Trey Morrison

About The Author

Serial entrepreneur with an industrial psychology education and over 23 years of creating, consulting, and operating businesses. Loves mountain biking, snowboarding, and surfing.

Common Pricing Policy Pitfalls

Have you ever pulled out your smartphone in a store to check online prices?

I have.

Dealers hate when customers walk into the corner of the shop and pull out their smartphone.  The next question is always “Hey I can buy it for cheaper online, can you match this price?”  Or worse they just walk out.

“I have overhead and employees!” they think.

A well-enforced Minimum Advertised Price (MAP) program can avoid this altogether.  Customers would rather buy from a local dealer if they don’t have to pay more.  Brick and mortar dealers are happy for the sales and the new customers who are likely to return and purchase again.  The dealers are more likely to place stocking orders if they are not going to be stuck with the product at the end of the year, so the manufacturer is happy.   Everyone wins.

There are very important differences between MAP policies and Resale Pricing Policies.  In the MAP policy, you are only dictating what a seller advertises a product for and not what they actually sell it for.   I know that sounds stupid.  In an online store it’s the same damn thing, but in legal terms, it is very different.  A Resale Pricing Policy affects your dealers only, a MAP policy is unilateral.  This means that it applies to your dealers and any Bozo with a laptop selling your product on eBay or wherever.  That is an important distinction.  The trouble in enforcing a Resale Pricing Policy is dealing with the aforementioned bozos who are not your dealers (thank god).

Another huge benefit to a well-controlled pricing program is brand value.  Customers who see consistent pricing, across all channels know they are dealing with a company that has its act together.  A company that can afford to uphold their warranties without issues, a company with superior customer service, and a company with a superior product.  This brand value translates to bigger numbers on the bottom line.

For these reasons and as online sales continue to grow a strong and effective pricing program has become crucial.

With this in mind here are some very common mistakes that might interfere with success.  Here’s a hint: A successful pricing program involves more than just writing and distributing a policy.

Material Difference:  If you ever have to defend your policy in court it’s important to have a clear definition of what makes a product purchased through your authorized distribution channels “materially different” from a product that is not.   It does not have to be anything physical.

For a difference to be considered a “material difference” you only have to answer one question.  Is the difference “one that consumers consider relevant to a decision about whether to purchase a product.” [1]

That’s pretty easy.  The most obvious are warranty restrictions.  If a warranty is only valid for product purchased through Authorized Resellers then you can be pretty sure a consumer would consider that relevant!

There lots of other non-physical things that could be considered material differences as well.  Other material differences could be; quality control standards, storage requirements even a portion of profits from authorized sales that are donated to a charity.

Although the bar is low, the important thing here is that whatever the material difference is you need to make sure it is consistently communicated throughout the company.  You should mention it in the pricing policy of course, but it should also be in the warranty documentation, on your website, and in the authorized seller agreement if you have one.

Paint yourself into a corner:  A second common mistake we see is manufacturers who paint themselves into a corner with their pricing policy.  You can shoot yourself in the foot with policies that are overly explicit in the definitions and consequences for violations.  There is an important balancing act here.  It is important that all sellers are treated the same way when it comes to enforcement (and this includes Amazon).  But it is also important to have discretion when enforcing the policy.

There are too many variations in violations (say that ten times fast) to be accounted for with overly strict rules.  Here are a few examples…

  • A WD has incorrect pricing so all sellers with direct feeds are violating your MAP pricing. Should they be banned from selling your products?
  • A violation warning was sent to a wrong email address so the reseller never got it.
  • Your pricing uses a percent off and there is a simple rounding error. What is 10% off $99.99?  $89.95 or $89.96?
  • A reseller fixes his violations, but it takes 48 hours instead of 24 because the IT guy was faking he was sick and no one else knew how to make the changes
  • What if the manufacturer makes a mistake in their own pricing? It happens way more often than you would think.

If this is the third violation some policies clearly state that any of the sellers above should be cut off for good.

There are also reasons why you might want to be stricter.   A reseller might get repeated complaints from customers for having horrible customer service.  Do you want this dirt bag to be representing your brand to consumers for a year?  Or would you rather cut him off immediately and permanently?  What about a reseller who finds a loophole in your policy that allows him to keep violating.  Maybe he changes his name repeatedly, maybe he only violates on weekends when you are not looking, maybe he violates till he gets the courtesy warning, then waits 30 days and does it again…month after month after month.

The important point here:  It is important that your enforcement measures have a degree of discretion.

This leads to my final point.  You must enforce your MAP policy consistently for all types of dealers.  You need to be willing to cut ANYONE off who is violating your policy.  This of course includes Amazon!  You need to enforce your policy fairly.  If you only cut off certain sellers but allow other sellers to violate you could have serious problems.

First and foremast are potential legal issues.  Consistently allowing certain sellers to sell below MAP while simultaneously enforcing sanctions on others could constitute an unwritten agreement and bring legal action against you.  Ain’t nobody got time for that.

Another problem with weak enforcement is that only the MAP violators will be selling your brand.  If the only people selling your product online are the guys sitting around in their underwear in front of their computer, because you made all the good guys raise their prices, your brand will definitely suffer.

Another issue with weak enforcement is the good sellers opinion of your company.  The resellers who have fulltime customer service agents, generous return policies, and who abide by you pricing policy are going to be pissed off if they don’t get sales because the violators are getting them all.  Be assured they are going communicate this impression to their customers.  Remember this is the first impression many people have of your brand.

The good news is: It’s really easy to do it correctly.  Take a little time to create a comprehensive pricing program and not just a policy, then enforce it strongly and consistently.  That’s it.  Brand value goes up, customer satisfaction goes up, sales go up, stocking orders go up and the corners of your mouth go up too!

If you are interested in taking control of your pricing reach out and find out how we can help.

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