How to Enforce a Reseller Pricing Policy

Let’s say you’ve researched your options for reseller pricing policies. (See Module 9: An Intro to the Different Reseller Pricing Policies). Let’s also assume you’ve selected the right policy for your company, drafted it, and published it for your resale channel to see. (See Module 10: MAP Policies, or Module 11: MRP Policies.)

No matter how well you drafted that policy, and how careful you were to ensure all of your resale partners received it, that policy will be only as effective as your company’s ability to enforce it. In fact, a consistent, aggressive enforcement program might be the most important factor in determining the success or failure of a reseller pricing policy.

In this module, we’ll discuss:

• The two types of reseller enforcement—and how they differ
• Why reseller pricing enforcement often fails
• Best practices for enforcing your reseller pricing policy
• Why reseller enforcement must include distributor and wholesaler compliance

 

The Two Types of Reseller Enforcement—and How They Differ

When you develop a reseller pricing program, you need to understand that your guidelines will apply only to your legitimate retail partners. Whether you have a formal Authorized Dealer Program or not (and you definitely should have one), your company obviously works with a group of retail partners with whom you’ve established a positive relationship. Those are the businesses for whom you are writing and publishing your reseller pricing policy. 

But unfortunately, there’s another group of retailers that are probably also selling your products: unauthorized third-party sellers who use dishonest means to acquire your inventory (either from your in-house sales team or your wholesalers) and then resell your products without your permission.

These two categories of retailers require two different types of enforcement.

When it comes addressing a legitimate resale partner that has violated your pricing policy, you need to be careful. As we pointed out in Module 12 (Are Reseller Pricing Policies Even Legal?) and Module 13 (The “Agreement” Question), a manufacturer a pursuing violator can unwittingly turn its unilateral policy into a de facto agreement. Telling a longtime partner who’s advertising your products below your MAP price that you’ll let them off the hook with a warning if they agree to take down the offending listing could be construed as an agreement. That could put a manufacturer in legal jeopardy if another retailer ever challenges the action in court.

But let’s say you’re monitoring the Internet for MAP violations, and you find a retailer you’ve never even heard of advertising your products at below your MAP-approved level? In this case, although it was a MAP violation that caught the attention of your price monitoring software, your real issue with this retailer should be that they have no permission to sell your inventory in the first place.

When it comes to these rogue retailers, you don’t need to be careful approaching them or worry about the legal implications of approaching one different from another. Because these companies have no right to use your sales copy, images, or other copyrighted content to represent your brand, your challenge to them is not about price—it’s about authorization. They simply don’t have your approval to use your content or to retail your products. Therefore, you can pursue these companies (directly or through lawyers) as aggressively as you want. You don’t have to pursue them all in a consistent way, either, as you might have to do with your official resale partners.   

But it’s important that your enforcement strategies take into account both categories of resellers. Your pricing policy is there to help you enforce your pricing guidelines with legitimate resellers, but it won’t do you any good against unauthorized third-party sellers. 

These companies know they’re not supposed to be retailing your products, so your MAP or MRP policy won’t do you any good as a deterrent against these companies. To enforce your policy against them, you won’t want to take the pricing-violation approach at all—even though they’ll almost certainly be violating your pricing guidelines. For these companies, you want to take the authorization approach—as in: You don’t have authorization to retail these products. Take down your listing or we’ll pursue you for intellectual property theft. 

Failing to remain vigilant and on the lookout for rogue retailers is just one common way manufacturers’ reseller enforcement programs fail. Here are several others. 

 

Why Reseller Pricing Enforcement Often Fails 

1. THE BRAND FAILS TO EFFECTIVELY PUBLICIZE AND COMMUNICATE ITS RESELLER PRICING POLICY

The first step after drafting your reseller pricing policy will be to get the word out to your entire resale channel that the policy exists and that it is now in effect.

Many brands simply publish their pricing policy on an internal page on their website and leave it at that, assuming this means they’ve checked the “reseller pricing enforcement” box and can move on. But this policy isn’t just some legal boilerplate language that needs to be posted somewhere on your site.

The whole point of such a policy is for your resale channel—and businesses just starting to consider carrying your products—to know the policy is there to protect them against being unfairly undersold.

When you’ve completed your pricing policy, don’t keep it to yourself. Post it prominently on your site, particularly on your Partner pages. Issue a press release to your industry’s trade publications announcing the new policy. Send the policy to your existing resellers and include it in any onboarding package you have for new members of your sales channel.

One of the most effective reseller pricing enforcement strategies is educating your resale channel about the rules, so that fewer of them violate those rules in the first place.

