Just last week, the US Supreme Court ruled in favor of states collecting sales taxes from online retailers, regardless of whether the retailer has a physical presence in the state. In addition to potentially increasing prices for consumers, this ruling exemplifies the extent of e-commerce disruption in the U.S. Consumer behavior has moved past the trial phase when it comes to shopping online—the average person is now comfortable ordering anything from a new TV to a gallon of orange juice to be delivered to their home. Brands in almost all product categories have had to make significant adjustments to their business in response to a growing e-commerce market.
One of the more common pain points for brands that have made their products available for purchase online is price erosion. Online sellers often turn to discounting as a means to drive conversion against hundreds of competitive alternatives. Though that may win them the sale, rampant discounting can be very damaging for the brand in the mid- and long-term.
Brands are well-aware of this threat, and many have taken steps to combat it, often by establishing minimum advertised pricing (MAP) policies. MAP policies have become almost a cost-of-entry element to a brand’s management of their online channel. From Dyson to Samsung to Kraft Heinz, companies are implementing pricing policies to protect their hard-earned equity.
The policies themselves are inherently important to the brand. That’s a given. They dictate what happens when a retailer or online seller lists a product below a price threshold determined by the brand. The violating retailer may receive a “strike”—effectively, a warning that they have dropped their price below MAP and need to increase it to be back within policy compliance. Some policies may even call for the brand to pull their product from the retailer or online seller altogether, referred to by some as the “nuclear” option. However the policy is written, it is the official language designed to combat online price erosion.
Recently, brands have found that there is more to a successful MAP policy launch than initially meets the eye. Beyond creation and implementation, many brands have made the decision to invest marketing dollars into announcing their new policy far and wide. Just this month, BNG Enterprises (the parent company of Herbal Clean QCarbo same-day detox), Wiseco (a manufacturer of forged pistons for the powersports, marine and automotive markets), and Cane Creek (a manufacturer of cycling components) announced new or updated MAP policies. All three issued press releases describing their excitement about the policy launch/changes, why they feel the policy will enhance their online business, and other details around how they plan to monitor and enforce against the policy.
Excitement aside, why do brands give their sparkly new policy a walk down the red carpet for all the cameras to see? The answer lies in exploring the relationship between brands and the retailers and online sellers offering their products.
If you’ve ever sat down over a bottle of wine with a small online seller, or a regional or local retailer, chances are you’ve heard them gripe about how difficult it is to compete with behemoths like Amazon and Walmart. Major retailers like these two are often condemned by smaller players as being frequent violators of pricing policies, making it impossible for the smaller players to compete on price without dropping below MAP themselves. What complicates this relationship even further is that it is much easier for a brand to approach a local retailer about a pricing violation than it is to approach Amazon or Walmart, who may account for the vast majority of that brand’s business.
The result is an uneven playing field in which bigger players price how they want without much consequence, while smaller players either keep their pricing compliant and uncompetitive, or follow the leader on price and risk the brand pulling their product from their digital shelves. In other words, a choice between a rock and a hard place.
Enter the MAP policy press release. By marketing their policy to the masses, a brand is publicly notifying their sales channels that there are guidelines within which their products need to be priced, regardless of who the seller is. The next time a local retailer catches Amazon dropping their price below MAP and decides to reach out to the brand for an explanation, the brand can point to not only their policy, but also the announcement of their policy as evidence that they are taking all possible steps to keep the playing field level.
Announcing and marketing MAP policy launches has become more rule than exception recently, as it allows a brand to demonstrate their commitment to their policy to their entire retail channel from a neutral platform. Sending a clear signal at policy launch makes eventual enforcement easier, and demonstrates that the manufacturer is treating all its retailers consistently. And at the end of the day, that’s what makes for a good manufacturer-retailer partnership.
Market Track provides subscription-based advertising, brand and pricing intelligence solutions in North America.