MAPP: Minimum Advertised Price Policies

A new mom goes into her local baby products store to shop for a stroller. The store has all the best brands and latest models, a friendly and knowledgeable staff, and sufficient on-hand inventory. The new mom kicks the tires, trades stories with the salesperson, and focuses in on the brand, model, and color that she wants. After noting the price, when she has a minute away from the salesperson, she scans the barcode using a price finder app on her smartphone and purchases the stroller from an online discounter at a lower price. Does this scenario sound familiar?

Since Congress enacted laws prohibiting price fixing, there has been friction between vendors and retailers over what price to charge consumers for products. While retailers are free to sell products at whatever price they wish (sometimes to the vendor’s chagrin), vendors often seek to assert some control over how retailers communicate prices to the public. One of the tools used by some creative vendors is a minimum advertised price policy, a.k.a MAPP.

What is a MAPP?

A MAPP typically prohibits a vendor’s retailers from advertising the vendor’s products below prices set by the vendor. For MAPP purposes, “advertising” means out-of-store promotional materials, which could include materials distributed both inside and outside the store, such as a store circular, but should not apply to in-store displays and cannot apply to the product’s price tag or sticker. Importantly, a vendor that uses a MAPP may not fix the retail price; at best, it may only suggest to the retailer the retail price — hence the acronym MSRP (iterated ad nauseum in automobile commercials).

A variation on the plain vanilla MAPP is one applied to co-op advertising where, in exchange for co-op money, a retailer is prohibited from advertising the vendor’s products below a certain price. If the retailer advertises at prices below those set by the vendor, the retailer forfeits the co-op money.

What is the Goal of a MAPP?

A MAPP is designed to promote fair competition among retailers. This is particularly relevant where a vendor’s retail accounts include e-commerce stores, whose overhead and other costs are less than brick-and-mortar retail stores.

In the Internet world, where consumers shop at the click of a button and smartphone apps make it incredibly easy to compare prices, it is common for discounters to “free-ride” on the in-store services provided by non-discounting retailers.

In the above scenario, the full-service retailer provides the customer service, with trained sales people who assist consumers in evaluating products and where consumers can actually try the product (the cost of these services and of carrying inventory being borne by the full-service retailer), but the discounter, who does not offer costly in-store services (often an e-commerce site) and is therefore able to sell the product at a discount, makes the sale.

Of course, some e-commerce retailers have argued that the reverse is true, that consumers actually do their product research on the Internet, and purchase those products at a store where the consumer can achieve the instant gratification of having the item immediately, without having to wait, or pay, for shipping the product to them.

In 2007 the U.S. Supreme Court addressed this issue in Leegin Creative Leather Products, Inc. v. PSKS, Inc. (127 S.Ct. 2705 (2007)), and overturned a nearly century-old rule automatically prohibiting as unlawful all “vertical” price fixing arrangements (where, for example, a manufacturer sets the minimum price at which a retailer can sell its products to consumers), in favor of a “Rule of Reason” test applied on a case-by-case basis.

The Court’s ruling was based, in part, on its attempt to prevent discounting retailers from getting a “free ride” on non-discounting retailers that generate increased consumer demand by furnishing consumer services and enhancing inter-brand competition. The Court determined that without some price protection to prevent the loss of sales to a discounter, full service brick-and-mortar stores may be forced to cut services (to the detriment of the consumer) in order to be price competitive.

Why Should a Vendor Care About MAPPs?

While vendors charge the same wholesale price to the full service and discounting retailers, the vendor absolutely should care what its retailers are charging for its products. It is obvious that brand image and customer goodwill are crucial to a brand’s success, and most vendors I have spoken with agree that a retailer’s customer service reflects — positively or negatively — on the vendor’s brand. Despite this reality, a vendor has virtually no control over how its products are merchandised, advertised, or supported by either its brick-and-mortar or e-commerce retailers.

By implementing a MAPP, the vendor helps to promote a level playing field among retailers, and support sufficient margins to encourage retailers to provide superior customer service, build customer satisfaction and loyalty, thereby advancing both the vendor’s and retailer’s interests.

What Is the Risk of Implementing a MAPP?

Under federal law, the legality of a MAPP still is an open question, in part, because the way in which a MAPP is implemented may simply make it a cleverly disguised, and prohibited, technique for price fixing. For example, if a MAPP should not control in-store displays and cannot control product price labels, how can an e-commerce retailer display a product price in a way that is not “advertising” in violation of a MAPP where the price advertised on a website is the product price? Since this issue has not been resolved, vendors that implement MAPPs to its e-commerce retailers sail into uncharted legal waters.

