Proof of Concept: What It is and How to Do It Right
Before developing an idea into a product, there’s a crucial step that every business must take: executing a successful proof of concept. Learn more.
The internet presents opportunities and challenges to direct-to-consumer (D2C) sellers, but unlike the early days of online selling — which wasn’t all that long ago — there’s now a wide range of channels available to help you reach customers and sell your products. From Amazon, eBay, Rakuten, and even your own branded website, your products can appear to hundreds of thousands of buyers at any given time. With so many channels and resellers available in the online marketplace, it can be challenging for brands to ensure their products have consistent pricing across the internet, so one popular solution is to establish a minimum advertised pricing (MAP) policy for your products.
A minimum advertised pricing policy, or MAP policy, is an agreement between you and your resellers that establishes the lowest price they can list on your products for their channels. For example, if you sell something for $10 on your website, you would tell your resellers to avoid advertising your products on their store or website below that price.
Despite appearances, MAP policies aren't the same as price-fixing. Price-fixing occurs when two or more companies that sell the same product sign an agreement to keep its price at a certain level.
There are two types of fixed pricing that can occur: horizontal price-fixing and vertical price-fixing. Horizontal price-fixing occurs when two competing companies sign an agreement to keep prices above a certain threshold. Conversely, vertical price-fixing happens when a manufacturer and its resellers sign an agreement to keep its products at a certain price.
A MAP policy, on the other hand, isn't a legal agreement and should only be developed by the manufacturer. This means your resellers shouldn't have to sign your MAP policy. This would constitute a binding agreement between the two companies, you and the reseller, to keep prices at a specified threshold, and would likely be considered to be a form of vertical price-fixing.
In 1919, the U.S. Supreme Court ruled that a MAP policy isn't considered price-fixing if the manufacturer acts alone. So, while MAP policies may appear similar to price-fixing, they don’t violate antitrust legislation if they’re done correctly. As you develop your MAP policy, it's best to check with an antitrust lawyer (more on that below).
Having a MAP policy isn't just about money; in a world filled with so many channels and outlets, it's also about making sure your brand is consistent and recognizable. Specifically, having a MAP policy will help your business preserve profitability while using reseller channels and contribute to a positive brand image for cost-conscious shoppers.
Besides your product's level of quality, modern shoppers are also concerned about price, which helps customers determine the value of your product and distinguish a genuine product from a knockoff or copy. Being consistent in your pricing also contributes toward a positive perception of your overall brand, while price mapping also helps you maintain a healthy, profitable relationship with your resellers.
If you're considering developing a MAP policy for your products, it's important to consult with an antitrust attorney who has experience developing MAP policies that are legally compliant. Though many fill-in-the-blank templates are available online, they're not going to be tailored to your specific business and product needs.
It's best to work with a legal expert to create a policy that takes your unique circumstances and industry into consideration. This will help you avoid conflicting language and terms that could potentially land you in serious legal trouble.
It's also important to avoid turning your MAP policy into a price agreement. Price agreements and price-fixing, as discussed earlier, can violate state antitrust laws and open up the possibility of legal action against you. The best way to avoid this is to create your MAP policy without any meeting or consultation with your resellers.
It's also critical to avoid asking your reseller partners to sign your MAP policy. Again, this would place your policy within the area of vertical price-fixing, where two companies sign a binding agreement to keep prices at a specified level. While many online articles make it seem as though a MAP policy is a legally binding agreement, this isn’t true, and treating it as such can cause you to face litigation.
Although developing a sound, legally compliant MAP policy is critical, enforcement is equally important. When the consequences for violating your company's MAP policy aren't clearly outlined, resellers have no reason to avoid violating it and erode your company's profitability.
Typically, MAP enforcement policies describe consequences for violations in stages or steps, beginning with written notices of warning to the seller and culminating with the termination of your relationship with the reseller. It's essential to have a process for documenting violations, including timestamped screenshots or photos, and a list of the offending SKUs and UPCs.
It's also important to establish strict guidelines on terminating a reseller relationship, rather than extensively trying to negotiate with them. Long chains of back and forth emails between you and the seller can suggest to a court that you and the reseller were attempting to establish a price agreement. Once a partner is documented and verified as violating your MAP policies, be consistent and strict in sticking to your guidelines, for the sake of your own company.
One other area to mention: Many e-commerce businesses use price monitoring software to track their products' advertised prices across all of their reseller channels, as well as their competitors’ channels. Software such as Agenty, Competera, and DataCrops allow you to respond to MAP violations reasonably quickly and consistently, keeping your company's profit and brand intact. Using price monitoring software also helps you spot and react promptly to unauthorized sellers.
Creating consistency in your pricing can be challenging, but it's an essential step for all companies to make as they navigate an increasingly complex world of online selling. By establishing a sound and clear minimum advertised pricing policy for your products, you'll be on your way to being a better, more profitable e-commerce business.
Last updated on August 16th, 2022.