Why Having a Pricing Policy Matters & How You Can Create One

John LeBaron

May 6, 2020

According to a study by CNBC, nine out of ten consumers check the price of a product on Amazon as part of their product research. Consumers are constantly on the hunt for the lowest price they can find online, and while finding that low price may be a win for the consumer’s wallet, prices that are too low can have drastically negative effects on brands who don’t have effective pricing policies in place as part of their ecommerce growth strategy to protect themselves.

Why are pricing policies important?

They prevent price erosion

Price erosion happens when a brand is forced to lower their pricing in order to compete with unauthorized sellers listing products at low prices or sellers violating pricing policies.

Say, for example, that a small retailer lowers the price of a product they’re selling online and big sellers like Walmart or Amazon match that price in order to compete. Eventually, the small retailer may run out of inventory, and Walmart and Amazon will be left to compete with each other, each refusing to budge on price because they’re matching each other and thereby diminishing the price of the product. This is price erosion. See an example of price erosion below.

price policy ecommerce, price erosion, Pattern

Price erosion not only decreases the perceived value of your product, but it cuts into other re-sellers’ margins (many who have lots of overhead costs already, like paid staff, advertising, etc.) and therefore your own profits.

“What happens is if your resellers, the retailers you sell to, aren’t profitable, they’re just going to stop buying your products,” said Newel Cobb, Senior Brand Manager at Pattern.

Ben Craven, Corporate Counsel for Pattern, said that without a good pricing policy in place, resellers in a brand’s supply chain can “price at whatever level they want, and if the manufacturer doesn’t like that, there’s not really anything they can do.”

The best way to stop this, Craven and Cobb said, is having an effective pricing policy to ensure brand control.

“It protects all channels of distribution . . . and keeps brick and mortar retailers happy,” Craven said.

How do you create a pricing policy?

There are a few basic steps and things to consider when you’re beginning to draft an effective pricing policy for your brand.

Consult a lawyer

According to Cobb and Craven, the most important thing you’ll want to do before setting up a policy is to consult with a lawyer who has experience drafting pricing policies in the face of emerging ecommerce trends. This is a critical first step because you want your pricing policy to stay on the right side of antitrust laws, and that requires appropriate language that doesn’t create unfair competition or indicate any kind of collusion between your brand and a reseller.

One way collusion could be indicated is if your pricing policy reads like an agreement or negotiation between two parties instead of an announcement with suggested selling prices, according to Harvard Business Review.

“If a manufacturer is agreeing with its reseller what the MAP price will be, then that could look like price fixing,” Craven said.

Consulting with a legal expert can help you draft a comprehensive and unilateral pricing policy that includes clear guidance on what your brand permits or does not permit (such as free shipping, product bundling, etc.), who it applies to, what products it covers, and the consequences for resellers who violate your policy, all presented in such a way that your brand doesn’t run afoul of antitrust laws.

Set up a MAP policy

A MAP (Minimum Advertising Pricing) policy is a pricing policy set by a manufacturer that tells resellers and brands the lowest cost they can advertise or print for that manufacturer’s products. According to Cobb, brands creating a pricing policy should create a MAP policy to ensure their ecommerce growth.

MAP policies don’t limit the price at which products can be sold, but they do allow any retailer to have a fair chance at selling a manufacturer’s product in the market. When effectively enforced across the entire market, MAP prevents authorized ecommerce re-sellers from undercutting other sellers with unauthorized markdowns.

Aside from incorporating recommendations made by a legal counsel, there are a few things Cobb said MAP policies should do. One is to retain competitive pricing.

“You can lower MAP, you can raise MAP, etcetera, but if all of your competitors are selling their product at a significantly lower price, it doesn’t matter that your MAP is much higher. No customers are going to end up purchasing it to begin with,” Cobb said.

Brands may conduct analysis on similar products across the market to figure out what MAP pricing makes the most sense for them.

Another thing Cobb said MAP policies should include is specific guidance on warranties.

“If you have some kind of warranty, make it very clear that the warranty only exists with MAP,” Cobb said. “Somebody might buy a product and they might decide to sell it below MAP, but when they’re breaking MAP, they’re essentially going off-brand, which means they’re not an authorized reseller anymore, and if they’re not an authorized reseller anymore, any warranty that you would have had is no longer valid.”

Once your MAP policy has been created, it’s important to inform your resellers so they’re aware.

