Brands and retailers know better than anyone — one bad apple can ruin the whole bunch. 

In a competitive market where consumers can compare and shop for the best prices in an instant, sellers are incentivized to offer the most competitive prices. But pricing is a delicate dance between brands, their retailers and consumers to ensure fair value, profit margins and the highest quality products.

What can you do to prevent deep discounts from eventually driving your products off the digital shelf? Here’s everything you need to know about price erosion and how to stop it.   

What Is Price Erosion?

Price erosion is what happens when a retailer or a marketplace seller discounts a product to a new market low (meaning it offers the best online price for this item) and triggers a chain reaction where other sellers lower their prices in a “race to the bottom.” This results in a loss of profit for all sellers of this product, , as well as potentially damaged partnerships between the brand and its retailers. 

While consumers may benefit from lower prices in the short run, price erosion can result in lowered quality or total elimination of the product down the road. 

With so many sellers, high-traffic marketplaces can be hotspots for potential price erosion. Sellers, both authorized or not, may compete on a listing to offer the best possible price. Retailers and sellers on other marketplaces could pick up this new price and try to match it, or worse, beat it. This could happen even if your retailers signed a minimum advertised pricing (MAP) policy: either they knowingly violate it, or they have automated repricers that are not configured with a floor price.

Why Is Price Erosion Bad?

What’s wrong with a little competition? A lot — especially when prices are so low that no one wins. Beyond losing a sale here or there, all parties involved get hurt by price erosion’s long-term effects. Namely:

• It diminishes product and brand value. Deeply discounted products come across as cheap and lose their exclusivity, harming luxury brands and those that tout high product quality. 
• It disincentivizes retailers. When their profit margins shrink and they lose to competitors, retailers have no reason to continue selling price-eroded products. This is especially true when authorized retailers cannot move below MAP pricing to compete with the offending sellers. 
• It risks total brand revenue. If they can’t achieve desired margins, retailers may push for refunds or markdowns, cutting into brand revenue. Plus, consumers may begin to expect discounts, holding out on full-price items or failing to purchase at all. 
• It forfeits retail partnerships. Price erosion can force retailers to break ties with your brand and partner instead with competitors who have more beneficial pricing policies. 

Even worse, price erosion isn’t specific to e-commerce. It can trickle down to brick-and-mortar sales too. While these stores can still secure sales by offering coupons and price-matching programs, it results in lost profits from making up the difference. 

How Can You Avoid Price Erosion?

Price erosion is not a problem with a quick and easy solution. However, you can take proactive steps to curb its influence.

Create a MAP and Other Seller Agreements

If you don’t already have a minimum advertised price (MAP) policy in place, it’s imperative you create one before going any further. Your network of sellers can’t adhere to your MAP rules if you don’t have them. You can also devise a reseller agreement that outlines all of your expectations prior to beginning the relationship. These rules give you leverage to take disciplinary or even legal action if needed down the road. Please note that MAP policies are often illegal outside of the US.

Choose Retailers Wisely

The more the merrier, right? Unfortunately, one of the main causes of price erosion is a wide distribution with too many sellers. Rein in access to your products by being strategic about the channels and marketplaces you sell on in addition to the selling partners you choose. Create an approval process and select sellers who have:

• Similar brand values and who practice integrity
• High ratings
• A positive and credible online presence
• A compliant return policy

From there, keep in close contact with your authorized sellers and regularly audit your approved partners list to ensure credibility. 

Regularly Assess Your Pricing 

The market is constantly in flux, warranting the need to modify prices and thresholds over time. Be realistic about your MAP policies so retailers can comply. If the MAP is too high, it might fail. If it’s too low, you may leave money on the table. 

Automate Price Monitoring

There are too many sellers and channels to manually monitor price fluctuations. Implement an automated price monitor to be your “eagle eyes” across the internet so you can spot price fluctuations and MAP violators early and often. Look for a high-frequency price monitor: if multiple sellers drop their price, it can tell you which one did it first.

Stop Price Erosion Before It Starts

The market is too saturated with competing sellers to not have a pricing strategy in place. Rithum’s Managed Services experts can guide you through the process to devise a pricing strategy, implement price monitoring and make the biggest impact on your profit margin. Over 20+ years, we’ve helped companies fight pricing wars with proven technology and ironclad strategy. Let us help you execute the best repricing options to accomplish your goals and continually monitor performance as circumstances change. 

Contact us to learn more or request a demo with our team of e-commerce experts today to get started.  

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Online marketplaces and cross-site price comparisons have made e-commerce more competitive than ever. How can you keep things fair among sellers while maintaining your brand integrity? 

Price floors and recommended resale values are key to leveling the playing field, but they can be difficult to implement when they involve so many subtle nuances. 

What Is a MAP Pricing Policy?

MAP stands for “minimum advertised price.” It is a policy a brand or manufacturer imposes on its sellers not to advertise a product below a certain threshold. 

For example, if a jeans manufacturer sets a MAP of $48.99, neither brick-and-mortar boutiques nor online marketplaces can advertise prices below that mark. 

