Resale Price Maintenance: 3 Steps for Effectively Combating Online Price Erosion

By: Andrew Schydlowsky (TrackStreet) September 7, 2018

Unethical and unprofessional practices by resellers can cause all sorts of problems for the brand owners whose products they sell — up to and including real damage to the brand’s value in the marketplace.

Resale Price Maintenance

A reseller might use inaccurate or misleading product specs, sales copy or imagery to sell your products, for example. Or they might advertise your products in geographical regions where your reseller policy explicitly forbids such sales.

But the reseller behavior that manufacturers complain most often about — and probably the issue that worries your company the most as well — is pricing violations.

This problem has grown particularly rampant online, where many retailers selling the same products often find they have little to differentiate themselves from their competitors. So they resort to cheating: luring customers to their websites or their stores on major marketplaces by advertising their products for less than the amount allowed in the manufacturer’s reseller pricing policy.

If the manufacturer isn’t able to stop this practice, if one reseller is able to keep advertising the company’s products online for less than all other retailers in the company’s resale network, this can lead to a price war — and the price erosion and “race to the bottom” on price that follows can greatly harm the brand.

If this is your concern, you need to create an effective plan for resale price maintenance. This post will give you the steps to develop an executive such a plan.

 

What is Resale Price Maintenance?

 

Resale price maintenance is the strategy a manufacturer or brand owner uses to ensure that its products are not sold on either the wholesale or retail market for less than the amounts it wishes.

It’s important to point out that resale price maintenance can, if deployed improperly and without expert guidance, land a brand owner on the wrong side of U.S. Federal antitrust law. The distinction we need to make is between a resale price maintenance agreement (which, if executed incorrectly, could be deemed illegal price fixing) and a resale price maintenance plan (which does not involve setting agreed-upon prices with distributors or retailers and therefore wouldn’t be illegal).

We’ll be discussing only a resale price maintenance plan — the steps your company should take, unilaterally, to protect your products’ prices, your reputable resellers’ margins and your brand’s value in the market.

Of course, any resale price maintenance plan can and should include developing and publishing a written reseller policy — in most cases, that will be either a Unilateral Policy (UP) or a Minimum Advertised Price (MAP) policy. But generally speaking, a Resale Price Maintenance (RPM) agreement can leave a manufacturer more vulnerable to antitrust violations.

(Read our post on how to determine if your reseller policy is legal.)

Next, let’s take a look at the steps to develop a resale price maintenance plan that can help combat online price erosion.

 

A Resale Price Maintenance Example: What Your Strategy Should Include

 

Here are three steps for building an effective resale price maintenance strategy. The order of these steps is important as well.

 

1. Create an authorized dealer program (for both your distributors and your retailers).

 

Any reseller strategy should start with a program for limiting and vetting all distributors and retailers of your products. Any company that wants to wholesale or retail your products should have to apply to your program — so your company can review their business profile, financial solvency, years in operation, track record with customers, partners or vendor references, etc.

Under your authorized dealer program, you’ll be able to limit which distributors are able to obtain your inventory, and to which companies (retailers or other distributors) they can sell them. You’ll also be able to limit which retailers are able to advertise and sell your products, and to whom — ideally only to end-user customers, and not to other retailers.

Why is it so important to make this your first step in devising your resale price maintenance strategy? Because when you limit which companies are officially allowed to sell your products, you can keep a more comprehensive watch over your entire resale network, more easily spot violations from your network, and quickly find resellers who shouldn’t be selling your products in the first place.

You can also more aggressively — and with greater legal freedom — pursue those grey-market retailers who are selling your products but haven’t joined your dealer network. When you go after a reseller who isn’t authorized to represent your products, you won’t have to worry about legal issues, because your claim against such resellers is an authorization issue — which doesn’t risk  violating antitrust law.

Bonus tip: We recommend your authorized dealer program also include a trust icon —which states something like “Authorized Dealer Verified.” You can then provide this to each distributor and retailer in your program and they can place these icons on their own sites to indicate they are allowed to sell the company’s products. Also, your trust icon should be a live, clickable link that pops open a new window verifying your company has included the reseller in your official resale network, like the dealer badging module from TrackStreet.

 

2. Aggressively identify and pursue grey-market sellers.

 

Now that you’ve established an authorized dealer program and are limiting the resellers allowed to represent your products — particularly online — you’ll want to set up a program for policing your products’ presence across the Internet and aggressively going after resellers who aren’t part of your authorized network.

This is why it’s so important to first create that authorized network — so it will be easier to catch those retailers selling your products without your approval. These companies, after all, have shown no concern about undermining your brand. Therefore, they likely won’t hesitate to include misleading product details in their sales copy and undersell your authorized resellers every chance they get.

But for your overall resale price maintenance strategy to be effective, this step will require active policing of the entire Internet for your products’ presence at all times — and the only way to do this comprehensively and cost-effectively is to deploy an automated price monitoring and brand protection solution, like the one offered by TrackStreet.

 

Remember: grey-market resellers are not a part of your authorized network — and, by definition, not allowed to sell your products — so you are free to go after them as aggressively as you choose, threatening whatever consequences you like.

This isn’t always so with reseller arrangements — such as for manufacturers that enforce a MAP policy — which we explain in our post discussing reasons your reseller policy could be illegal. In some cases, a manufacturer has to be very careful in how they address a reseller’s violation of their policy. But when it comes to a retailer you haven’t explicitly welcomed into your official network, you’re free to bring out the big guns!

 

3. Draft, publish and enforce your official reseller price policy.

 

The third step is to implement a reseller policy, which for most manufacturers — particularly those that don’t offer cooperative advertising funds to their resellers — will be a Unilateral Price Policy, also called a Unilateral Policy (UP).

This is the policy where you outline your specific guidelines for how you expect resellers to behave — including the minimum prices you’re willing to let them offer your products. It’s vital when drafting these policies, for business reasons as well as for your legal protection,that the language clearly reflect these are your company’s unilateral guidelines, and not be the result of agreements you’ve struck with some or all of your distributors and retailers.

There are certainly pitfalls in developing your reseller policy, which is why we recommend getting help from experts in Internet brand protection or antitrust law, or both.

 

Want help developing and executing your strategy for resale price maintenance? Schedule a demo.

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