Minimum Advertised Price Policy (MAP Policy) Enforcement

One increasingly common technique companies are using to safeguard their brands is implementing a MAP policy. Short for a minimum advertised price policy, these are policies that companies establish declaring the minimum prices at which authorized sellers are permitted to advertise their products.

It is important to note that these are policies and not actual agreements. This distinction is important from an antitrust scrutiny perspective.

As online shoppers generally seek out the lowest-priced goods up for sale, plus many e-commerce websites display (or allow consumers to sort) products from lowest-to-highest price, MAP policies are often critical to companies' success.

MAP Policy

The various benefits of an effective MAP policy include:

• price coordination among sellers;
• better control of margins;
• avoiding downward pressure on pricing from large retailers;
• a decrease in "showrooming"; and
• keeping authorized distributors happy.

There are many incentives for authorized sellers to abide by a MAP policy. On the other hand, unauthorized sellers are generally unaware of companies' MAP policies. It, therefore, makes sense that unauthorized sellers are more likely to violate MAP policies.

There are many incentives for authorized sellers to abide by a MAP policy. On the other hand, unauthorized sellers are generally unaware of companies' MAP policies. It, therefore, makes sense that unauthorized sellers are more likely to violate MAP policies.

Authorized sellers certainly have the most to gain by complying with a MAP policy. And unauthorized sellers are generally unaware of a manufacturer's MAP established minimum advertised price.

Thus, it only makes sense that unauthorized sellers are more likely to violate MAP policies than authorized sellers.

In fact, a recent study published by Ayelet Israeli (now a Harvard Business School assistant professor of business administration) and Eric Anderson and Anne Coughlan (Kellogg School of Management marketing professors) revealed that 53 percent of unauthorized sellers violate MAP policies. This is in contrast to 15 percent of authorized sellers.

Therefore, it is important that companies do not limit their enforcement efforts to authorized sellers. In fact, it is critical that companies target unauthorized retailers in order to protect their brands.

Enforcement

If companies are serious about MAP policy enforcement, they must first construct strong MAP policies. Policies must be unambiguous and they must draft them such that they deter sellers from advertising below the minimum price. The companies must then clearly communicate the policies to their authorized sellers, monitor for compliance and take quick action in the event of non-compliance.

In other words, companies should have a plan for penalizing or punishing non-compliant authorized sellers. We recommend that companies consider quickly terminating MAP policy violators, rather than allowing too many warnings.

We have seen companies begin with initial warnings and then suspensions of authorized sellers for subsequent violations. For example, a company might suspend a non-compliant distributor for 60 days for a second violation and then six months or a year for the next one. Only after the fourth violation does the company finally terminate him or her.

But delaying account terminations can cause a number of issues. First, handing out a warning and then ordering a non-compliant seller that he or she must comply with the policy could look more like an agreement than a policy. Second, obviously, companies who are more lenient risk non-compliant retailers continually harming their brands. Companies reluctant to quickly terminate offending sellers stand more to lose than gain by allowing the rogue sellers to remain in their program.

In short, companies want to create a deterrent effect and not hesitate to cut off offending sellers. Otherwise, they can quickly lose control of their pricing (pressuring pricing competitions) and brands.

Monitor authorized sellers

It is critical to consistently monitor authorized sellers and enforce MAP policies. In short, a company should implement a graduated enforcement program and systematically target unauthorized sellers. Specifically, companies should begin by focusing their enforcement efforts on the most serious (i.e. highest volume) unauthorized sellers. From there, the companies can work their way down to the less serious offenders that are worth targeting.

That is not to say that they should ignore one-off sellers. But companies must be smart and prioritize their enforcement efforts.