Another issue to consider is that agreements between vendors and retailers themselves may be a form of prohibited resale price maintenance (vertical price fixing). In other words, vendors cannot agree with their retail accounts on prices or MAPPs. Rather, the vendor’s policy must be unilateral (in other words, it must be dictated by the vendor, whether the retailer likes it or not) and consistently enforced against all retailers.

Until these issues are resolved, many e-commerce retailers subject to MAPPs implement a number of techniques to avoid even the appearance of violating a MAPP, and incurring the wrath of their vendors. Common examples are not displaying any product price on the website until the consumer places the product in their virtual shopping cart or requiring the consumer to provide an e-mail address to which it will send the product price “upon request.”

Recommendations for Implementing a MAPP

Obviously, any vendor who implements a MAPP should do so carefully, and must consider all applicable laws where its retail accounts are located. With the understanding that I am not advocating in favor of, or against, a vendor’s use of MAPPs, I offer some basic guidelines for vendors that wish to implement such a policy that may reduce the risk of running afoul of price fixing laws in the current legal landscape:

1. Act unilaterally, not collusively. U.S. price fixing laws prohibit collusion between the vendor and retailer. Vendors should set their own policy without the influence of any retailers.

2. Treat each retail account equally. A vendor whose response to MAPP violations is not consistent invites disputes and potentially litigation.

3. Tailor the MAPP to advertisements, not prices. Be careful to avoid any overlap from advertising to pricing. Stay away from policies that restrict the in-store (brick-and-mortar) or shopping basket (e-commerce) price information. A vendor should not take action to coerce a retailer to fix the product price.

4. Be aware that, notwithstanding the federal laws, some state legislatures (including California, Maryland and New York), have considered banning MAPPs and/or prohibiting vendors from punishing retailers who disobey such policies.

5. Consider whether laws prohibiting MAPPs and/or penalizing vendors that implement them exist in locations outside the US where a retail account exists.

Competition in the marketplace is good for consumers, retailers and manufacturers. Making sure that your brand or store is doing all it can to compete is essential, especially with the changes in marketing strategies and messages among discounters, mass merchants, department chains, and Internet sites. This pricing policy information provides an opportunity for vendors and retailers to discuss these issues in a mutually-beneficial effort (but any MAPP must be implemented unilaterally by the vendor) to be better informed and aware of both practical and legal pricing options, keeping in mind that any MAPP must be implemented unilaterally by the vendor.

Business points have always been condensed down to this textbook trio: Product. Price. Promotion. MAPP really embraces all three. However, with strong competition and a weak economy, it’s vital to evaluate how “price” impacts both your sales today and your business plan for tomorrow.

The Giggle Guide^® provides a way for you to share your ideas among the children’s business community. Register as a user on The Giggle Guide^® and click on “Comment” below to add your views about MAPP, pricing, competition, service, and product information in the children’s industry. We’d like to hear from all sides and sizes of manufacturers and retailers.

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About Jeremy D. Richardson
Jeremy D. Richardson is an attorney on the fashion industry team at Phillips Nizer. His practice involves representing clients in the children’s apparel, accessories, and furniture industries. In April 2005, Jeremy was appointed to the Executive Committee of the American Apparel & Footwear Associations’ (AAFA) Product Safety Council, which most recently has focused its energies on educating its members about the Consumer Product Safety Improvement Act (CPSIA) of 2008.

Jeremy guides start-ups and entrepreneurs through protection of their intellectual property, negotiation of partnerships, and when necessary, the litigation of matters that cannot otherwise be resolved. He has argued before the Second Circuit Court of Appeals and has been admitted pro hac vice to practice in the California Superior Court.

About Phillips Nizer
Phillips Nizer LLP has been engaged in a wide-ranging practice of domestic and international law for over 80 years. Established in 1926 by Louis Phillips, former Assistant General Counsel to Paramount Motion Pictures, and Louis Nizer, considered one of the most outstanding trial lawyers of the twentieth century, the firm consists of lawyers who are well-respected leaders in their fields. Our bond with the fashion and apparel industries began in the 1940s, a relationship that continues to this day almost 60 years later. Our principal office is in New York City, with additional offices in Garden City, Long Island and Hackensack, New Jersey. For more information about Phillips Nizer LLP, please visit: http://www.phillipsnizer.com/