Developing a reseller pricing policy tailored to your company will require a lot of effort: assessing the unique circumstances of your business’s resale network, determining the most prevalent and dangerous types of threats in your industry, learning the legal implications and pitfalls of drafting and enforcing the policy you choose, etc.
As we’ve discussed throughout this course, there is no one-size-fits-all answer to the question: “How should we develop our reseller pricing policy?”. Nevertheless, there are fundamental steps a manufacturer or brand can take to make sure they’re addressing the key issues when creating their unique policy.
In this lesson, we’ll present a high level view of that process and review the broad steps you should take to develop your own reseller pricing policy.
Step 1: Identify the problem
Before you can develop the right reseller pricing policy, you first need to name the problems you want to solve (or the potential problems you’re hoping to prevent from happening).
Are you mainly concerned with preventing the advertised prices of your products from dropping below certain levels? Are you also interested in controlling the prices your retail partners actually sell your products, or do you not worry as much about any private negotiations a retailer might have with a customer over your products’ pricing?
Maybe your concern isn’t primarily about advertised or resale price erosion at all, but instead about your products finding their way into the hands of sellers who will create a poor buying experience for customers, earning your brand a negative reputation online.
Or is your concern that online sellers are undercutting your important key brick-and-mortar retail partners who introduce your brand to the many customers who walk through their stores every day?
You’ll need to answer these questions, and several others like them, before you can begin developing a policy and enforcement strategy that works for your company.
Step 2: Identify the villain
If you’re already seeing price erosion of your products, can you trace the source of the problem? Are your own distributors or wholesalers selling to shady retail companies, who are in turn discounting your products below levels you find acceptable?
Do you even recognize these retailers who are violating your policy? Sometimes even authorized retail partners will sell products under phony company names, which allows them to violate manufacturers’ policies without jeopardizing their relationships with those manufacturers.
Perhaps you don’t have a network of wholesalers and distributors. You have an internal sales team that sells your products directly to retailers. Is it possible these in-house reps are intentionally selling under your company’s minimums to certain retail partners, or during certain times of year, to make their personal sales quotas or reach a bonus milestone? Those practices could be giving certain retailers an edge that allows them to offer your products at lower prices,, undercut their competitors, and still earn a profit.
Note: Regardless of whether you sell through a distributor/wholesaler channel or your in-house sales team sells directly to retailers, you’ll want to implement an Authorized Dealer Program (ADP). As we discussed in the module on ADPs, this program helps you reduce the chances of your distributors and internal sales reps “leaking” inventory to rogue sellers, because your agreements will limit sales to your list of authorized dealers. And because they know they can lose their relationship with your company for violating this rule, your distributors are less likely to let your products fall into the wrong hands.
Whatever your company’s resale operation looks like, before you can develop the right pricing policy and program to enforce it, you need to know where the problem is originating and who is responsible.
Step 3: Select the right policy
You might want to control only how your products are advertised, or how they are both advertised and sold. You might also want to limit your reseller pricing restrictions to online offers only and allow your bricks-and-mortar retailers more pricing freedom in their physical stores.
And there are other questions that you’ll want to answer as you narrow your search for the right policy. If you’re interested primarily in controlling advertised prices, for example, where would you draw the line at what constitutes an “advertised” price online; only on your retailers’ sales pages and ads, or in consumers’ shopping carts as well? Will you also want to limit your retail partners’ ability to send discount offers directly to their customers by text or email? If so, you might want to supplement your MAP policy with an iMAP or eMAP.
If you simply grab a standard MAP policy template from the Internet and add your company’s name (a mistake many manufacturers have made), you might find you are enforcing the wrong policy for your company—or at best a policy that meets only some of your specific needs and goals.
Step 4: Draft and publish your policy
At this step in the process, your company will need to focus on two strategic objectives simultaneously:
- Making sure you’re writing all of the clauses, guidelines, consequences, and other business details into the policy you’re developing.
- Making sure your policy stays on the right side of the legal line when it comes to such gray-area issues as price-fixing and other antitrust violations.
Because drafting a reseller pricing policy requires pulling together so much detail, and because there are several potential legal pitfalls, this is the stage in the process where a manufacturer is most likely to make a mistake.
For this reason, we view it as a best practice to work with professionals when drafting your policy; either antitrust legal counsel or experts at price monitoring and brand protection.
Step 5: Develop your monitoring and enforcement process
Here, again, you will have to answer several questions specific to your company’s goals, priorities, and available resources.
Will you want to try monitoring your products’ pricing manually or will you want to automate the process? Which employees will you assign the role of overseeing your monitoring and enforcement strategy? How will you communicate your new policy across your company, and what responsibilities will you assign to which people or departments?
Implementing an effective enforcement strategy will require as much careful thought and planning as the policy-drafting step.
What You Need to Protect (and What You Might Not)
We’ll end this module with an important but little-discussed aspect of your reseller pricing policy.
Most manufacturers assume they need to apply the rules in whatever policy they roll out to every product in their line. In actuality, you can draft and enforce a pricing policy in any way you choose—including establishing price minimums for some products and not for others.
In some circumstances, this can serve your business well. If you give your authorized dealers more freedom in how they advertise and sell some of your products, they’ll be more likely to abide by the guidelines you’ve set on the products your company really cares about.
Let’s say you are not particularly worried about your lesser known products being offered at discounted prices, because those products don’t have much effect on your company’s reputation or brand perception. Maybe you even make and sell some products under a different brand altogether. Perhaps you have a few products with low price-points relative to your larger, iconic lines, and are fine with retailers discounting those. You can allow your retail network some freedom with these less-important product lines, and in some cases, it might be strategically advantageous to do so.
As one of our colleagues here at TrackStreet puts it: “Protect the castle, not the kingdom.”
Here’s what you’ll always want to protect:
- Your flagship, iconic products (the items that most directly contribute to your company’s public reputation and brand value).
- Your top revenue drivers.
- New items that your sales team is eager to push when they first become generally available (because you have to protect your key retail partners’ margins, particularly your bricks-and-mortar retailers).
The next question you’ll need to answer:
Looking at that list above of the items that should be covered by your pricing policy, can you determine how much of your company’s overall product line those items represent?
If it’s 85% of your product catalog, perhaps you’re concerned that you will be too strict with your retail channel on too great a percentage of the products they’re selling. Maybe you’ll want to give your resale partners a little more pricing freedom with more of your line. If this is the case, then maybe you want to remove some products from your policy.
Bottom line: You do not have to enforce a minimum advertised or resale price on every item you sell.
Quiz time! Let’s see how well you understand the major steps in developing a reseller pricing policy.