The Use of Advertised Price Policies to Combat “Showrooming”

Most consumers have probably purchased a product online after scouring the Internet for the best price. This may explain the increasing phenomenon, known as “showrooming,” which presents mounting challenges to bricks and mortar retailers. The practice involves consumers browsing physical stores and evaluating, trying on or testing a product in person but then leaving the store to search the Internet for the best price available online. Some traditional retailers even report seeing customers searching for a better price on smart phones while still in the store. Online sellers are often able to beat in-store prices, as they tend to have lower costs for rent, overhead, sales personnel, and the like. And traditional retailers, who stock products, create point-of-sale displays, and educate consumers, are understandably frustrated with the increase in showrooming.

Strategies to Combat Showrooming

Traditional retailers may attempt to develop customer loyalty by creating a unique customer experience, offering valuable sales assistance, and possibly providing ancillary services such as training, design, and installation. But these efforts alone may not be enough to win business. If consumers are truly determined to find the best price available, they can easily search the Internet.

Another strategy traditional retailers may use to combat showrooming is to pressure the manufacturers of products they sell to prevent discrepancies in the advertised prices for those products across available channels, including the Internet. This strategy can make it more difficult for consumers to find cheaper alternatives online. Whether on their own initiative or at the behest of their retail customers, manufacturers have begun implementing and enforcing minimum advertised price (MAP) policies, which prohibit all retailers, online or otherwise, from advertising specific products below a certain price. Most MAP policies do not actually dictate the price at which a product can be sold. Rather, they set the minimum price at which a product can be advertised.

Legal Considerations

Manufacturers implementing MAP policies should strive to make them easy to administer, likely to be complied with, and fully within the bounds of applicable laws. While generally legal under federal and state law if crafted correctly, MAP policies that go too far in the direction of resale price maintenance (price fixing) run the risk of violating federal and state antitrust laws. Since the United States Supreme Court decided Leegin Creative Leather Products v. PSKS, Inc. in 2007, federal law evaluates resale price maintenance under a “rule of reason” test that considers pro-competitive effects. All 50 states have their own individual antitrust laws, however, and some states’ laws are more stringent than federal law. Maryland, for instance, passed a law in 2009 that declares resale price maintenance unlawful under any circumstance. Thus, manufacturers that wish to implement MAP policies should consult legal counsel to minimize the risk of violating applicable laws.

Practical Considerations

Though MAP policies may help to reduce showrooming, retailers should also be aware of practical problems with such policies before lobbying manufacturers to adopt them. MAP policies can be hard for manufacturers to enforce without sacrificing valuable distribution channels. If only some retailers comply with the MAP policy, those who follow the policy may be harmed when those who do not are able to increase sales at the expense of a compliant retailer. Thus, manufacturers need to be willing to commit resources to enforce their MAP policies or the policies will have limited success. Further, since MAP policies will not ordinarily prevent products from being sold at prices below those advertised, online retailers can still find ways to outmaneuver their bricks and mortar competition, especially when consumers have the patience to dig a little deeper for the best price.

Takeaway

MAP policies have emerged as a popular strategy to combat showrooming. However, manufacturers who adopt such strategies need to be aware of the legal pitfalls and practical limitations inherent in any attempt to level the competitive playing field.

Related topics: Retail, Retail Sales