As brick-and-mortar retailers continue to feel the competitive pressure from online sellers, the topic of minimum advertised pricing (MAP) policies has become a hot one.
Some are beginning to demand MAPs, with which manufacturers regulate the lowest price at which their products can be advertised. Pool Boy, which produces powered reel systems, rolled out such a policy when it entered the pool and spa industry about five years ago.
“[Retailers] made it very clear that if we didn’t institute MAP pricing, we weren’t going to get their business because the Internet companies would just take over,” said Kevin Schmidt, director of operations at the Elkhart, Ind.-based company.
But establishing MAP isn’t enough — the policy must be enforced to be effective. To that end, some manufacturers are beginning to clamp down on violators. Schmidt, for example, said he recently cut off ties with a large Internet player when the company refused to cooperate. The rub? That retailer provided about 30 percent of Pool Boy’s business last year.
“Even [with them] doing one-third of our business, I told them ‘You’re fired. No more will we sell to you,’” Schmidt said. “And other companies have stepped up.”
Outside the pool and spa industry, bicycle producer Dahon North America recently banned a commonly used loophole — the “call to get price” line that appears on many Web pages. This allows sites to technically follow MAP rules because a lower price is not advertised, yet the practice clearly lies outside the spirit of the policy.
“The issue is that the price on the Internet is ... the price that the public sees,” said Ken Fagut, director of sales and marketing at Dahon North America, based in Duarte, Calif. “It becomes the established price and can very much devalue the [brand].”
To leave room for competitive pricing during Christmas and other sale seasons, Dahon specifies a few periods throughout the year during which dealers can advertise prices up to 10 percent lower than MAP.
Yet many manufacturers balk at the difficulties in policing MAPs.
Highly visible online sellers such as Amazon.com are easy to watch, but smaller, less noticeable outfits are nearly impossible to monitor. Complicating things further, Internet retailers have the ability to change pricing several times a day, and even use computer programs that automatically price-match to the lowest bidder.
The challenge is more severe for large producers or those making commoditized products facing severe price competition.
“The moment you’ve got a few products and a few dozen online sellers, it becomes a very cumbersome process to track pricing on a daily or weekly basis,” said Wes Shepherd, CEO/founder of Channel IQ , a Chicago-based firm that monitors pricing activity for manufacturers and some large retailers in industries such as electronics.
Methods for monitoring advertised pricing vary by company. Some producers rely on their dealers to be on the lookout. “It’s kind of self-policing,” said Bill Kent, president of Team Horner in Fort Lauderdale, Fla. “If one person violates it, the competitors call us and we go after the violator.”
Smaller manufacturers such as Pool Boy perform daily or near-daily Internet searches in-house to gauge pricing variations. This can combine with observant manufacturers’ representatives who monitor the brick-and-mortar operations.
For larger companies, services such as Channel IQ make sense. BioLab , for instance, uses a similar outfit to look after its MAP program.
“It’s just availability of time,” said Scott Newton, brand manager for Pro brands with BioLab Inc. in Lawrenceville, Ga. “You just have so much time in a day.”
Increasingly utilized by larger manufacturers in other industries, these outfits often have proprietary software that monitors pricing of their clients’ products in the Webisphere. They also can supply reports and analysis and, in some cases, take care of enforcement.
Outsourcing this work doesn’t make sense for everyone. Shepherd thinks of it in terms of a matrix based on how many products to which a manufacturer applies MAPs and the number of retailers selling them. “If you have 50 SKUs and 50 dealers online, that’s 2,500 possible product pages,” he said. “It’s going to be kind of tough to monitor once you go over 1,000 or 2,000 possible product pages on the Web.”
While these strategies help, there is one that Manuel Perez de la Mesa would like to see used more. The CEO of Covington, La.-based PoolCorp notes that many Internet retailers purchase from multiple distributors, making it difficult to find out who supplied their product. He has long advocated that equipment manufacturers provide serial numbers for each individual unit to help track how it ends up on a particular Website in spite of manufacturer sanctions. “You can trace it, and everything would be transparent,” Perez explained.
Horner has already enacted this for the products his company manufacturers, which has helped some in policing MAPs, Kent said.
Once offenders have been caught, manufacturers handle the infractions in different ways. The most stringent have a one-strike policy and cut retailers off at the first violation. Others allow a second or even third strike — enough, they feel, to establish that the breaches are intentional. Even if they’re not banned right away, offending dealers may still suffer such punitive measures as losing discounts, rebates and other incentives. And once they’ve been caught, they are likely to be monitored constantly to make sure they stay in line.
But as the Pool Boy example shows, policing and enforcing MAPs can come at a price. Yet Schmidt has no regrets.“This was not a hard decision for us,” he said. “We pride ourselves on our quality and integrity.”