Is a Minimum Advertised Price Policy a Vendor’s Silver Bullet?
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Since my first article on Minimum Advertised Price Policies (a vendor’s unilateral policy setting the minimum price at which a retailer may advertise the vendor’s products) for The Giggle Guide® nearly three years ago, I have discussed with many vendors the benefits, and limitations, of MAP policies. It should come as no surprise that more and more vendors are implementing MAP policies as a way of protecting their brand’s image and encouraging retailers to present their products in clean, comfortable and professional environments where customers can view and touch the items, see demonstrations, personally interact with knowledgeable employees, and receive superior customer service. But what some vendors do not realize is that by merely implementing a MAP policy, without doing anything to make sure retailers comply with it, they may completely fail to achieve these goals.
The two most consistent mistakes I have encountered can be traced back to the vendors themselves by failing to consider how they will monitor retailer compliance with, or enforce retailer violation of, their MAP Policy, and not explaining the importance of the MAP policy to their sales team. It is not enough to prepare and send your MAP policy to your retail partners, file it away and expect that it will be followed. Rather, vendors must include the sales team in the process, educate them as to the purpose of a MAP policy and importance of compliance (so as not to sacrifice brand concerns to individual sales) and be prepared to act when a retailer does not comply.
Here’s what you need to know:
MAP Policy Implementation and Follow-Through
It is intuitive that the price of a vendor’s products is a reflection of the brand’s desirability. Similarly, in-store presentation and the consumer’s experience reflect on a brand’s place on the luxury-to-discount scale. One way to protect a brand’s image is to ensure that retailers invest in training their salespeople to properly promote the products they sell. While vendors cannot set the prices that retailers charge (that would be price fixing, which violates federal law and many state laws, too), vendors can unilaterally set the minimum price at which retailers advertise products (this has to be the vendor’s unilateral policy — not a decision or agreement between vendor and retailer). If a retailer does not adhere to the vendor’s unilaterally set minimum advertised price policy, the vendor can choose not to sell to that retailer.
Armed with this knowledge and the desire to enhance your brand’s image, you (or more likely, your knowledgeable lawyer) prepare a MAP policy. You send the policy to all of your retail partners, you put a link to it on the retailer side of your website, and you reference it on your line sheets. Congratulations, you’ve taken the first step, but now that you have a well prepared MAP policy, what will you do with it?
You have to make sure your retail partners abide by your MAP policy so that it protects what you designed it to protect. So you stay aware of your retail partners’ advertising practices –- you monitor their websites to see the advertised prices of your products; you check whether their websites permit customer-initiated (e.g., place in cart for price) display of the actual retail price; and you get yourself on their mailing lists so that you receive their mailed (and e-mailed) advertisements.
If you find a retailer advertising your products in violation of your MAP policy, the question never should be if you respond to the violation, but only how you do so. That is a business decision to be made based upon the specific circumstances and your relationship with your retail partner: Will you give the retailer a first warning? Will you suspend the retailer for a period of time? Will you cut this retailer off altogether? Each option comes with its own set of consequences.
While a tempered response is very often the best way to convey to a retail partner that you are serious about your MAP policy without damaging your ongoing relationship (particularly for a first-time offender), if the retailer continues to violate your MAP policy, you will be faced with the difficult decision of sacrificing sales to protect the greater goal of preserving your brand image. This will show all of your retailer partners that you are serious about their adhering to your policy and incentivize them to devote their attention and resources to promoting your products.
Treating Different Retailers Differently
To date there are only a handful of reported court decisions addressing MAP policies1, and, importantly, no case has required that a vendor treat each of its retail partners equally under a MAP policy. Even so, it is a risky proposition for a vendor to treat its retail partners differently for the same violation of its MAP policy. It would not surprise me to learn that an irritated retailer brought a lawsuit challenging a vendor’s uneven enforcement of a MAP policy, and a court may determine that such uneven enforcement was unjust and unlawful. For now, the safest tactic is to apply and enforce your MAP policy consistently across the board.
Rogue E-commerce Retailers and Your Sales Team
A common vendor’s headache is when an e-commerce store advertises your products at prices below your MAP policy, but you don’t know (and can’t figure out) who is behind the website. You have probably seen this before, and this may even by your reason for considering a MAP policy — a domain name does not provide an obvious connection with any of your accounts, the url is registered by an alias, and the contact information is useless. But how can you enforce your MAP policy against a ghost? If your price margins permit you to stamp every single one of your items with a serial number, keep track every unit delivered to each retailer, and secretly buy back your own goods from the rogue retailer, you may be in luck. But for the majority of vendors, that is not a realistic solution.
The best strategy is to start by working with your sales team. If a small brick-and-mortar retailer that historically purchased 50 items a year from you suddenly reorders at a rate of 50 items a month, it’s a pretty safe bet that your products are being sold through a new channel (which could be one of the rogue e-commerce sites). If your sales team fills (and you let your sales team fill) those oversized reorders, then it shouldn’t surprise you when you eventually learn that the small brick-and-mortar retailer is the one selling your products on a rogue website. Turning down orders is a very tough decision, and it goes against a salesperson’s natural inclination to sell. But unless there’s a very good explanation for a small brick-and-mortar selling far more product than you would reasonably expect, your gut should tell you that filling those orders won’t end well.
Basic MAP Policy ChecklistMAP policies are widely varied (from very restrictive to very basic) depending on the specific needs of the vendor. Some prohibit language that vaguely suggests that the actual retail price may be lower than the minimum MAP price, while other MAP policies only set minimum prices for advertisements solely focused on the MAP product. If you’re considering implementing a MAP Policy, here are a few key points to consider:
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— Footnotes —
1 Of the few published cases on MAP policies, WorldHomeCenter.Com, Inc., has been a plaintiff in five cases, making it the undisputed leader in precedent setting cases. Unfortunately for WorldHomeCenter.Com, it has not done well in these cases.
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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/
