Minimum Resale Price (MRP) is a policy manufacturers and brands use to control how their retail partners price their products for end-user customers. MRP, in fact, is sometimes described as a Minimum Retail Price policy.
Unlike the more widely known Minimum Advertised Price (MAP) policy, which we reviewed in the previous module, MRP policies cover all retailer pricing—advertisements and the actual selling prices. With a MAP policy, retailers must always advertise their prices for a brand’s product at or above a certain minimum level, but they are free to privately negotiate with customers and actually sell the product for any amount they choose. With MRP, by contrast, a manufacturer is telling its retail partners not to sell its products below a specified amount.
Note: You might also see an MRP referred to as a Unilateral Price Policy (UPP) or simply as a Unilateral Policy (UP). These are mean essentially the same thing.
When Is MRP More Appropriate Than MAP for a Manufacturer?
Why would a manufacturer or brand choose to publish and enforce a Minimum Resale Policy rather than a Minimum Advertised Price policy? Keeping in mind that MRP offers a manufacturer more control over its retailers’ pricing at all stages of the selling process, here are a couple of key reasons that manufacturer might prefer an MRP:
- To protect its brick-and-mortar sellers’ margins. Often the primary reason a manufacturer chooses to enforce an MRP policy is that the company’s retail channel includes brick-and-mortar stores, and the manufacturer wants to make sure those storeowners are incentivized to continue carrying the company’s products. Physical retail stores often introduce people to new brands, and the added services these stores offer shoppers (knowledgeable salespeople, product displays, demos, fitting rooms) make them a valuable part of many manufacturers’ overall sales and brand-awareness efforts. In the internet era, a persistent threat to these retail stores is free-riding, or “showrooming,” where shoppers use a store’s displays, demos, and help from salespeople to learn about the product, only to leave and buy it for less from an eCommerce retailer. If a manufacturer were worried about this, the company might opt to set a price floor, high enough that to account for the brick-and-mortar retailer’s overhead, while not allowing an online-only retailer to undersell these storeowners privately with customers.
- To protect its brand value and perception in the marketplace. While a manufacturer might prefer a MAP policy if the company worried only about public displays of its products’ prices, the company might choose an MRP policy if it were also concerned with word getting out that some retailers were actually selling its products for less than advertised prices. This is one reason that an MRP is often the reseller pricing policy selected by luxury brands. The high prices these companies charge for their products are themselves part of the brands’ marketing strategy. These brands have found that high prices convey exclusivity, a major component of the products’ appeal. Consider how that could be undermined if shoppers discovered that certain retailers, regardless of their advertised prices, were selling the brand’s products at steep discounts? For luxury brands built on the promise of exclusivity, the very fact that customers learn it’s possible to negotiate lower prices on their products could undermine these brands’ perceived value with consumers.
The Major Components of an MRP Policy
We reviewed the key building blocks of a standard MAP policy in the previous module, and many of those also form the basic components of an MRP policy. So here, we’ll list them out more briefly.
- Language stating the policy is unilateral. This statement is even more important in an MRP than it is in a MAP policy. This is because antitrust law treats establishing a floor on resale prices with more scrutiny than it does advertised prices. We’ll discuss the legal implications in Lesson 7: How the Law Affects Reseller Pricing Policies.
- A list of all products covered by the policy. As we noted in the MAP Policy module, a best practice here is to include only a link to your products and their MRP-approved prices in the policy itself and maintain those prices on a standalone page. This prevents your MRP policy from becoming cluttered and looking too unwieldy for your retailers to review.
- An explanation of the rules. The rules governing an MRP policy are more straightforward and less open to interpretation than they are for a MAP policy- where each company’s definition of what constitutes an ad can differ. But you will still have some room to establish your own unique policy guidelines. For example, will you allow retailers to apply storewide discounts or coupons to your products resale prices?
- Clearly explained consequences for violations. Will you choose to cut off a retailer’s supply of your inventory for 30 days after a first offense? 90 days? Let them off with a warning? And what happens the next time they violate your policy’s rules?
- An FAQ. One of the smartest ways to reduce your company’s exposure to antitrust risk is to discourage calls, emails, and other communications between your employees and resellers about your MRP policy. Even if they think they’re doing the right thing, your employees’ agreeing to look the other way to an first violation of your pricing guidelines could later be used against your business in an antitrust suit. So it makes sense to develop clear answers to the most common questions about your policy, and to publish them within the policy itself.
- Your “MRP Policy Administrator’s” contact info. Finally, add a reference to a designated “MRP Policy Administrator” and insist that any questions or requests about your policy be directed to that person. Even a company’s expertly drafted MRP policy, one that avoids all of the common legal pitfalls, won’t be able to protect the company from antitrust exposure if its employees act in ways that effectively turn the unilateral policy into a de facto agreement. This can happen even if the employees didn’t intend to do anything illegal but simply didn’t understand the law. For example, let’s say one of your sales reps takes a call from a resale partner asking for permission to drop its advertised or sales price of some of your products because the team needs to hit its quota before the end of the quarter. The reseller promises to make larger inventory purchases in the next quarter if your rep gives them this short-term “break” from your MRP pricing rules. If that rep agrees to this, and if anyone at your company has ever treated a similar request differently from another reseller (or does so in the future), regulators or an antitrust court might find that you’ve entered into an illegal act of price-fixing or an anticompetitive conspiracy with that reseller.Meanwhile, that rep might have simply been ignorant of the legal risk in that decision.
This is why it is so important to designate an official MRP Policy Administrator at your company to field all reseller questions and requests about your policy. You will also need to train all of your staff that if they ever receive questions from a reseller about your MRP, they should not discuss the policy at all but instead let the person know they’ll have to speak with the policy administrator.
Quiz time! Let’s see how much you’ve learned about Minimum Resale Price policies.