Is Amazon Overwhelming MAP Policy Enforcement?

While the arrival of online selling has led to a ramp-up in vendors implementing MAP (minimum advertised price) policies, Amazon’s growing dominance of e-commerce and increasing traction in the active lifestyle space continues to complicate the whole MAP enforcement game.

The latest complication was Amazon’s move – spelled out in a Wall Street Journal article on November 5  – to offer lower prices on items in some key categories sold by third parties on its site with the additional savings marked with a tag reading “Discount provided by Amazon.”

The move was seen as a way for Amazon to improve its competitive pricing across its website in time for holiday selling.

For vendors, the move was positioned by Amazon as a “win win” since the e-commerce giant reimburses third-party sellers for any discount beyond the original price and the lower price strongly incentives sales.

“When Amazon provides a discount, customers get the products they want at a price they’ll love, and small businesses receive increased sales at their listed asking price,” an Amazon spokesperson said at the time.

But some third-party merchants on Amazon Marketplace have complained on Amazon Services’ seller forum that the discounts will only end up devaluing their products, including the ability to sell at full price on other online marketplaces. Moreover, the discounts may cause sellers to fall out of compliance with pricing-parity agreements on other websites.

In the Journal article, Jason Boyce, CEO of Dazadi, a seller of home recreation products, said the discounts could lead to Dazadi “violating our seller agreement with every other marketplace that we sell on.”

Andrew Schydlowsky, founder and CEO of TrackStreet, a provider of MAP enforcement and price tracking software, told SGB that much is unknown about Amazon’s third-party discount program. This includes which categories it affects, although it’s assumed the focus will be on consumer electronics and other key holiday sellers. He also noted that it’s unknown if the program will continue after the holiday selling season.

But Schydlowsky expects the program will “absolutely lead” to more MAP violations, and may in turn encourage more restrictive resale policies designed to limit potential exposure across online marketplaces.

The new program compounds the challenges of selling on Amazon.com. Brands find their way to Amazon through three methods: sales of their product through a third-party seller (3P), pursuing a standard wholesale relationship with Amazon Retail (1P) and selling directly on Amazon (IP-DTC), like a third-party seller.

The biggest problem regarding MAP violations is sales through third-party sellers on Amazon Marketplace, where much of the unauthorized selling takes place. Unauthorized retailers often sell below MAP policy and those prices stand out to consumers with Amazon listing its price ranges per item from lowest to highest.

For vendors, the biggest challenge is tracking down the unauthorized sellers in order to prosecute. Birkenstock last year stopped selling through Amazon except through a few authorized sellers, not only because of its persistent challenges preventing sales by unauthorized sellers but because counterfeits were showing up on Amazon’s website.

With Amazon’s third-party sellers accounting for about 44 percent of all items sold worldwide and the Amazon Marketplace supporting sales of many legitimate partners, most brands are reluctant to walk away from third-party sales despite the frustrations over unauthorized sales.

“Amazon offers some brands certain tools to help manage your business on their platform, but nothing that is comprehensive enough to cover all the issues,” said Ryan Erickson, who recently joined TrackStreet as VP of sales and brand protection.

Erickson, whose past posts included head of sales for Teva and Rockport, said he started noticing more formal MAP policies in the footwear space in the latter part of the last decade as Zappos began to gain greater leverage. During his time as North American VP of sales for Teva, the sandal brand instituted a MAP policy in 2014 as Amazon started becoming a prominent player in footwear.

Said Erickson, “With the proliferation of unauthorized 3P (third-party) sellers, and the lack of oversight on these sellers by Amazon, it has becoming increasingly difficult for brands to maintain their brand presence and value while every seller is in a race to the bottom.”

Erickson further noted that even if brands are able to reduce unauthorized sales to “at least to an acceptable level,” on Amazon, “you start to see the nefarious sellers popping up on other marketplaces.”

Other larger online marketplaces include Wal-Mart, eBay, Newegg, Etsy and Sears in addition to scores of smaller sites.

Schydlowsky said with the internet narrowing searches down to the lowest price, an opportunity continually arises for a new site proclaiming to be the cheapest. He added, “Plug one hole and another pops up elsewhere.”

A second way to sell on Amazon is selling directly to Amazon in a traditional wholesale selling arrangement.

Many luxury and lifestyle brands have been reluctant to sell on Amazon because of the price-driven emphasis of shopping on Amazon.com, but many are increasingly selling directly due to the massive revenue opportunity. Many are also partnering with Amazon to gain some control over presentation and help in policing unauthorized selling across the platform.

