Why Relying on Retailers To Enforce Pricing Policies Is a Bad Idea

One of the most commonly pointed out advantages of a MAP policy is that it restricts price warfare. By setting a floor on prices, suppliers can maintain brand value and ensure an acceptable margin for themselves and their clients. But just how dangerous can price wars be? An ongoing clash between retail titans provides some answers.

Walmart Summons a Crisis Meeting

Are your MAP enforcement strategies endangering your business? Instead of monitoring retailers themselves, many manufacturers rely on their retailers to police each other, saving themselves the effort and cost of proactive enforcement. This strategy is a relic of the pre-internet age, when monitoring retail prices meant paying in-person visits to stores. Despite the risk of lawsuits, manufacturers found it impractical to enforce pricing policies. Now that almost all retailers are online and automated monitoring services are available, the business case for outsourcing enforcement to retailers is far weaker, but the legal hazards remain as strong as ever. In this article, we explore some of the reasons why you should monitor and enforce your MAP by yourself. Ineffectiveness and Inconsistency If you as the manufacturer are not willing to enforce your MAP policy, why should you expect that retailers will do it for you? Retailers face exactly the same time investment and costs that manufacturers do to enforce the MAP, and may well have more important priorities. In fact, unlike the manufacturer, they may benefit from patchy MAP enforcement, as it makes it more likely that they will get away with MAP violations of their own. Their priorities are not necessarily the same as yours.

Even if your retailers are willing to hunt down MAP violations, they are likely to miss many. This is partly because they are most likely to focus on their most immediate rivals, and partly because MAP violations can be very short-term through flash sales, seasonal pricing and other limited-time offers. Enforcement is therefore almost guaranteed to be inconsistent, leading almost inevitably to accusations of favoritism from the retailers targeted in MAP enforcement actions. Whether justified or not, a perception of favoritism can quickly destroy your relationship with retail partners.

Antitrust Exposure

Ineffective MAP enforcement from retailers is a quick way to render your MAP policy moot, but effective enforcement can actually be even worse. Diligent reporting by retail partners can simply be a case of their interests aligning with yours, or it can be part of a conspiracy among retailers to destroy their competition. While MAP policies are legal, their legality depends on not creating price agreements with retailers: it is safest to offer them on a take-it-or-leave-it basis. The more communication that you have with your retail partners over pricing and MAP enforcement. Even if both you and your retail partners have good intentions, a court could still interpret your communications as an attempt to restrain trade, exposing your company to treble damages on top of the time and money used to fight a potentially lengthy legal battle. Even if you are never taken to court, dealing with subpoenas is expensive and time-consuming.

Risks for retailers

When it comes to MAP enforcement, snitches don't necessarily get stitches, but they might get served. If you take action against a retail partner because of MAP violations reported by another retailer, retailer A could decide to sue retailer B for wrongful interference. Unless the communications between the manufacturer and the retailer look like a conspiracy to restrict trade, the manufacturer is unlikely be held liable. Again, though, court cases are expensive, and complying with subpoenas is time-consuming. The real damage is done to the reporting retailer, a fact that may well sour their relationship with the manufacturer going forward. This risk of being sued by a MAP-violating retailer also discourages retailers from reporting violations, making retailer-based enforcement less effective.

In the pre-internet age, relying on retailers to enforce MAP policies was dangerous but practical. Now, it is just dangerous. It can expose both your company and your retail partners to damaging lawsuits, and is almost guaranteed to lead to less effective, less even enforcement. WIth automated online MAP enforcement systems becoming more sophisticated and more popular, manufacturers no longer have good reason to outsource their MAP monitoring to retailers. Companies should bring pricing enforcement in-house.