Drafting Your Reseller Pricing Policy

When it’s time to draft the reseller pricing policy your company has chosen, how should you do it?

Because so many of these policies contain legally risky language or fall short of best practices in other ways we’ll describe below, we don’t advise just grabbing an existing policy from the Internet and copying its language.

At the same time, however, there are best practices and standard clauses you can use—so you don’t need to develop your policy entirely from scratch using best guesses about what will work.

In this module, we’ll discuss:

• The types of clauses you’ll want to include and points you’ll want to make in your reseller pricing policy
• The types of language you’ll want to keep out
• The most effective strategy for drafting your pricing policy

 

7 Items Every Reseller Pricing Policy Should Include

Whether you’re drafting a Minimum Advertised Price (MAP) or an MRP policy, consider the following items must-haves to include in the policy’s verbiage.

 

1. AN EXPLANATION THAT THE POLICY IS UNILATERAL, NOT AN AGREEMENT, AND NOT BINDING

This statement should be right upfront in your policy, ideally in the introduction. It should clearly state that your company has developed this pricing policy on its own, without any negotiations or consultation with any of your resale partners, and that your resellers are indeed free to use their own discretion in terms of abiding by (or not abiding by) the policy’s guidelines.

This language will help put your company on solid legal ground in terms of antitrust legal issues.

 

2. A CLAUSE STATING YOUR COMPANY WILL NOT NEGOTIATE OR DISCUSS THE POLICY WITH RESELLERS

In addition to stating in the intro that you’ve developed the policy without consulting with your resellers, you should then include a follow-up statement making clear that your company won’t discuss or negotiate the policy’s terms with your resellers at any time.

Think of this as an added layer of protection against antitrust challenges. You can’t be too careful with regulators.

 

3. A POSITIVELY WORDED STATEMENT ABOUT HOW THE POLICY WILL HELP YOUR RESELLERS

This clause is more of a business best practice than a legal one, but it’s nonetheless a smart move.

One of the primary reasons you’re establishing a pricing policy is to help your legitimate retail partners protect their margins and prevent unauthorized sellers from unfairly undercutting them. You should state this for your resale partners.

Ideally, this statement should also be presented early in the document, and it should let resellers know that you’ve drafted this policy in large part to help them continue offering the high-quality service they’re known for when representing your brand—and to protect them against unfair competition from free riders.

 

4. A LINK TO AN UP-TO-DATE LIST OF ALL PRODUCTS (AND THEIR APPROVED PRICES) COVERED UNDER THE POLICY

This clause is more of a business best practice than a legal one, but it does create another layer of legal protection. We’ll explain how below.

Many manufacturers draft and publish pricing policies, but then fail to list their approved prices. Others publish these prices when they first roll out the policy, but then forget to update them as they release new products or create product bundles.

In addition to the confusion and headaches this can cause your resale partners—who now know they’re supposed to follow a pricing policy but don’t know what those approved prices are—this can also open up new risks of legal pitfalls. That’s because when your pricing policy fails to include your approved pricing on all products sold through your resale channel, this will force your resellers to contact your company with questions about the policy and your prices.

Those conversations are extremely risky, because they can in effect turn your unilateral policy into a two-way agreement. The less contact you have with your resale partners to discuss this policy, the better. So, make sure your policy includes your pricing—so your partners don’t have ask you for them.

Create a separate page with all of your products (by name, SKU or whatever product identifiers you choose) along with your up-to-date UPP- approved pricing for each. If your company regularly creates new SKUs, you should build into your process a step to add that SKU, along with your reseller-approving pricing, to your published UPP list as soon as the product becomes generally available to your resale channel. 

 

5. A PLAINLY WORDED EXPLANATION OF WHAT YOUR POLICY CONSIDERS AN ADVERTISED VS. A RESALE PRICE

If you’re drafting a MAP policy, how do you want that policy to view in-cart pricing that takes the price below your MAP-approved level? Will you treat this as a resale price, in which case your policy should have nothing to say about it? Or will you instead view it as a continuation of the retailer’s advertised price—and deem it a violation of your MAP guidelines?

There is a lot of gray area in these policies, and the manufacturers drafting them often have discretion in where they choose to draw the line between acceptable and unacceptable behavior.

Which means you need to think through all of the ways a reseller might offer your products that your company would deem policy violations—and then describe every one of those rules and the policy’s penalties for violating them. 

