What’s Your MAP Policy IQ?

How much do you know about MAP policy and other types of reseller pricing policies? About how to draft them, the business reasoning behind them, and what legal risks are involved in managing them incorrectly? Here’s your chance to find out your MAP policy IQ.

MAP Policy IQ

Below are 10 questions (arranged, more or less, from easiest to most difficult). The answers are at the very bottom. (No peeking.)

     1. Define a Minimum Advertised Price (MAP) policy, and explain how it differs from a Minimum Resale Price (MRP) policy.

     2. True or False: For an online retailer, an MRP policy can control the company’s price even at checkout.

     3. Please describe one strategic business reason for drafting your reseller pricing policy as a unilateral policy rather than as an agreement between your company and your resellers. 

(Hint: This question has less to do with legality than the business benefits of a one-way policy over an agreement.)

     4. Why would designating a distributor or wholesale partner an “agent” of a manufacturer allow that entity to legally dictate prices to retail buyers?

          a. Agents are granted special legal privileges under antitrust law.

          b. Agents do not take official title to the manufacturer’s products and are therefore able to act as part of the manufacturing company itself, and the manufacturer is allowed to dictate prices to resellers.

          c. Agents are not legally allowed to dictate prices to retail buyers.

     5. Please explain why a manufacturer or brand owner might strategically benefit from offering rebates to brick-and-mortar stores in exchange for certain services such as providing in-store displays and/or training its floor sales force.

     6. Please list two distinct ways that failing to consistently monitor its retailers’ pricing could harm a manufacturer’s business.

     7. True or False: It is illegal to talk about pricing with your resellers.

     8. True or False: Reseller pricing policies cannot be legally enforced in Canada.

     9. Which states in the US still treat resale price agreements as “per se” illegal—meaning illegal on their face (even though federal law now judges them on the more relaxed “rule of reason” standard)?

     10. Can you name one mistake an employee at a manufacturing company could make when dealing with a reseller that could, in effect, turn its unilateral policy with that seller into an agreement and increase the company's exposure to an antitrust challenge?

 

Check Your MAP Policy IQ: Answers Below

 

  1. Define a Minimum Advertised Price (MAP) policy, and explain how it differs from a Minimum Resale Price (MRP) policy.

A Minimum Advertised Price, or “MAP,” policy is one in which the manufacturer or supplier sets a minimum price it will allow a reseller to use in some (and usually not all) of its “offers”—meaning advertisements and promotions. Key takeaway: MAP policies never cover the actual selling price; resellers are free to actually sell the supplier’s products for whatever price they choose.

A Minimum Resale Price, or “MRP,” policy is far broader, allowing the supplier to set minimum prices on its products for all offers and even the actual resale price.

Typically, a manufacturer will opt for a MAP policy—covering advertised prices only—when the company’s main concern is preventing public pricing of its products that it worries will undermine its brand and upset key retail partners.

 

  1. True or False: For an online retailer, an MRP policy can control the company’s price even at checkout.

True. MRP policies can set all prices, including resale price, even into the online checkout screen or at the checkout counter at a physical store.

 

  1. Please describe one strategic business reason for drafting your reseller pricing policy as a unilateral policy rather than as an agreement between your company and your resellers.

(Hint: This question has less to do with legality than the business benefits of a one-way policy over an agreement.)

One reason a unilateral policy is strategically superior is that the manufacturer can easily update or make changes to the policy anytime it wants or needs to. Then it can simply issue a notice to its resale channel encouraging them to review the changes.

With an agreement, however, every time the manufacturer wants to make an update (even a minor one), it will need to go out to every one of its resale partners and explain the changes to them so it can ask for them to sign the new version.

  1. Why would designating a distributor or wholesale partner an “agent” of a manufacturer allow that entity to legally dictate prices to retail buyers 

            a. Agents are granted special legal privileges under antitrust law.

            b. Agents do not take official title to the manufacturer’s products and are therefore able to act as part of the manufacturing company itself, and the manufacturer is allowed to dictate prices to resellers.

            c. Agents are not legally allowed to dictate prices to retail buyers.

The correct answer is b.

Distributors or wholesalers can be designated as agents when they do not take official title to the manufacturer’s products, meaning they have not purchased those products themselves and are therefore the inventory they are selling is still owned by the manufacturer.

And because a manufacturer is legally allowed to set its own prices to resellers (using a unilateral MAP or MRP policy, for example, when the wholesaler or other company is acting as an agent they, too, are allowed to set prices for their retail buyers.

  1. Please explain why a manufacturer or brand owner might strategically benefit from offering rebates to brick-and-mortar stores in exchange for certain services such as providing in-store displays and/or training its floor sales force.

If a manufacturer offers rebates for retailers who provide in-store displays or a trained sales force—services an online-only retailer will not provide—then the manufacturer can, in effect, allow its brick-and-mortar partners to maintain their higher margins and not be undersold by a pure eCommerce player.

Note: It is perfectly legal for a manufacturer to create different categories of resale partners (such as online-only retailers and brick-and-mortar storeowners) and then offer different incentives (such as rebates) to these different partners, based on the specific services they provide.

  1. Please list two distinct ways that failing to consistently monitor its retailers’ pricing could harm a manufacturer’s business.

By failing to monitor its retailers’ pricing consistently—indeed, 24/7/365—a manufacturer might find its pricing policy being violated by some of its resale partners or even unauthorized, rogue retailers. This can create several problems, such as:

  • Triggering a price war across the company’s resale channel.
  • Upsetting brick-and-mortar store owners who become mere “showrooms” for shoppers who then buy the products online from policy-violating eCommerce companies.
  • Making it less appealing for new, reputable retailers to join the company’s resale network.
  • Damaging the manufacturer’s brand and the public’s perception of the company.
  1.   True or False: It is illegal to talk about pricing with your resellers.

False. Contrary to a popular misconception, the law does allow manufacturers to talk about pricing with its retail partners.

The two key caveats here are that the manufacturer cannot threaten a reseller on its pricing, or reach an agreement with that reseller about where to set its prices.

  1.   True or False: Reseller pricing policies cannot be legally enforced in Canada.

False. For many years, any attempt made by a business in Canada to establish or affect resale prices was deemed “per se” illegal, regulated under the country’s Competition Bureau.

But in 2009, the Canadian government amended its Competition Act, effectively decriminalizing price maintenance and introducing a more relaxed “adverse effect” standard—something similar to the “rule of reason” principle introduced in the US a couple of years earlier.

  1.  Which states in the US still treat resale price agreements as “per se” illegal—meaning illegal on their face (even though federal law now judges them on the more relaxed “rule of reason” standard)? 

    These states are:

    • California
    • Illinois
    • Michigan
    • Maryland
    • New York
  2. Can you name one mistake an employee at a manufacturing company could make when dealing with a reseller that could, in effect, turn its unilateral policy with that seller into an agreement and increase the company's exposure to an antitrust challenge?

 If an employee at a manufacturing company let a resale partner off with a warning for a violation that the company’s policy stated would result in more serious consequences, this could be deemed to constitute an agreement.

In other words, the manufacturer’s employee—even if he didn’t realize he was doing anything wrong—was in effect altering the terms of his own company’s reseller pricing policy, and doing so just for one resale partner.

If the company were ever challenged (by a competitor to the reseller, for example), an antitrust court could determine that the manufacturer did create an agreement, and even that the company was playing favorites with one resale partner, which could be viewed as collusion and a violation of antitrust law.

 

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