TrackStreet Blog

Establishing Your MAP Price Levels? Avoid These Pitfalls

Posted by Andrew Schydlowsky (TrackStreet) on Aug 25, 2017 8:25:28 AM

Establishing your Minimum Advertised Price (MAP) levels — the lowest prices you’re willing to let your resellers advertise your products — is often a delicate balancing act that requires a great deal of up-to-date information about your market, your competitors, your margins and your resale channel itself.

MAP Price Levels

For example, if you set your MAP price levels too high — and remember, this means a retailer who wants to adhere to your MAP policy won’t be able to publicly offer your products below that amount anywhere — some of your key retail partners, particularly your eCommerce retailers, might find your products too difficult to sell because they won’t be able to offer the eye-catching discounts that they do for their other inventory. Some of your resellers also might find your prices excessively high compared to competing products on the market.

But if you set your MAP price levels too low, some of your valuable brick-and-mortar retail partners — businesses that need to be able to generate larger margins because of their overhead — might determine that they can’t compete with their online-only competitors who are also selling your products.

At the same time, you also need to keep in mind several other factors when establishing your MAP price levels — such as making sure the prices you come up with will protect your company’s own margins, and that you don’t set your prices so low that they undermine the perception of your brand.

What all of this means is that you can’t simply guess where to establish the MAP price level of any of your products — even if it is an educated guess. Keeping your resale channel happy and growing, maintaining your profit margins and protecting your brand’s reputation for quality are too important to leave these decisions to even a highly educated estimate.

When establishing your MAP price levels, you need real-world data. Current data. Lots of it. Data about the prices your competitors are currently selling similar products. Data detailing which of your resellers are having success with your products, which aren’t, and at what prices all of these companies are advertising your items.

Because gathering, analyzing and making sense of all of this fast-changing data is too big an undertaking and too costly for a business to handle manually, this is yet another reason to deploy the right automated MAP monitoring and enforcement platform.

But as important as it is to conduct proper market research before setting your MAP price levels, there are certain forms of information-gathering you should avoid. These pitfalls below could land you on the wrong side of antitrust law.

 

3 THINGS TO AVOID WHEN SETTING UP YOUR MAP PRICE LEVELS

 

  1.    Working with your retailers to determine what your MAP prices should be.

This might sound completely counterintuitive, not to mention contradictory to the advice I offered above about researching your resale channel’s existing pricing of your products and learning from that data where the appropriate MAP price ranges might be for each of your products.

The problem is, working directly with any of your partners in your supply chain — distributors, dealers, wholesalers, retailers — in any manner that could be deemed an attempt to arrive at certain acceptable pricing for your products could also be viewed as a violation of the Sherman Act, the federal law most often invoked in antitrust cases.

But what if your company simply wants to collect information from your retailers about their successes and challenges in pricing your products, and maybe to ask for their thoughts about where that pricing “sweet spot” would be for their business? Sorry — you can’t do that.

Even if you have no intention of engaging in a “price fixing” scheme, the mere act of discussing with your resale partners where to establish your MAP price levels could violate federal law. This means that if you want to compile data about your resale channel’s pricing of your products, and their relative success in selling those products, you need to conduct this research independently — not by working directly with them.

 

  1.    Putting in writing any discussion with a reseller about MAP prices, if that discussion could be interpreted as collusion.

Often when a manufacturer or brand is building a relationship with a reseller, the company will send regular communications to that partner — updates about new products available for the retailer’s line, promotions the brand is offering its resellers, or offers to help answer any questions a new retail partner has. This is all good business practice.

But you need to be extremely careful about the communications you have in writing with your resale channel. These written conversations cannot include discussions about Minimum Advertised Price levels, except in the most general way.

For example, you can and should send every business in your resale channel — existing and new — your MAP policy. But if a retailer sends a question about your allowed advertised price of a specific product, or asks why you’ve set it at a certain amount, you need to keep in mind that “price fixing” and the Sherman Act’s key clause — “restraint of trade” — can be interpreted very loosely by the courts.

You should never engage in a written discussion that could be interpreted in any way as your company working with or taking guidance from a reseller on your MAP price levels. If you’re in doubt, particularly when the conversation is in writing, always limit your MAP price discussion to referring the resale partner back to your official MAP policy.

 

  1.    Drafting your MAP policy using language that could be interpreted as a contract.

Let’s say you’ve established MAP price levels for all goods that you sell through a resale channel. And let’s further assume that you’ve done this all without working directly with any of your retail partners. So far, so good.

But now let’s assume you draft and publish a full MAP policy supporting those prices, and you include language in that policy that reads as an agreement between your company and any business that wants to become an authorized reseller of your product line. Here again, you might unknowingly be violating federal law.

The Sherman Act prohibits “every contract, combination or conspiracy in restraint of trade.”

That means your MAP policy must be written as a one-way statement your company is making to its resellers — not as a contract they must sign, or even as an agreement they are implicitly making when joining your resale channel.

Bottom line: Both your MAP prices and the MAP policy you develop to enforce those prices must be crafted without the input of any members of your supply chain. This is the only way to avoid potential non-compliance with antitrust law.

 

LEVERAGE AN AUTOMATED MAP PRICE ENFORCEMENT PLATFORM TO HELP AVOID THESE AND OTHER PITFALLS

Building a MAP program is a complex undertaking for any business — even without the added complications of staying on the right side of federal and state price-fixing laws.

If you’d like help building and implementing a comprehensive MAP price monitoring and enforcement platform, schedule your free demo.

Topics: MAP, MAP Price