A minimum pricing policy can work for or against you, so we asked a leading racing manufacturer to point out the potential pitfalls and map out the road to success.

The Problem: I’m concerned that a MAP (Minimum Advertised Price) policy will hurt my business in the long run.

The Solution: Devise a policy specific to your business needs, and everyone—including your resellers—will win.

Rich Barsamian of Advanced Clutch Technology in Lancaster, California, understands your quandary: “You’ve spent an incredible amount of time and money to bring your product to market.” And now some retailers are letting it go for discount prices that “devalue your product, and your company, in the eyes of consumers.” You’ve considered implementing a Minimum Advertised Price (MAP) policy, but you know that’s a weapon that must be wielded with care. Potentially, it’s a double-barrel shotgun with one barrel pointing back at you.

To disarm that second barrel, you need a MAP policy—perhaps a MAP strategy would be a better term—specifically designed for your company, your products, and your resellers. Get the details right, and everyone wins: You can protect your reputation, and at the same time assure your resellers the profits they need to sustain their own success.

First, said Barsamian, let’s clear up any confusion over terms Minimum Advertised Price (MAP) and Minimum Resale Price (MRP): “The price is the price is the price.”

With that out of the way, the next step is to calculate the minimum retail price that will allow your customers to make the margins they need to give your product the support it deserves. In other words, they need to make a profit on your product so they can hire employees who can provide knowledgeable sales and technical support, in addition to excellent customer service after the sale.

Then, to enforce that price, you need what Barsamian calls a “sting”—but the sting has to hurt the reseller more than it hurts you. “You don’t want to hurt your own business, but the reseller has to know you mean business. The worst mistake you can make is a policy with penalties so strict that they impact not only the reseller’s business, but your own business as well. 

“Let’s say your penalty for a first-time offense is 90 days that the reseller cannot buy your product.” Can you survive a full quarter without those sales? “Your policy needs to be written as if you know your biggest customer is going to break it right out of the gate.” You need a penalty that will allow you to weather the storm if that worst-case scenario comes to be.

Barsamian suggested a “three strikes” policy: “Strike One is a warning. Strike Two is a specific time on the Do Not Sell (DNS) list. Strike Three, you’re out!” But again, carefully consider the duration of that DNS period, and don’t do this at all if it doesn’t suit your business model.

Further, once you’ve decided on a policy, know that you must enforce it, with all of your resellers, equally. “First of all, you have to,” Barsamian reminded us, “otherwise you could be subject to some antitrust issues.” Second, “you will lose all respect from your resellers if you don’t.” The upside is that once your resellers realize that you are “dead serious, they will want to be compliant. They will want to sell your product, because your product will yield the margins necessary to sustain their business.”

As difficult as enforcing a MAP policy may be, not enforcing one can lead to a “race to the bottom,” where resellers compete on price alone, ultimately eliminating the margins that allow them to provide even acceptable levels of sales support and customer service (as they lay off the staff they can no longer pay). “Eventually,” said Barsamian, “they won’t even be able to pay you.” And then no one wins, except perhaps the schlub running an Internet business out of some moldy basement.

On the other hand, Barsamian noted, “If you create a policy that fits your company, with a penalty phase that doesn’t cripple your business—and you enforce the policy equally and evenly—the negative effect on your business will be minimized. Eventually, when your policy is established in the marketplace, your brand will no longer be devalued at the consumer level, and wholesalers will want to promote and sell your product.”

SOURCES

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Advanced Clutch Technology
advancedclutch.com