One of the biggest challenges facing manufacturers is how to maintain price integrity online. Most manufacturers work to enforce a Minimum Advertised Price or MAP. This is the lowest price that can be published for a product, and manufacturers are finding out that monitoring and managing MAP pricing is harder than it looks!
1. Sheer Number of Listings
A modestly sized manufacturer can have as many as 500 listings per product on various online retailer sites. If they have 100 products, there are 50,000 separate prices that need to be checked to make sure that an errant price doesn’t slip in. Large manufacturers have literally millions of instances of their products online.
Sites like Amazon or Walmart.com will use automated web crawlers to discover these lower prices, and will often automatically reduce their pricing to meet or beat that low price. To add additional wrinkles to this problem, some of these listings will pop up on marketplaces selling a single product, and then disappear within hours if it is sold. On one listing for a bedrail there are 53 other sellers in addition to Amazon. So in that case, there are at least 54 sellers for a single product, on a single website marketplace.
It can feel like the old carnival game, whack-a-mole. Obviously, paying for, or developing crawling software is necessary for any manufacturer who is serious about monitoring online prices, but that is just the beginning. It isn’t as easy as just finding a violating listing.
2. Anonymity of The Web
So the manufacturer has found a MAP violator, now what? Savvy 3rd party sellers do all that they can to hide their identity. We have discovered false Facebook profiles, made up business addresses, phone numbers and even fake web addresses.
There is another factor that can come into effect where these 3rd party sellers drop-ship the product and never actually have possession of it.
How can you talk to the violators about raising their online price to MAP if you cant find a way to connect with them at all? Sometimes a manufacturer can order a product from a violating listing, then glean the address from the label, but if the seller puts a false address, it can’t be tracked back. Not only that, but if it is sold as a 3rd party seller through Amazon, it is Amazon who ships it out, which doesn’t help the manufacturer trace the seller.
3. Interconnectivity of The Web:
Everyone knows that the web is a digital ecosystem connecting computers from all over the world. There are some great benefits from these connections, and some unforeseen side effects. A single MAP violator can spread through the online marketplace like a contagion. For example (this is a real world example) a woman finds a product in the closet of her mother after her mother passes away and lists it on Amazon’s marketplace at a “garage sale” price. That triggers Amazon’s own price to drop on that product automatically, and then Walmart.com’s price drops to compete (again, automatically). Soon hundreds of listings can be below MAP. Imagine the difficulty of asking website A to increase their price when website B, C, D, Amazon and Walmart all have lower prices? So for days, weeks or even months, this one decision by this one lady can have a negative impact on a manufacturer’s attempts to control MAP pricing. Now add the occasional liquidation and overstock sale and there can be negative price influencers popping up every day.
One manufacturer found one of their patented products for sale on Amazon for far less than the MAP price. After ordering it to investigate, they discovered that it was a cheaply made knock-off made in some factory in China. The materials and craftsmanship were substandard, yet because they had listed it with the brand name, it was listed with the other legitimate sellers, and drove everyone’s price down. E-commerce platforms like Amazon are reluctant to drop sellers even at the manufacturer’s request. For this particular patent holder, months legal wrangling was required to finally remove the unauthorized knock-off and that was with a patented product!
5. The Wholesaler Consideration:
Many manufacturers are required to use wholesale reps to sell their product. Because of the industry they are in, or size of the company, it isn’t always feasible or even possible to have a national sales force, and so wholesale reps step in and sell the manufacturer’s product along with many other products to brick and mortar stores across the country. For a manufacturer, this can be a two edged sword. Technically, the wholesaler is the customer, yet they go on and re-sell the products to dealers, some of whom may have online stores where they sell below MAP. Once the product is sold to the wholesaler, it is difficult to track where that product will end up, and it becomes increasingly difficult to police those dealers. Most repeat violators will source their products through more than one wholesaler, so even if they can be finally identified, that doesn’t mean that they can be easily cut off. In this way, the manufacturer can face a no win situation where the only target for sanctions may or may not be at fault. The level of coordination required to truly cut a violating dealer off is difficult to achieve.
6. Professional MAP Violators:
There are quite a few companies and individuals out there that have made an art of violating MAP. They buy from multiple sources, create fake fronts online, and drop-ship. Many of them will also erode price integrity through dropping prices below MAP after the products hit the shopping cart, or hidden email campaigns that offer violating prices to closed groups. While this has less effect on the online ecosystem, it is yet another way that unauthorized sellers make doing legitimate business difficult, and in ways that are nearly untraceable for vigilant manufacturers.
What Can a Manufacturer Do?
As you can see, controlling MAP is a difficult task. In order to be successful, a manufacturer must first acknowledge that this is a big problem for their dealers, and invest in resources to try to solve the issue. Price monitoring software is available, and manufacturers should have dedicated staff to track down violators. Having clear agreements with dealers and wholesalers so that they know what is expected when it comes to pricing their products online is critical. Finally, as a manufacturer, it is important to work with retailers to help them understand that you are on their team. How many dealers knew that any person, anywhere in the country could list a product for any price, and suddenly cause months of struggle with pricing online? Not many, and while that education doesn’t solve the problem, it might help them have a little with the process. As long as the manufacturer is making a real effort to work with retailers, and control MAP, these are challenges that can be navigated through as the new digital marketplace continues to mature.