Should authorized retailers ever violate MAP policies?
A study from the Kellogg School of Management at Northwestern University finds that while authorized retailers stand to benefit from MAP (Minimum Advertised Price) policies, some wind up violating them.
Makers of electronics, housewares, toys and sporting equipment impose MAP policies on online and brick-and-mortar retailers in order to protect their brands from being perceived as too cheap, according to the researchers.
For authorized retailers, the big benefit from MAP policies is a protected margin. Manufacturers hope this encourages stores to focus on service and training to support the brand. Complying retailers might also gain shared advertising funding or preferential treatment for new products. In some cases, MAP violators lose access to the manufacturer’s brands.
In the study, researchers analyzed a dataset from a large manufacturer that sold 226 unique products through over 900 authorized and unauthorized retailers.
Twenty percent of retailers were found to always comply; nearly forty percent never did. Not surprisingly, the biggest violators were unauthorized retailers, with 53 percent failing to comply. Fifteen percent of authorized retailers violated MAP policies.
Researchers concluded unauthorized retailers should be the focus of enforcement efforts because they do most of damage. A single violation may lead to a “cascade” of the same from both unauthorized and authorized retailers. However, violations from authorized retailers are more likely to prompt violations by other authorized retailers, while violations by unauthorized retailers do the same for other unauthorized retailers.
The study’s advice to brands:
Small punishments: Small or middling punishments, with the expectation that punishments will increase for subsequent violations, work better than threats of “draconian” ones that are often not carried out.
Flexibility: Focus resources on “more egregious MAP violations. Impose penalties only if prices for an item are dropped $10 lower than the MAP, for example.
Concentrate on authorized retailers: The authors wrote, “If manufacturers want to keep their authorized retailers in line — those over whom they have the most leverage — they need to focus their efforts on delinquent authorized retailers.”
What advice would you give to retailers when they notice MAP violations on brands they’re selling in the marketplace? Would you advise authorized dealers to violate MAP policies under certain conditions?