Enforce MAP Comrade!

I’m a freedom loving American. I believe in the ideals of Capitalism and the efficient workings of the free market.

Sound like this is going to be some Beckian anti-government Tea-Party rant?

Nope. This is about something important that will actually matter to your real life.

I’ve got a few things to say about a little topic called M.A.P., or Minimum Advertised Prices (click here for a primer).

This is a long one. You’re about to see what happens to me without an editor!

MAP is a policy exerted on retailers by a PG&A OEM or distributor in an effort to keep a brand’s price (and ostensibly its brand equity) artificially inflated. OEM’s can’t, or often don’t try, to limit what you actually charge for a product, but they do try to control how you communicate or advertise a price.

If OEM’s are really that concerned with maintaining exclusivity and brand equity they should just be selling directly.

My position on MAP in the past has been that I don’t like it on principal or in practice, but if it’s going to exist then it needs to be enforced 100% evenly across the board: no loop holes, no selective enforcement, no games.

I’m also on the record in several columns that I also don’t believe running a cut-rate outfit is a path to long-term success. However, business reality dictates that specials, discounts, and other promotions (when used wisely) are an important tool in the box when running a business.

As a retailer we should have the freedom to run our business how we see fit.

I have now changed my stance on MAP. I don’t like it and I’d like to see it done away with.

Not only don’t like it, I think it’s harming our industry as a whole and benefiting a select few (mostly the OEM’s that create and enforce it).

Over the years that I’ve been writing my column on e-commerce, I’ve read or heard from dealers that really want MAP policies. They think that by having draconian MAP policies that prohibit internet retailers from selling at prices that are different than what “regular” dealers sell in their store, or on their website, they are “safe.”

What I think is going to happen is that these dealers are going to discover that Ben Franklin was right when he said “Sell not virtue to purchase wealth, nor Liberty to purchase power.” If you are a small or medium sized dealership, those MAP policies are not there for your benefit.

They are there to keep you, Mr. or Ms. Dealership, in line while they wait for the business model that currently drives this industry to turn their way.

MAP policy in the end is going to hurt small retailers much, much more than it will disrupt the large pure-play e-commerce companies.

Most OEM’s or distributors “enforce” their policy by threatening to put a dealer on a “no ship” status for a period of time or to just outright stop doing business with them. Obviously it’s the OEM’s decision to do business with whomever they want and to do so however they feel is appropriate.

The reality is that a very small number of powerful OEM’s and distributors supply popular or must-have brands. Due to their broad appeal and ability to get shopper’s attention a retailer has to carry them. The option of telling these folks, “Thanks, but we’d prefer to have control of our own business and do business with suppliers that are partners as opposed to overlords” is not a viable, realistic alternative.

The biggest problem comes down to selective enforcement or special “arrangements” between some retailers and MAP-happy OEM’s or distributors. These may be overt (i.e. the apparently special relationship between LeMans and Dennis Kirk that Arlo Redwine has detailed on the DN blog), or they may come down to the MAP enforcer choosing to just turn a blind eye on transgressions by certain retailers.

When the enforcement mechanism is to not sell to a retailer, and that retailer sells literally tens of millions of dollars of that OEM’s product, do you really think they are going to put that retailer on “no ship” if they find ways around a MAP or just decide they don’t want to follow it?

In addition to their market clout, large internet and catalog retailers in our industry have the luxury of expensive legal advice that helps them find loopholes in the MAP policies.

If smaller retailers/dealers try these same “tricks” they are often subject to a phone call or email from the OEM/distributor’s legal team (however, the person on the phone is most likely not actually a lawyer and typically doesn’t have the authority to actually clarify or discuss the actual policy).

The major e-tailer’s legal capability can discourage OEM enforcement because the OEM knows the policy that won’t stand up to the rigorous challenge a crack legal team could mount. I don’t know a lot of small dealers with access to those kinds of legal resources.