Nike earlier this year caused waves with its announcement that it would finally start selling directly on Amazon. On its fourth-quarter conference call in late June, Mark Parker, Nike’s CEO, said the brand planned to incorporate the segmentation and differentiation techniques its employed successfully with Tmall and Zalando overseas to the Amazon platform.

Said Parker, “What’s most important to us is that we have the opportunity to elevate how the Nike brand is presented on the Amazon platform, and that includes the quality of the product information and, of course, providing a simple experience for the consumer. So we’re really looking forward to seeing how this pilot combines, ultimately the convenience that Amazon is well known for with Nike’s brand and product power.”

As with any major wholesale account, vendors selling direct have to abide by unique sell-in procedures.

“There are multiple challenges, but for most brands the challenge is worth the exposure to the audience,” said Erickson.

Schydlowsky added that when selling to Amazon directly as a vendor, most brands have less control. He added, “With all but the largest customers, Amazon is pretty clear that they follow the market, not lead it. From my experience, it can be very hard to reign them in. 3p sellers tend to be easier to control and regulate.”

A final way to sell on Amazon is a vendor selling directly on the site, acting much in the same way as a third-party seller.

Erickson said that while selling direct this way again offers a revenue opportunity and a different level of control versus third-party sellers, brands can often wind up competing with their own sites because prices continually change due to Amazon’s algorithms. He said, “Many brands are getting ahead of this by hiring an Amazon Rep for all brands, and by having that person report – directly or indirectly – to their e-commerce team to close the loopholes.”

Indeed, an overriding challenge to selling in any way on Amazon’s platform is the e-commerce giant’s algorithmic pricing methods, which causes prices to automatically fluctuate based on criteria like supply, demand, competition or time of year. Such dynamic pricing can sometimes depress pricing to below MAP levels or at least keep prices continually hovering near the lowest range of where a brand would like them to be.

“The challenge in this scenario isn’t necessarily Amazon,” said Erickson. “It’s the rate of sale of the product versus the competitive pricing Amazon utilizes so the product turns at an acceptable rate.”

While it’s likely that other major retailers on the web are also monitoring their competition’s prices and making adjustments but Amazon has a reputation for being “the most aggressive and will sacrifice margin to own the customer,” said Schydlowsky.

Price-tracking software offered by firms such as TrackStreet can help firms identify and respond faster to unauthorized selling. TrackStreet’s execs said only an ongoing commitment seems to reduce illegitimate sales. Stated Erickson, “The only thing worse than NOT having a MAP policy in today’s world, is having one but not enforcing it unilaterally and unequivocally.”

A MAP policy also only refers to advertised prices and in no way limits a retailer’s right to set its own prices. On the internet, some sites communicate actual sales by encouraging customer to “Call for Pricing” or “Add to Cart to See Price.” Depending upon the advertising or resale policies of each brand, these kinds of activities may constitute violations.

But besides clamping down on unauthorized sites, brands need to step back and explore the source of the unauthorized goods. Schydlowsky said it often comes down to “leaky distribution networks” somewhere along the supply chain. Unauthorized sites often get their merchandise from authorized sellers and brands have to explore why that’s happening.

One reason may be because MAP policies may be too restrictive and retailers are facing challenges selling through product, or are liquidating slow-sellers and don’t want their stores stacked with off-price deals.

Erickson said brands often don’t leave enough business open to legitimate third party brick & mortar retailers, challenging their ability to clear merchandise and ultimately impacting open-to-buys. Said Erickson. “The brands need to maniacally manage their brand – and their MAP policies – or they are not managing it at all. This means taking products off of MAP when they no longer need to maintain price in that season, for example, and planning their business versus chasing it.”

Indeed, Erickson doesn’t believe a brand has to MAP protect its entire line. Priorities, he believes, should be placed on any heritage items, top revenue drivers and key seasonal launches. He said, “I call it the ‘protect the castle not the kingdom’ approach. It allows for more focus.”

Erickson added, “I think brands taking a longer view on shelf life, customization and distribution can make better, more informed decisions if they plan better for the new reality. Reaction is not a strategy.”

He added, “Of course, all this impacts all other marketplaces and websites as pricing parity and lack thereof is an ecosystem rippling phenomenon.”

If they decide to stay to reap of the benefits of Amazon’s reimbursed discounts, they should be ready to hear complaints from brands over breaches to MAP programs.

“Brands will have to communicate clearly with their reseller channels, clearly stating that any discounting done by Amazon will still be considered a violation of their policies – that opting out of Amazon’s program would be a requirement to ensure that there are no inadvertent violations,” said Schydlowsky. “It’s really an opportunity for communication and alignment between brands and their resellers.”

Photo courtesy Amazon