Technically, distributors can still sell below the price, they just cannot publicly advertise below the set value. For example, a vendor who sells below MAP over the phone or behind a members-only website is still within the confines of the policy. 

How is MAP different from the manufacturer’s suggested retail price (MSRP)? MSRP is the price the manufacturer recommends selling a product at, while MAP is the lowest possible advertised price. Retailers don’t have to choose the MSRP (it’s more of a starting price), but the amount helps standardize prices across sellers.

It’s important to note that MAP policies primarily only apply in the US and Canada. In most cases, MAP pricing is illegal in other countries like the UK, where it is seen as a type of price fixing. 

What Are the Benefits of a MAP Pricing Policy?

MAP policies are important because they protect multiple parties, including brands, retailers and consumers. In fact, they benefit the entire market because they:

• Keep competition alive. MAP policies were primarily enacted to maintain fairness among distributors. By setting a minimum advertised price, brands prevent Seller A from undercutting Seller B and winning all the sales. Not only does this benefit a brand’s relationships with multiple sellers, but it fuels the free market with healthy competition instead of creating monopolies.   
• Protect profit margins. The prevalence of automated repricers has made it easy for sellers to stay in close competition with other retailers. Without a MAP policy in place, sellers are forced to follow suit with vendors who continually slash prices, resulting in a “race to the bottom” that erodes margins for everyone. 
• Maintain brand integrity. MAP policies are especially beneficial for luxury brands or manufacturers with high-ticket items. If a distributor sells a product significantly below the suggested price, customers will begin to see the item (and subsequently the brand) as less valuable. 
• Limit customer complaints. Consistent pricing also limits customer inquiries and complaints about finding cheaper prices elsewhere. MAP pricing keeps things fair among brands, retailers and consumers. 
• Increase sales channels. When competition is healthy, it encourages more sellers in various channels, whether offline or online. It also gives smaller resellers a chance to compete with major retailers. 

What Happens if a Seller Breaks MAP Policy?

MAPs are manufacturer policies, not contractual agreements with sellers, meaning they aren’t enforceable by law. In fact, manufacturers who require distributors to sign a MAP agreement are in violation of US antitrust law. This is according to the Colgate ruling, which stated that manufacturers may set pricing policies as long as sellers remain independent parties that are free to abide by them or not (while risking partnership termination from the brand). 

Each manufacturer may set its own policy in terms of dealing with MAP violators. Some companies may provide the distributor with a warning, while others choose to immediately terminate the relationship. In turn, resellers must determine if selling below MAP is worth the risk of never working with the brand going forward. It is in the best interest of sellers who want to maintain strong manufacturer relationships to adhere to MAP policies.

Why would a distributor even want to sell below MAP or market value? 

• To move inventory. Retailers who are eager to offload old inventory may be willing to take a loss just to make room for new products that will sell quicker. This is why it’s important for brands to reassess their MAP values from time to time, especially after releasing new generations of products that automatically lower the value of older versions.
• To win the buy box. Price-conscious shoppers will always choose the best deal. Sellers who price below MAP opt to lower their individual product revenue instead of withstanding slow or no sales at all. 
• To gain positive reviews. Some sellers price low to keep customers happy and boost ratings for their shop that will remain long after parting ways with the manufacturer. 

How Can You Set a MAP Pricing Policy?

Plenty of MAP pricing policy templates can help you draft your own, but we recommend working with your legal and compliance team or an e-commerce expert to tailor your approach and devise a plan that works for you and your reseller network. As you create your own MAP pricing policy, remember:

• Draft a unilateral policy, not a two-way agreement. Pricing contracts put manufacturers at risk of violating antitrust laws. For this reason, you’ll want to work with experts that can position your MAP as a one-way policy, not a contract that sellers are federally obligated to follow. 
• Don’t consult retailers. Write your policy independent from retailers or other selling partners so the price you set is free from perceived favoritism or price fixing.
• Include exceptions that make sense for your resellers. Consider offering specific situations and seasons where sellers can “break” the MAP policy to incite buzz and increased sales. This may include peak shopping times like Cyber 5 or other holidays that increase demand for your products. 
• Communicate clearly. Make sure your sellers understand exactly what they’re getting into when they partner with you. Opt for plain language instead of legal jargon unless necessary, and provide other resources like videos, checklists and examples to drive home the point. 

You’ll also want to devise a plan for dealing with noncompliant vendors. Will they receive a warning? Will you send written communication? Or immediately terminate? Remember to make it clear that by law, sellers are free to sell and advertise any price they want — but you also have the freedom to cut ties. 

Set the Right Price with Rithum

Pricing your products is hard enough without worrying about minimum advertised amounts and seller behavior. But it’s absolutely necessary in a world of increasing channels and marketplace competition. 

Rithum’s experts can guide you through the process, acting as an extension of your team to devise a pricing strategy, implement automated repricers and make the biggest impact on your profit margin. Rithum Managed Services draws on years of e-commerce experience to execute the best repricing options to accomplish your goals and continually monitor performance as circumstances change. 

Contact us today to learn how Rithum Managed Services takes the stress out of creating an ironclad pricing strategy. 

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