One thing to note is MAP pricing laws are only recognized in the U.S. and Canada, said Craven. MAP policies are still viewed as price fixing in the European Union, even if they’re unilateral.

Consult the data

One thing Craven says is beneficial for brands creating a pricing policy is knowing where their prices are being degraded, whether that’s Amazon, eBay, or elsewhere.

Pattern’s multi-channel ecommerce software Predict can provide that data to brand partners so they know exactly where the issues are at and who the culprits are.

ecommerce pricing software | Pattern

Make consequences clear and unilateral

According to Craven, brands should be “explicit” about what their MAP pricing is and that they have the right to terminate their relationships with resellers if MAP pricing is violated and decreasing brand control. The consequences of violations should be made clear to resellers and serious enough that they want to avoid violation.

It’s also important to enforce your pricing policy equally across all channels for all vendors, even if one of those vendors (like Amazon) is pulling in a majority of your sales. Differential treatment can not only violate antitrust laws but accelerate price erosion, making the cost of not enforcing your policy consistently far greater than the cost of cutting off a reseller.

“If you’re not willing to cut somebody off as a reseller, you have no power whatsoever. If they call your bluff and you say no, you’ve essentially just destroyed your MAP policy,” Cobb said.

One way brands might enforce their MAP policies is by setting up a non-appealable strike system that ends in termination for sellers who repeatedly violate pricing policies. This way resellers are given notice that continuing their behavior will lead to termination.

Be proactive in enforcement

“Once you have a pricing policy in place, it’s not enough to just have a policy in place. You have to be proactive in monitoring marketplaces to know where your issues are and then be active in enforcing your pricing policy,” Craven said.

According to a study conducted by the Harvard Business Review, unauthorized resellers violated policies about half the time and authorized resellers had a 20% violation rate. Without diligent attention to your resellers, violations can happen right under your nose, rendering your MAP policy useless.

Brands should carefully watch sellers so they can maintain the integrity of their brand and so their pricing policies can be as effective as possible.

What now?

Pattern provides brands with the tools to empower them to create and take control of their brand. We also connect you with valuable partners that can give you the resources you need to know where price erosion is happening.

For more information about how you can create your own pricing policy, contact Pattern below.

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Sept 27, 2022

Global Ecommerce Weekly News: 27th September 2022

Get up to date with this week's ecommerce headlines from around the globe. --- Amazon News --- Amazon drives renewable energy push with 71 new projects Amazon is planning to add 2.7 gigawatts of clean energy capacity through a couple of new projects as the company attempts to use 100% renewable energy by 2025. The ecommerce business will soon have a total of 329 renewable energy projects, generating 50,000 gigawatt hours of clean energy, which is equivalent to powering 4.6 million US homes every year. [Read more on Reuters](https://www.reuters.com/business/sustainable-business/amazon-drives-renewable-energy-push-with-71-new-projects-2022-09-21/) Amazon launches Prime Early Access Sale Amazon is launching a new 2-day shopping event for its Prime members only, beginning on the 11th of October. Across 15 countries, Prime customers will have access to the shopping event, with thousands of deals on offer globall, ranging from fashion to electronics to essentials. The event has the purpose of giving Prime users the chance to spread the cost of items over the winter months, 6 weeks ahead of Black Friday. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/26/prime-early-access-sale/) --- Other Marketplace News --- Shopify unveils new localisation tool Shopify is launching a new localisation tool, called Translate & Adapt, which works with Shopify Markets to offer localisation for sellers who are looking to expand into new markets. The tool translates a user’s online store into different languages, including product pages and information pages. Merchants are also able to create different shipping terms for each market using the new tool, which allows international expansion and offers a more localised consumer experience, unveiling new potential. [Read more on Ecommerce News](https://ecommercenews.eu/shopify-launches-new-localisation-tool/) Etsy is set to invest hundreds of millions into its marketing platform Etsy CEO claims that the company is on route to spend more than $570 million USD on marketing this year. Even during a time of macroeconomic pressure, inflation and rising interest rates, the company is preparing itself and its sellers for the upcoming holiday season and is focused on retaining interest from buyers. [Read more on Yahoo News](https://uk.news.yahoo.com/etsy-600-million-on-marketing-ceo-154054219.html) --- Other Ecommerce News --- Meta looks to cut costs by 10% in the coming months Meta employees are facing job redundancies as the company plans to cut its costs by 10% over the next few months. Meta reported a 22% YoY increase in costs and expenses, totalling over $20 billion USD. The cuts are expected to come in the form of job redundancies as a result of department reorganisations rather than formal layoffs. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/22/meta-to-slash-costs-by-10-over-coming-months/) DHL teams up with Quadient to offer smart locker deliveries in the UK DHL and tech company, Quadient, have partnered to offer smart lockers parcel pick-up throughout the UK. The new contactless, secure locker stations will give recipients more choice and flexibility to receive their parcels at a time and location best suited to them. The partnership plans to install 500 locker stations across the country by the end of 2022. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/21/dhl-partners-with-quadient-to-offer-smart-locker-delivery/) The online fashion market is set to be worth nearly $170 billion USD in 2025 The European online fashion retail market is set to grow 50% by 2025, with an online turnover of $170 billion USD, which is 33% of the retail branch’s total. Cross-border marketplaces prove to be the largest drivers of this growth, with online websites and apps like Vinted largely pushing the market’s online growth. Zalando recently became the largest cross-border fashion retailer/marketplace, responsible for 11.7% of the online market’s share. [Read more on Ecommerce News](https://ecommercenews.eu/online-fashion-market-worth-e175-billion-in-2025/)
Sept 26, 2022

