This is a guest post by Tim Taich, Interim General Counsel at Wiser.
The brick and mortar and online retail worlds are merging into an “omnichannel” or “unified commerce” mode of customer engagement, bringing consistency across channels in merchandising and pricing, as well as ease in selection, fulfillment, and returns. Successful omnichannel marketing requires leading brands to support brand value with consistency in quality, service, support, and pricing. A well-crafted and thoughtfully enforced MAP (Minimum Advertised Price) policy is a critical tool for achieving these objectives and riding the wave of unified commerce.
Here are 7 key facets to keep in mind when crafting and enforcing a successful MAP program:
1. Unilateral Policy
MAP programs are unilateral and not agreements or negotiated arrangements. A key basis for a finding of an antitrust violation under the Sherman Act (Section 1) is the existence of an agreement in restraint of trade. A unilateral policy applied across channels and consistently enforced helps to insulate brands and their channel partners against resale price maintenance antitrust claims since the required element of an agreement is not established. You’ll want to avoid negotiating with individual MAP violators, either upfront or in the course of enforcement, since this could be used to demonstrate the existence of an agreement (whether or not in writing) in restraint of trade.
2. Reflect Your Go to Market Brand Strategy
Your MAP policy should be about more than just pricing, but rather should clearly indicate your go-to market brand strategy and your determination to deliver a preferred level of service, support, and particular customer experience. As it turns out, a key benefit and justification of a MAP program is pricing that provides the margins that support these go-to-market elements that distinguish your brand with additional services.
3. Clearly Spell Out Consequences of Non-Compliance
Your MAP policy should clearly delineate your steps for enforcement, as well as the consequences for violations. In a recent Harvard Business School study of online MAP enforcement, Ayelet Israel found that a policy detailing specific enforcement measures, coupled with prompt communications and administered consistently, had a higher level of channel compliance than a policy which simply threatened the violating retailer’s authorization to sell. With a higher level of policy compliance, your retail partners gain confidence to make the necessary investments in personnel, training, brand promotion, inventory, customer centric policies, etc. to meet your brand service and support expectations.
4. Escalation and Follow-Through
You should delineate a clear protocol for escalating enforcement with specific timeframes, and then follow through with even-handed and uniform enforcement across your authorized resellers. For example, in her study, Ms. Israel recounted a manufacturer that transitioned from a vague policy of threatened termination for violations to a “three strikes” escalating protocol under which the retailer loses access to the product at issue for 30 days after the first violation, then is cut off from distribution for 60 days after the second violation, and then finally the relationship is terminated after the third violation. In practice, the manufacturer in this example monitors prices of products subject to MAP daily, sending notifications to violating retailers weekly, and then applying the “three strikes” procedure with retailers who continuously violate the MAP Policy after receiving a notification of noncompliance. At the end of the day, you can decide to stop supplying or doing business with non-compliant channel partners. You should be careful, though, to apply consequences consistently and avoid the appearance, for example, of acting in concert with a favored retailer against another – perhaps less consequential – retailer, as this could suggest an illegal agreement in restraint of trade.
5. Monitor and Document
Enforcement does not happen on its own. Rather, it requires continuous monitoring of channel activities and clear and complete documentation of violations. In her study, Ms. Israel found that the credibility of monitoring and punishment is an important element of MAP compliance. That is, MAP violations may be attributed to a failure to invest in either monitoring or enforcement efforts, preventing the manufacturer from acquiring the necessary detailed information on advertised retail prices. So, when it comes to tracking advertised pricing, you need to deploy tools and resources sufficient to fully identify and document the suspected violations. For example, in tracking violations, it’s very helpful to document the product/SKU at issue, time and date of the violation, URL, screenshot or some other proof of the advertised price, and the established MAP price. A communication with incontrovertible evidence of a violation, which is logically presented and promptly issued, can go a long way toward a quick resolution.
6. Confront the “Catch Me if You Can” Game
Some retailers advertise their products across multiple and changing domain names, trying to stay one step ahead of your efforts to monitor their advertised pricing and perhaps obscuring their association with the various domains. To ensure transparency and avoid obscured monitoring, some manufacturers require that their authorized resellers register all domains through which they advertise and sell the manufacturer’s products. When the manufacturer finds an authorized reseller directing its advertising through an unregistered domain, the MAP policy enforcement protocol is then deployed to discipline the violator.
7. Discipline Unauthorized Retailers
Your authorized resellers are depending on you to discipline free-riding retailers outside of your authorized channels. Otherwise, their businesses will be cannibalized and they will be unable to sustain your expected level of service and support. Not surprisingly, Ms. Israel found that the incidence of MAP violations is dramatically higher among unauthorized resellers, compared to authorized resellers. This means that you need to deploy the tools and resources to illuminate this shadow commerce.
For example, you’ll want to retrace their supply chain and pursue authorized resellers who may be supplying in violation of their agreement with you. Since you do not have the leverage of an existing business relationship with the unauthorized resellers, you’ll need to be ready to threaten and pursue legal action. The initial step, once you have your documentation in order, may be to have your counsel issue a “cease and desist” letter demanding that the violator stop the accused illegal activity, such as infringement of trademark, copyright or patent rights. For those that do not heed the demand, the next step may be initiating legal action or pursuing regulatory attention. Alternatively, if the unauthorized activity is pursued through a platform like eBay, you may be able to have the platform remove the violator (such as through the eBay Verified Rights Owner program).
In short, a well-conceived MAP policy can provide a strong foundation for your omnichannel go to market brand strategy, while avoiding violations of US, state, and foreign antitrust laws. This requires you to develop a thoughtful program (with the help of antitrust counsel) and invest in the necessary resources for coherent and credible monitoring and enforcement. The old days of flying blind and following up on complaints haphazardly will simply not provide the coverage your authorized retailers need and deserve. A strong MAP policy allows resellers to provide the services and support and engender the customer experience envisioned by your brand strategy.
About the Author
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