixing" is illegal, under the Sherman Act, when it is between competitors, not by a single entity. In other words, you cannot agree with your competitors to minimum prices but you can have a “vertical” price fixing that applies to dealers of your own company. The Federal Trade Commission states that:
"Reasonable price, territory, and customer restrictions on dealers are legal. Manufacturer-imposed requirements can benefit consumers by increasing competition among different brands (interbrand competition) even while reducing competition among dealers in the same brand (intrabrand competition). For instance, an agreement between a manufacturer and dealer to set maximum (or "ceiling") prices prevents dealers from charging a non-competitive price. Or an agreement to set minimum (or "floor") prices or to limit territories may encourage dealers to provide a level of service that the manufacturer wants to offer to consumers when they buy the product... If a manufacturer, on its own, adopts a policy regarding a desired level of prices, the law allows the manufacturer to deal only with retailers who agree to that policy. A manufacturer also may stop dealing with a retailer that does not follow its resale price policy. That is, a manufacturer can implement a dealer policy on a "take it or leave it" basis."
The FTC also notes that "[t]hese benefits must be weighed against any reduction in competition from the restrictions." So, while the MAPs are legal, when drafted and implemented correctly, it is important to be wary of the antitrust laws that can still bite a negligent company.
That is why it is important to note that the MAPs are not actual contracts. It is one of the important distinctions from an antitrust scrutiny perspective.
Elements of the Effective MAP
What to include in your MAP?
Purpose. Appeal to your dealers' self-interest, not some pompous mission statement about your company's important "principles" which nobody except you cares about. If you want your MAP to motivate your dealers, state that the purpose of your MAP is to allow your authorized dealers to make profit by cutting out dealers who try to lowball other members of your team.
Consequences of violation. Termination at your sole discretion. You can also have a sort of “three-strike” rule, which is basically termination after a series of warnings.
Price list. You reserve the right to update it, at your sole discretion, when you feel it appropriate.
Excluded products? Out of season, discontinued, used, etc.
Advertised or actual selling price? Indicate if the MAP policy includes the actual selling price, or simply the price advertised on different media. Do rebates violate your MAP?
Channels. Does your MAP apply to all or only some channels?
FAQ section can be helpful.
Does “click for price” or anything similar violate your MAP? What about product bundling? Perhaps, dealers may not bundle your products if the bundling is more than a certain percentage lower than the combined price of both products price?
MAP Enforcement
So, after you have competently drafted your great MAP, how will you know when it is violated Automated price monitoring is the industry's preferred method. A good system will include:
- Automated real-time alerts
- Historical data, statistics and trends. Info on who is selling your products, reports on your market, dealers, and violation status, detailed sales information on each of the websites carrying your brand
- Screenshots
- Automated MAP enforcement to send violation notifications at the frequency you select.
- Grey market seller detection to allow you to receive data outside of your authorized dealer network.