Top 5 Ways to Prepare for Peak with Google Ads

Peak season is almost upon us and with all signs pointing to it starting earlier than ever, with Christmas gifting searches now ramping up in August and September, it’s time to start preparing for peak. In this article, we’re sharing our top five tips for planning and preparing for peak season with Google Ads and the strategies required to get your Paid Search ready so you can drive success over this crucial period.

1. Go Early

In 2021, gifting search terms started increasing in popularity in August. The general trend is that people are looking, researching and weighing their options early, so it’s best to start your Paid activity early to ensure that you’re capturing that early research traffic. This will help drive revenue alongside aiding those consumers who are in their research phase.

From 2020 to 2021, spend during Cyber Week actually only rose 2% but in the weeks leading up to it, it increased by 16%. However, Cyber Week is still the biggest period during the latter half of the year, accounting for 23% of all online spend by consumers over peak. Being prepared and starting early will help you to maximise your time during this period.

2. Get Ready for Privacy Changes

 According to Google, 48% of global consumers have stopped buying or using a service due to privacy concerns. Privacy is front of mind when consumers are shopping online and we know that Google is phasing out 3rd party cookies in 2023. This is going to make it much harder to track users online and it’s something that brands need to think about this now – waiting isn’t an option.

From a Google Ads point of view, you want to ensure you have set up the Google Ads tag across your site and have enabled ‘Enhanced Conversions’, which ensures all conversions are tracked and allows you to monitor other actions such as ‘Add to Cart.’ This is relatively easy to set up, especially if you use ‘Google Tag Manager’.

It’s also vitally important that you build up your first-party data during this time as this is data you own and it can be used when targeting consumers that have provided your brand with their email address. Pattern’s own experience shows that by segmenting and using first-party data, you can see a 10% improvement in revenue and ROI.

3. Ensure Consumers Can Discover your Brand

A full-funnel approach is now more important than ever as consumers become more discerning and have more choices than ever of where to shop.

Pattern has seen success with Google Ads’ ‘Discovery Campaigns’ (image-based ads that appear on Google platforms such as Gmail and the Google app), which have driven success both from a traffic and revenue perspective.

The performance of these campaigns is significantly enhanced by adopting a segmented and nuanced approach to first-party data and incorporating these into your campaigns. Other options for a full-funnel approach include YouTube and testing bidding on keywords that are more representative of the research phase. (e.g. ‘best baby clothes’ for a baby clothes brand)

4. Get Moving with Performance Max

Earlier this year, Google announced that they were moving away from Smart Shopping and launched Performance Max. This is a new campaign type that incorporates features and placements from Smart Shopping but expands them onto other platforms such as Gmail but also alternative creative options, such as images and videos.

Since Google has already started automatically upgrading Smart Shopping campaigns to Performance Max, expect to see some fluctuations in the first 2 weeks following the switch over but results generally seem positive. We recommend upgrading sooner rather than later to limit any potential impact to peak period.

