Are MAP Policies Dead?

Over the last decade, as more brands adopt omnichannel sales strategies, MAP (minimum advertised price) policies have become almost ubiquitous. According to a 2021 study from Forrester, 81% of brands use MAP policy (or something similar, such as MSRP pricing). And even more, 84%, use restrictive distribution policies (e.g., reseller agreements). But ask any brand manager today and they’ll tell you, these policies are basically useless.

Suppose you manage a brand and find out one of your retailers is advertising your product $1.00 below you MAP policy, but they just ordered $20,000 of product from you. Are you going to cancel the $20,000 order because they’re $1.00 off of MAP? Of course not. We don’t cut our noses off to spite our faces.

So this raises the question—why are these useless MAP policies widespread and accepted practice when they do figuratively nothing?

To answer that, you need to understand the gray market. Gray market products are not illegal like counterfeits (i.e., black market) but they’re being sold somewhere they shouldn’t be. Sometimes it’s legal, sometimes it isn’t, so they are considered “gray”. Put another way, unauthorized sellers sell gray market products. (We call these people “gray marketeers”).

According to the academic literature on gray markets, legitimate retailers and gray marketeers have historically operated in different markets. Retailers competed with (and priced against) other retailers (think: Target priced against Walmart), while gray marketeers competed with and priced against each other (think: sellers on a third party online marketplace.) When these two markets are distinct, then a MAP policy—which is only entered into between the brand and their legitimate retailers—is quite effective. These policies tend to lift profits for all parties.

But those worlds have now collided.

Today, advances in automated repricing technologies that are being adopted by retailers now mean that your legitimate business partners are forced to peg their prices against gray marketeers. As soon as a gray marketeer shows up online selling your products, one of your retail partners will reprice to match (typically automatically). And soon, your other retailers will drop to match them both. Once that price comes down, it’s extremely difficult for it to come back up. Brands are suffering from a new type of price erosion—a pricing ratchet fueled by technology. There is little current data on the cost of such gray market erosion, but some of the best estimates come from KPMG in 2008 and estimate that gray markets lead to an average of 22.81% erosion of gross profit margins.

And that’s why MAP policies no longer work. Brands who rely on MAP policies alone are in for a painful, downward-ratcheting future.

Recently, online marketplaces have added to the tightening down on prices. The marketplaces that allow these gray marketeers to sell also monitor prices across the Internet and if a brand’s products are being sold for a lower price elsewhere—even if by one of these gray marketeers—the brand will lose the buy box on their own listing. To stop this price erosion ratchet and buy box elimination, brands must find a way to deal with these gray marketeers.

One solution is taking legal action. Forrester reports that brands who do hire “additional governance and enforcement” (aka attorneys) to protect their brand see fewer gray marketeers, better price consistency, and higher profits than brands who do not used hire additional enforcement. But the vast majority of brands cannot afford lawyers.

Another option is to purchase a MAP monitoring software service that also automates sending cease-and-desist letters to gray marketeers. These tend to be much less expensive than hiring attorneys, but they are also much less effective. Notably, the gray marketeer continues to sell online while these automated letters are sent to their mailing addresses, and typically are ignored. Unless you’re ready to file suit against these sellers, do not expect much disruption of the gray market activity.

Is there a good solution to this problem? For years the answer was, “No,” and many brands have come to accept this as part of doing business. But solving this problem is exactly why Sigil was founded. And now there is a solution:

Gating. (aka auto-removals)

Gating combines the effectiveness of legal enforcement with the cost savings and efficiency of technology. Gating automates the removal of the gray marketeer from the marketplace—that is, we close the listing—without having to wait for snail-mail cease-and-desist letters or hire attorneys to file lawsuits.

Sigil’s Gating solution has been proven to be more effective than existing brand protection technologies. For example, one client approached us suffering from 41% price erosion due to unauthorized sellers. Their existing global brand protection firm had been unable to remove the listings. But after being on-boarded to Sigil’s system, we removed 100% of these gray marketeers in less than two weeks, and the product automatically repriced back up.

If you have questions about online price protection for your brand, feel free to reach out.

Tl;dr - automated repricing technology has collapsed the legitimate and gray markets online. Brands must police these unauthorized sellers (gray marketeers) or expect to give up the buy box. We invented Gating as the most cost-effective way to remove gray marketeers online.

Check out our pricing, or get started.