 

2. THE POLICY FAILS TO CLEARLY EXPLAIN WHERE THE BRAND DRAWS THE LINE FOR ACCEPTABLE AND UNACCEPTABLE BEHAVIOR.

When it comes to the brick-and-mortar world of product sales, federal antitrust law has been pretty consistent for decades about where it draws the line between a “resale price” and an “advertised price.” And that line is generally drawn at the front door of a retailer’s store.

If a reseller lists your products’ prices in a physical mailer or coupon, on a roadside billboard or in a television ad, those would each constitute an advertised price. But once inside the reseller’s own store, any references to your products’ prices—on price tags, rack signs, or even an announcement made over the PA system—are considered resale pricing, not advertising, under the law.

And remember: Your MAP enforcement program can target only violations of advertised pricing—not your retailer’s actual resale prices. This is an important distinction and another reason it’s worth re-examining whether a MAP policy is in fact the right reseller policy for your company.

This line gets more difficult to draw on the Internet, where the “front door” might simply be the homepage of a retailer’s eCommerce site, or a retailer’s main product listing page. So questions like, “Does in-cart pricing count as an advertised price?” are open to interpretation. 

When you draft your pricing policy, you’ll need to think through all of the common ways a reseller might violate it—even innocently, because they have a different understanding of where the “front door” is—and you’ll need to explicitly state that your company will consider those actions violations of the policy.

Another example of failing to clearly communicate where your company draws the line on specific behaviors includes showing a lack of seriousness in your policy’s language. (Note: this can occur in both MAP and MRP policies.) Examples of such noncommittal policy verbiage include:

 

“May” vs. “Will”
Using “may” in describing either the policy’s coverage or violation consequences signals the manufacturer is not prepared to enforce the policy, and it allows resellers to not take it seriously. Just as bad as “may” is “reserves the right.” The better approach is to use “will” to indicate that the manufacturer means what it says and will follow through. 

 

Lack of sting
Like using “may” instead of “will,” coming up with enforcement consequences without serious sting can have the counterproductive effect of tempting resellers to violate the policy because the penalties are minimal, even if they are enforced. 

 

Too many strikes
A reseller needs to see real consequences, from its very first violation, as well as a clear point at which repeated offenses will be get it kicked out of your network altogether. Having a policy with too many “strikes” for violations is another way of signaling weakness and a willingness to keep working even with a serial offender. 

 

Restarting the clock
If a reseller knows your company will reset their violation scorecard back to zero periodically (such as each year), you are giving it a free pass to regularly violate your policy—which will be particularly tempting during big selling seasons, such as the holidays. Better not to describe a reset in your policy, but, if you wish to provide amnesty at some point across the board or reinstate a particular reseller that has been cut off, just do it without an announcement in advance. (There is no obligation to reinstate all fallen resellers, as a manufacturer can determine those with which it wishes to do so.)

 

3. THE BRAND CAN’T FULLY MONITOR ITS PRODUCTS ACROSS THE INTERNET

Because it is so simple today for an online retailer to build a sales page or buy a pay-per-click ad, you have to assume that your products are being advertised by more businesses, across more websites than you and your internal team can keep track of. 

Moreover, because these pages and ads are likely changing frequently—and because some businesses selling your products might intentionally drop their advertised prices below your MAP-approved levels at times of the day or days of the week when they think you won’t notice—it will be very difficult and time-consuming to monitor the web frequently enough to catch violations.

And it is this lack of a brand’s ability to fully monitor its products’ presence across all digital channels, at all times of day, that can lead to MAP violations that go unnoticed and unaddressed. 

Bottom line: Your reseller pricing enforcement obviously can’t be effective if there are violations your company isn’t even seeing.

 

4. THE BRAND ENFORCES ITS MAP POLICY INCONSISTENTLY

Another common weakness in many companies’ enforcement programs is the fact that, because they try to monitor and enforce their policies manually, the enforcement measures they take differ over time or from case to case. 

Perhaps at the start of the year, a manager decides that MAP enforcement will be a top priority. The company tasks several team members with monitoring the web day and night for violations and sending out warning letters. But soon another business priority emerges, and those MAP-enforcement employees are re-tasked. Now MAP violations are allowed to stand for long periods of time, which the company’s key resellers notice and are not happy about.

Effective reseller pricing enforcement requires the company consistently catch and take action against violations. This is one of many reasons that the best enforcement program is an automated enforcement program.

 

5. THE BRAND TAKES A ONE-SIZE-FITS-ALL APPROACH TO ADDRESSING VIOLATIONS

This might sound like a contradiction to the point we just made about the need to keep your enforcement—at least against your legitimate retail partners—consistent. Showing favoritism to one retailer over another could be deemed a violation of antitrust law.