5. Flight Budgets Accordingly

Peak period will be even more competitive than in 2021 and you’ll need your budgets to support this period, we recommend boosting budgets in October to start capturing that early peak traffic. As we enter November and the Cyber Period, start early and make sure you are capturing those consumers looking for early bargains, ensuring you are being nimble in your optimisations and reacting to the data that you are seeing.

Overall, peak period is vital to help drive your sales and by preparing early, you will see strong results and drive success for your brand. If you want to discuss how your brand can navigate this next peak period, contact us to discuss your options with our performance team now.

Sept 20, 2022

4 Ecommerce Marketplace Consultant Must-Haves

Entering the ecommerce landscape is a huge undertaking for any brand—it usually requires a large investment in resources and expertise to really be successful. Any brand can quickly get in over their heads trying to navigate the nuances of SEO, fulfillment and logistics, distribution control, listing optimization, and meeting the numerous other requirements and administrative tasks to show up well on marketplaces. 

Unfortunately, because it’s so easy for third party, gray market, and unauthorized sellers to obtain and sell products online, many brands find themselves pressured to execute an ecommerce plan without the right resources to succeed on marketplaces and their other channels.

So, for brands looking to enter the ecommerce space or improve their current and future performance, it makes sense to partner with an ecommerce consultant.

Pattern’s global presence and proven success with hundreds of brands has allowed us to develop highly effective ecommerce consulting services. We can guide your brand to navigate issues both large and small in marketplaces worldwide. To maximize your ecommerce efforts, you’ll need to understand what an ecommerce consultant does and how to select one who drives the right value for your brand and products. 

What is an Ecommerce Consultant?

An ecommerce consultant is a specialist in the ecommerce space who can give you personalized guidance on how to market your products and grow their presence on digital marketplaces.

An ecommerce consultant should be able to analyze your brand, audience, category, opportunity, and current roadblocks and help you understand how to utilize your resources (or what resources are missing) to be most effective in capturing your opportunities in the ecommerce space.

Not sure how to evaluate a consultant? Here are 4 key attributes to look for as you make your choice.

1. Brand Obsession/Specialization/Passion

At Pattern, we prioritize brand obsession for a reason—we know that a brand-centered mindset makes a crucial difference in the outcomes and results our partners achieve. So in our experience, when you begin your search for an ecommerce consultant, it’s important to look for a partner who is specialized in ecommerce, invested in the product, and passionate about helping brands build and improve their strategies. Typically, this means finding someone that consults exclusively for ecommerce marketplaces, rather than choosing a consultant who offers many different services. 

2. Proven Results

It’s also important to avoid choosing a consulting partner who can’t deliver the right experience for your brand. The best indication of whether your potential consultant can do that is to review their history, data, and results with other brands. Ask if they’ve helped others in your selling category, if they’ve solved specific issues your brand is facing, and why they feel you are a good fit. The key is to leave the conversation feeling confident that you understand your consultants’ capabilities and whether or not they match up with your needs.

3. Wide Range of Marketplace Expertise

It’s best to pick a consultant who knows how to guide a brand onto and through multiple marketplaces worldwide. You’ll want to take a look at your long-term strategy and think about the regions and platforms you’re currently on and where you might want to take your brand in the future. If your consultant is truly great at what they do, they’ll be able to help you perform well enough with your current product roadmap that it’ll be a no-brainer to expand your presence at the right time.

4. Network of Resources

The most effective partnership with an ecommerce consultant will be able to give you both recommendations and point you to solutions for making those changes in your planning, processes, and execution. Your time and money is valuable, so you want to make sure that you’re spending it as efficiently as possible as you follow your consultant’s advice. So, before you commit to an ecommerce consultant, ask about the resources and concrete solutions they typically recommend to the brands they work with.

Achieve Your Ecommerce Goals With Pattern

Finding an ecommerce consultant that checks the boxes can be a difficult task. At Pattern, our entire focus and drive centers around giving brands the tools and resources they need to succeed on domestic and international ecommerce marketplaces. 

With over 100 global ecommerce consultants across 10 global offices, we have the right tools to partner with brands across the world to achieve better ecommerce success. We give specialized advice, then make sure our partners have all the adequate SEO, social media, CRM, Amazon multi-channel fulfillment services, and ecommerce outsourcing services they need.

Interested in ecommerce consulting services? Set up a call here to learn what Pattern can do for your brand on global marketplaces.