Don’t even get me started on what will happen once they start distributing directly to folks like Amazon. Considering Amazon’s potential buying power, no OEM in our industry has the balls to tell Amazon what they can sell a product for, especially if a deal with Amazon (or Wal-Mart, or Sears, etc.) means 2X, 3X, or 4X the order volumes and dramatic increases in operating efficiency and profits.

Large e-tailers also have the luxury of custom e-commerce platforms that allow them to create systematic end-arounds to the MAP policies in the forms of cash-back programs, rebates, gift-cards, loyalty programs, etc.

Instead of saying that a MAP protected helmet (from a large OEM and distributor) that normally sells for $300 is 20% off (which would explicitly violate said MAP policy) a large e-tailer can say “Buy this $300 helmet and receive 20% cash-back good on your next purchase” or “Buy this $300 helmet and get a $60 gift card.”

What’s nuts is that you can use this card or discount on a future purchase of a MAP protected product as well! And for some reason this is all OK with the folks writing and enforcing these MAP policies? So much for wanting to enforce brand equity though artificially inflated prices!

You can say “Low Price Guarantee: We won’t be under-sold! If you find [insert MAP controlled product name here] for less we’ll beat it!” Apparently this price protection is considered a private contract between the retailer and the customer and is not enforced under MAP… Lawyers… Gotta love ‘em…

If they are serious about the real purpose of MAP, why would these loopholes be OK?

If everyone on every internet forum on the face of the planet knows that they can call up or email UberMotoShoppingMegaSite.com and get a MAP protected jacket or pair of gloves that they found through a Google search on your (Mr. or Ms. rule-following, local dealership) site, but you can’t communicate to that shopper that you can and will in fact sell for the same low price that the big guys do… How does MAP help you again?

Even when the website/e-commerce platform providers in our industry have a way to enable the same promotional methods that the large e-tailers offer, thereby moving to a more level playing field, OEM/distributors drag their feet and don’t offer the necessary approvals that would be required to allow development to move forward.

In fact, as of this writing one platform provider has been waiting for several months for approval from a large OEM/distributor’s legal team regarding a promotional mechanism that would allow dealers the freedom necessary to compete with the large e-tailers while not violating MAP.

Why would the powerful OEM/distributor be so slow to enable small dealers to have the same promotional tools that large e-tailers have? No… Really… Someone please tell me why they have time and resources to track down every little dealership out there advertising products for $10 below MAP, but can’t get around to authorizing something as simple as this?

Let me put my tin-foil hat on for a moment:

Large OEM’s and distributors have recognized the writing on the wall.

Over the next ten years most (80%+?) of their business is going to come from large e-commerce retailers (even more so if the likes of Wal-Mart, Sears, and Amazon really start playing in the PG&A space as it looks like they intend to).

If they can do 80%+ of their PG&A volume with only 5-7 large retailers, they can dramatically reduce their overhead in the forms of sales expense, logistics expenses, etc. Right?

If they can get the market to look like that, don’t they have a fiduciary responsibility to their investors to do that?

By enacting draconian MAP policies that are only strongly enforced on the smaller, more legally defenseless dealerships, they can force the market into a shape that is more conducive to their bottom line.

I don’t care if Amazon, Wal-Mart, Sears, etc. all actually follow MAP. How many customers shopping for a new helmet, gloves, or jacket are going to buy from your shop over Amazon if the price is the same?

It’s not so much that they want you all to go out of business overnight… But if they can help steer our industry to a model with a more easily managed small number of retailers… I guess you can’t blame them really. It actually is a pretty good long term plan for them to become even more profitable.

So as you can see, MAP is basically a game. Even if it was possible to enforce 100% (which it never would be), odds are that the large e-tailers would be immune through the use of their market clout, legal muscle, or systematic work-arounds.

Even if you have a MAP policy that could theoretically be enforced 100%, like all command economies, it will lead to black-market sales and other back-room deals if the MAP price is perceived as too high vs. other non-MAP products.

I’d argue that in the long run, MAP policies even hurt the OEM/Distributor because it robs them of important market signals pointing to the actual value of the product in the marketplace.