But you can—indeed, you should—develop your reseller pricing enforcement strategy with the understanding that not all violations are created equal. Some will be innocent mistakes; others will be intentional. Some will come from honorable partners you’ve done business with for years; other will come from fly-by-night operators who have no relationship with your company (those unauthorized third-party sellers we discussed earlier).

Even your trusted sales partners, the members of your Authorized Dealer Programs, and well-known, reputable retail companies new to your resale channel might violate your MAP policy—and these violations might even have an innocent excuse.

New marketers join the teams at these companies and post advertisements without realizing you have a MAP policy in effect. And of course, in their enthusiasm to promote your products, sometimes these well-meaning marketers might just forget about checking their promotions against your MAP prices.

For the sake of legal compliance, you’ll need a MAP enforcement program that takes the same approach to each type of violation, no matter where it comes from. This will mean a specific type of violation (from anyone) will trigger the same warning message from your company, followed by the same series of escalating actions.

But for your key strategic accounts, and for the businesses who have earned your trust over time, you might also want to add a friendly phone call to the process, just alerting them that they’ve violated the pricing policy. In most cases, this will have the dual benefits of bringing the violation to the reseller’s attention so they can quickly correct it, and preserving your working relationship with that company.

Caution:Do not discuss or negotiate with your partner about what will happen if they remove the offending listing, or do anything that could be construed as creating an agreement. Simply let them know this is a friendly reminder about the policy. That’s it.

 

6. THE BRAND’S ENFORCEMENT PROGRAM LACKS THE EFFICIENCY AND SCALABILITY OF AUTOMATION

Simply monitoring its products’ entire presence across the entire Internet, at all times, would be a difficult enough undertaking for a brand that didn’t have automation to help make this initiative more manageable. But if you add the fact that the brand would also have to fully document every violation, and then determine what actions to take in each case, you can see that the time and resources needed for in-house enforcement simply becomes cost-prohibitive. 

There is a solution, though, and it is both more effective and more affordable than even the most well-thought-through manual enforcement program. That solution is a fully automated online platform for tracking, monitoring, and enforcing a brand’s reseller pricing program.

The automation functionality your company should be looking for includes:

• Sending automatic violation notifications (including an escalating series of messages you choose, in the order and at the frequency you select).
• Automatically taking screenshots of each violation.
• Storing all MAP violation screenshots in your account for anytime online retrieval, should you need this as evidence in any legal action.
• Enabling you to direct email alerts from the system to different recipients at your company based on key criteria such as the level or type of violation, or the company committing the offense.
• Archiving your entire trail of communication with violators, and making this documentation accessible in your account indefinitely, so you can easily access it anytime as evidence in any legal action.
• Including a database that allows all clients on the system to share information about merchants “ghosting” or hiding behind fake names on marketplaces, and which links vendors who operate multiple websites and marketplace identities.
• Helping you with the “Now what?” question—by automatically creating and maintaining a Do Not Sell list in your account, which shows you which offenders are persisting in violating your MAP even after receiving your warnings. AND enable you to share that Do Not Sell list on an automated basis with your organization and distribution partners.

 

Best Practices for Enforcing Your Reseller Pricing Policy 

Assuming you’ve established an effective and efficient system to monitor your products’ presence across the Internet, your next question should be: What happens when we actually catch a violation? Here are some best practices.

 

1. DEVELOP SEPARATE STRATEGIES FOR RESPONDING TO AUTHORIZED AND UNAUTHORIZED SELLERS.

As we pointed out earlier, you should develop a reseller enforcement strategy that works on two fronts simultaneously: addressing pricing violations of your legitimate sales partners, and addressing authorization violations of the rogue sellers who shouldn’t be selling your products at all.

When you catch these unauthorized retailers selling your products, you can send cease-and-desist letters and other notices threatening legal action. You don’t have to treat these companies the same way you’d treat an authorized dealer that runs afoul of your policy because they have no business selling your products in the first place.

With an authorized reseller, on the other hand, you’ll need to be far more careful and deliberate in how you address a policy violation. You might want to simply remove such a company from your Authorized Dealer Program after their first violation. Or you might want to set up a graduated enforcement plan, where after one violation you’ll institute certain consequences—say, suspending their inventory for 60 days—and then remove them from your authorized list only if they commit a violation a second time.

But you will need to enforce your consequences consistently for this subcategory of reseller. 