Just as important, you should describe those things a reseller might do that you would not consider a violation—for example, offering free shipping or product financing. If these reseller strategies are okay with your company, say so in your policy.

 

6. A PLAINLY WORDED EXPLANATION OF THE CONSEQUENCES FOR VIOLATING YOUR POLICY

This is another item we deem a must-have for its effect on your business, rather than on its legal importance.

Leaving a reseller unsure of how you will handle violations can in many cases serve as the opposite of a deterrent, creating an actual invitation for some retailers to violate your policy just to see if your enforcement strategy has any sting.

State clearly in your policy what your company will do (or reserves the right to do) to violators. You might state, for example, that at your discretion you may decide without warning to simply remove a repeat offender from your authorized dealer program and instruct your in-house sales teams and your wholesalers to stop selling them inventory.

 

7. A STATEMENT LETTING RESELLERS KNOW YOUR EMPLOYEES HAVE NO RIGHT TO MODIFY OR MAKE EXCEPTIONS TO THE POLICY.

This final must-have item actually serves both agendas we’ve been discussing: It represents a smart business best practice, and it adds yet another layer of insulation for your company against antitrust issues.

Why does it represent a good business move? Because by stating right in your policy itself that it would be fruitless for a retail partner to try contacting someone in your company to ask for special below-MAP pricing, for example, or to ask for a break on the consequences after being caught in violation, you discourage those difficult calls from happening in the first place. This can save your staff a lot of time, confusion, and stress.

It’s also a smart legal move to include such language, because it sends a signal to your resellers—and to regulators, if you’re ever challenged legally—that your company understands the law and refuses to engage in negotiations with resellers about your pricing policy.

 

Language to Keep Out of Your Reseller Pricing Policy

1. STATEMENTS THAT COULD TURN YOUR UNILATERAL POLICY INTO A DE FACTO AGREEMENT

Watch out for clauses such as “If your company agrees to do this… then we promise to do that” or …” if you do X, then we can guarantee Y.”

Agreement-type verbiage can slip into these policies more easily than you might realize. That’s why we also recommend stating explicitly right in the introduction that nothing in the policy should be understood as constituting a two-way agreement. You, the manufacturer, are free to create these guidelines and your resellers are free to abide by them or not.

 

2. VERBIAGE THAT INDICATES A LACK OF SERIOUSNESS OR RESOLVE ABOUT ENFORCEMENT

Worried that too aggressive a policy might turn away important retailers, some manufacturers draft their pricing policies using tentative, noncommittal language. Don’t do this.

Don’t use “may”—as in, “A second violation may result in…” That should read, “A second violation will result in…”

This type of weak, wishy-washy verbiage will only tempt some retailers to test your policy’s seriousness, which will create the very types of price erosion and brand damage you’re creating this policy to prevent.

 

3. ANY STATEMENTS OR CLAUSES WRITTEN IN LEGALESE

Your reseller pricing policy will be effective in deterring bad reseller behavior only to the extent that your resale partners can actually understand it. For that reason, your goal here should not be to create what reads like a terrifying legal warning. 

To the contrary, you’re aiming for a plainly worded, even positive policy statement outlining what you want and expect from your resale partners and why adhering to these policy guidelines benefits everyone in your channel.

 

The Most Important Best Practice for Drafting Your Reseller Pricing Policy 

If we could offer just recommendation about drafting your pricing policy, it would be this: Enlist the help of third-party experts.

Because there are so many business and legal issues to contend with in drafting such a policy, and because these policies are so important to the health of your resale channel and even your brand’s reputation, it’s simply not an initiative your staff should take on alone.

We recommend you partner with a team that helps businesses like yours craft and enforce reseller pricing policies regularly. These entities could include: 

• Antitrust attorneys
• MAP- or MRP-policy experts
•  Brand protection experts

One final recommendation: We suggested earlier in this module that you include verbiage in your policy stating your company has drafted the policy without any consultation with your resellers. A related point that’s probably obvious but still worth stating here—because it’s so important—is to actually avoid seeking input from your retail partners as you draft the policy.

The simple act of talking with your big retailers about where to set your MRP or MAP policy minimum prices before drafting your policy could be deemed a violation of antitrust law.

So, our final word of caution: Don’t confer with your resale channel when developing your reseller pricing policy.