The easiest way to prevent future MAP violations is to stop distribution to that retailer. However, this tactic doesn’t work so well if that retailer is named Walmart. Or Target. Or Amazon.
Amazon is projected to collect nearly 50 percent of all online retail spend in the U.S. in 2018. Target’s Q2 revenue was $17.55 billion and Walmart’s was $128 billion. You stop distributing to these retailers, and you lose out on a lot of potential sales.
That’s why it’s no surprise that many brands don’t see a lot of value in minimum advertised price policies if they have a concentrated retailer base and/or their top retailers are the aforementioned Big 3. If Walmart says they’re selling your product below MAP, what are you going to do? Stop distributing to Walmart?
No, but you do have options—options that help MAP remain a viable option no matter who’s doing the violating.
MAP remains viable, even when working with major retailers.
Have You Asked Nicely?
Our parents always said to mind our manners and say please and thank you. In the hypothetical scenario that Walmart is violating MAP, you could try this tactic and ask them to stop. Politely, of course.
While this isn’t the most serious of tips, there is truth behind the idea. Retailers don’t just violate MAP for no reason at all. According to the study Determinants of MAP Violations from Northwestern University, violations occur because:
- MAP policies are set to expire
- Products have a lot of differentiation across brands
- Products have strong customer loyalty
- There is little incentive to adhere to MAP
- MAP violation penalties are weak
For example, if Walmart is selling a product from Brand A that has no competition, Walmart can increase sales by violating MAP because demand is less likely to decrease after a price change. Or, the same can happen if Brand A has very strong customer loyalty and Walmart isn’t concerned about shoppers buying from another brand.
The study also noted that instances of MAP violations increased as policies neared expiration. Violations also ticked up if the retailer wasn’t incentivized to adhere to MAP, and on the flip side, if there was little risk of serious punishment for pricing below MAP.
So, asking nicely, while tongue-in-cheek, could work if the major retailer doesn’t have a reason to break MAP. The non-compliant price could simply be an error or misunderstanding, so it doesn’t hurt to ask.
Before Punishment, Ask Why
If asking nicely hasn’t yielded the desired results, take a moment and ask yourself what you would do in their shoes.
Another reason why retailers violate MAP is because the policy isn’t reasonable. There’s a chance that too-strict MAP policies can increase violations. In a report written by the Northwestern University study authors, MAP flexibility helps retailers and manufacturers. For instance, only count violations if they are $10 or more below MAP. Or, institute MAP holidays during key shopping seasons for your industry. This gives retailers more flexibility to remain competitive on price.
You don’t know if it’s you or the retailer that is the reason behind MAP violations until you ask why. Once you have your answer, you can always change the definition of a violation if you can’t prevent them.
Realistic Penalties for Those Who Violate MAP
Eventually, you’ll want to use the threat of punishment to enforce MAP. The Northwestern researchers concluded that smaller punishments work better.
Their logic makes sense and cuts right to the heart of why it’s hard to enforce MAP at major retailers. The punishment must be realistic. An unrealistic penalty is threatening to cease distribution from Walmart if they price too low. Walmart won’t believe you; they’re Walmart. A realistic penalty is much smaller and scalable depending on the number of violations.
When dealing with major retailers, that could be the removal of MAP holidays or a stricter enforcement for prices within a $10 window. It could be the removal of certain products from the retailer—not your entire assortment. No matter what you choose, have MAP penalties that are tiered, start small, and gradually get more severe if the behavior continues.
This will show your bark isn’t worse than your bite.
Create a Solution That Works for You
At the end of the day, how you approach MAP must work for your business. That’s understandably tricky if you distribute to major retailers such as Amazon, Walmart, and Target. Those companies hold a lot of power, but it’s still your brand and you are in control.
Remember these solutions as online pricing continues to be a race to the bottom:
- Ask nicely
- Don’t let MAP policies expire
- Increase your MAP flexibility
- Create smaller, scalable punishments
The goal should be to create a scenario where the major retailer has more to lose by violating MAP than to gain. MAP must be mutually beneficial, so when it works, it’s working for both sides.