The point here is that you do not—and should not—treat all reseller violations identically. Unauthorized resellers do not need the same antitrust consideration that your legitimate resale channel requires. However, when it comes to your authorized resellers, you will need to enforce your policy consistently. 

 

2. SEND FORMAL ENFORCEMENT NOTIFICATIONS TO VIOLATORS—BUT DON’T DISCUSS THEM

Let’s say your team catches a reseller offering your products on their website for a price below your MAP- or MRP-approved price.  

Let’s further assume you’ve decided that your enforcement policy will be to immediately cut off such a reseller’s access to future inventory and remove them from your authorized list. How do you actually execute on that enforcement strategy?

The best practice is to send a formal notification to the company giving them the bad news. This notice should restate your policy’s relevant guideline and the consequences for violating it (removal from your channel). It should also show evidence of where the reseller violated that guidelines (using the documentation you’ve compiled). And it should then state that the company is now officially removed from your authorized list and is no longer allowed to sell your products. 

And that’s it.

You should also instruct your team not to speak with any representative of the reseller’s company by phone, exchange further emails with the company (even if only to reiterate the fact that they’re being terminated from your network), or engage in any other type of communication after the termination. 

Why? If your reseller ever challenges you in court over this termination, you don’t want to give them any ammunition to demonstrate that you are willing to discuss or negotiate your policy with a reseller. 

Furthermore, if your company ever decides unilaterally to reinstate the reseller, you also need to be able to demonstrate that your decision was indeed unilateral—that you had no discussions, negotiations or communication of any type with this company regarding their termination. Keep in mind also that if another reseller you’ve terminated for similar reasons ever decided to challenge your decision legally, they could subpoena communications from other resellers.

Any communication you’ve ever had about your policy with another terminated reseller that was eventually reinstated could support their claim that you are playing favorites and possibly violating antitrust law. 

 

3. PREPARE AS MUCH OF YOUR STANDARD ENFORCEMENT MATERIAL AS POSSIBLE BEFOREHAND, SO IT’S READY TO GO IMMEDIATELY

When your team catches a violation, you don’t want them to have to guess what their next move should be. You don’t want an employee drafting and sending off ad-hoc warning notices to violators using different language each time, either.

You need to systematize as much of your enforcement process as possible. This means, for example:

• Drafting legally sound boilerplate language for your first warning notice (which you can lightly customize for the specific company, as long as the customization doesn’t materially change the warning’s language.
• Drafting legally sound boilerplate language for a cease-and-desist letter for unauthorized retailers (which you can lightly customize for the specific company, as long as the customization doesn’t materially change the warning’s language).
• Drafting legally sound boilerplate language for a removal-from-network letter to an authorized reseller you are terminating (which you can lightly customize for the specific company, as long as the customization doesn’t materially change the warning’s language).
• Drafting legally sound boilerplate language for a response to inquiries about your reseller policy, which should not discuss or offer additional information about the policy but should instead direct the inquirer to either an FAQ page about your policy or to your company’s primary Reseller Price Policy contact person.

You will, of course, need to prepare more documents than this, and you will need to decide in advance who at your company will be responsible for reviewing each violation to determine which enforcement action to take.

But this should give you an idea of why it’s so important to automate the process to whatever extent possible; the business and legal implications of incorrectly or inconsistently enforcing your pricing policy are potentially risky. 

 

Why Reseller Enforcement Must Include Distributor and Wholesaler Compliance

Finally, one often overlooked aspect of reseller pricing enforcement is that retail sales don’t necessarily happen in a vacuum—they can also be heavily influenced by wholesale pricing.

For this reason, another best practice for reseller pricing enforcement is to develop partnership agreements with your distributors and wholesalers, and even to implement policies for your in-house sales or eCommerce departments. Here’s why. 

Let’s say you sell your products through a two-tier distribution channel: Your company sells inventory to a network of authorized distributors or wholesalers, and those companies then sell to retail businesses.

This means your distributors and/or wholesalers represent your products’ entry point into market. So it is extremely important to craft a set of rules and restrictions to guide their behavior. You don’t want to leave these distributors free to sell your products to any retailer who tries to buy them, because this is often how rogue sellers get their hands on your inventory and then violate your company’s guidelines in all sorts of ways when they resell them on the grey market.

So one of your first steps in enforcing distributor compliance should be to draft an agreement that clearly explains your rules for wholesaler and distributor behavior. You will also want to make signing this agreement—and complying with it—a condition of doing business with your company.

The primary reason these agreements are so often effective is that they align your distributors’ and wholesalers’ interests with your company’s own interests. Because they have agreed to follow these guidelines when selling your inventory, your distribution partners know they have something to lose if they don’t comply.