Price Integrity in the Online Marketplace

Most manufacturers work to enforce a minimum advertised price (MAP) on their products. This is the lowest price that may be published for a product, and manufacturers are finding out that monitoring and managing MAP pricing is harder than it looks. Here’s why:

1. Sheer Number of Listings

A modestly sized manufacturer can have as many as 500 listings per product between various online retail sites. If a manufacturer has 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 millions of instances of their products online.

Sites such as Amazon or walmart.com will use automated web crawlers to discover lower prices, and they will often automatically reduce their pricing to meet or beat the lowest 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 the product is sold.

On one listing for a bedrail, you may see 53 sellers in addition to Amazon. In that case, there are at least 54 sellers for a single product, on a single website marketplace. It can feel like a game of 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 simply finding a violating listing.

2. Anonymity of The Web

Say the manufacturer finds a MAP violator. Now what? Savvy third-party sellers do all they can to hide their identity. Manufacturers have found false Facebook profiles, made-up business addresses and phone numbers and even fake web addresses. Another factor can come into play where these third-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 can’t connect with them? Sometimes a manufacturer can order a product from a violating listing, then glean the address from the label, but if the seller uses a false address, it can’t be tracked back. If the product is sold by a third-party seller through Amazon, Amazon ships it out, which hurts the manufacturer trying to trace the seller.

3. Interconnectivity of The Web

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 too.

A single MAP violator can spread through the online marketplace like a contagion. As 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 also drops to compete.

Hundreds of listings can fall below the minimum advertised price. Imagine the difficulty of asking website A to increase their price when websites B, C, D, Amazon and walmart.com all have lower prices? For days, weeks or even months, one decision by one woman 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.

4. Knockoffs

One manufacturer found one of their patented products for sale on Amazon, for far less than the MAP price. After ordering the product to investigate, the manufacturer discovered that it was a cheaply made knockoff produced in China. The materials and craftsmanship were substandard, but because the seller had listed it under the brand name, it was listed with other legitimate sellers, and this listing drove everyone’s price down. E-commerce platforms such as Amazon are reluctant to drop sellers, even at the manufacturer’s request. For this particular patent holder, months of legal wrangling finally removed the unauthorized knockoff.

5. The Wholesaler Consideration

Many manufacturers are required to use wholesale representatives to sell their product. Because of the industry they are in or the company size, it isn’t always feasible or even possible to have a national sales force.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 double-edged sword.

Technically, the wholesaler is the customer, yet they go out 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 the dealers.

Most repeat violators will source their products through more than one wholesaler, so even if they can finally be identified, that does not mean that they can be easily cut off. 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 off a violating dealer is difficult to achieve.

6. Professional MAP Violators

Quite a few companies and individuals make an art of violating MAP. They buy from multiple sources, create fake fronts online and drop-ship. Many will also erode price integrity through dropping prices below MAP after the products hit the shopping cart, or through hidden email campaigns that offer violating prices to closed groups. While this less effects 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.

It is critical to draft clear agreements with dealers and wholesalers so they will know what is expected when it comes to pricing products online. Finally, as a manufacturer, it is important to work with retailers to help them understand that you are on their team. How many dealers know that any person, anywhere could list a product for any price, and suddenly cause months of struggle with pricing online? Not many, and while education doesn’t solve the problem, it might help them in 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 as the new digital marketplace continues to mature.