Under MSRP and MAP, some product manager builds a fancy Excel sheet to determine the best price. It then has its legal team enforce the MAP policy. What does that sound like to you?

Last time I checked a theory writ-large that looked pretty close to this failed in the ex-Soviet Union.

Even the PRC has recognized that free-market economics makes more sense than trying to a command and control economy in many instances.

Companies with MAP policies apparently are not big on history or economics.

Here’s a scenario: Helmet I sells for a MAP protected MSRP of $450 and dealer cost of $292 (profit: $158). Unfortunately at that price it just doesn’t stack up to (or sell as much as) Helmet K that retails for $500 but has a street price of $380 and a dealer cost of $300 (profit: $80).

Now as a retailer, I know my market, my customer, etc. and I know that if I could sell Helmet I at $380 I would sell the crap out of them!

I’d still be clearing more profit per unit than Helmet K and I’d move more units which would make more money for me and ironically for the OEM that wants MAP!

There’s no way that some brand manager at an OEM could envision those market dynamics when setting the MAP MSRP 6 or 8 months ahead of the market launch.

They don’t know what the economy is going to look like, they don’t know what competitors are going to do, etc.

OEM’s and distributors need to worry about setting a wholesale price that allows them to make a profit when they sell to a retailer and that’s it. Period. End of story.

The idea of using MAP as a way to “protect” a brand’s image is a joke when it’s clear that there are so many tricks and loopholes that allow the protected products to be sold at prices nowhere near the MAP.

Check out the abundance of MAP protected products that are sold on Amazon or on eBay through gray-market distribution deals as just one example of how MAP breaks down and does nothing to 1) protect the brand or 2) protect legit retailers.

In the end, here’s my take on MAP:

• MAP policies hurt retailers by limiting their options and choices in how they run their business
• MAP policies (either intentionally or deliberately) can never be enforced 100% across the board so it creates artificial inefficiencies in the market
• The resources being used to write, monitor, and enforce MAP are 100% non-value-added. I’ve been told that some retailers have people on staff full time that do nothign but find, and report MAP violations. These are the same people that volunteered to be hall monitors in grade school I bet.
• MAP policies hurt customers by forcing prices to be artificially high in the same way that price control cartels like OPEC artificially control the price of oil
• MAP price controls are eventually ineffective as grey-market retailers on sites like Amazon, eBay, etc. sell out the back-door of less scrupulous dealers

And here’s my suggestion. If you get a call from a MAP enforcer, have them speak to your lawyer.

If you find cases of large e-tailers violating the same MAP policies, report them to the OEM’s legal team and verify that the offending company has made the changes to their site or advertisement within the required time. If they don’t, then have your lawyer write a letter to the OEM pointing out that it appears that they are selectively enforcing the policy.

Eventually if we drown these OEM’s legal teams in reports of MAP abuse and catch them in the act of selectively enforcing MAP they will give up on the idea of playing this game of whack-a-mole.

Next we can try to name & shame. I’m creating a topic on my site here where you can leave comments and links to retailers that are violating MAP policies. It will be our own little MAP enforcement clearing house. Or Stasi if you will.

What’s pretty awesome about that idea is that I’m pretty sure that once the FTC gets wind of that post, and what is without doubt a clear case of collusion in our industry to keep prices artificially inflated, they will demand that it’s shut down.

Now if that happens, that pretty much proves that MAP is illegal, right? Collusion… Price-fixing… I’m pretty sure there’s a law or two somewhere about that.

Until these policies are challenged in court and eventually done away with, we are going to continue to see more and more power shift into fewer and fewer hands and that’s not going to be good for your customers, our industry, or most importantly your business.

I believe that these MAP issues are just the most evident tip of the iceberg that represents a looming challenge to the dominant business model in our industry.

However this time it’s going to be the Titantic that rams right though the iceberg. All of us, in our little boats, are going to be the ones at the bottom of the North Atlantic.

Let me know what you think.

Tags:dealerships, E-Commerce, ecommerce, internet, MAP, minimum-advertised-price, Motorcycle Advertising, selling-online