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IMAP Policies: How the Supreme Court Affects Internet Retailers

Posted on January 31, 2008 by Archives

In June of this year the Supreme Court heard the case of Leegin Creative Leather Products, INC. vs. PSKS, INC.. In a 5-4 decision, led by Justice Kennedy, the Court held that manufacturers can enforce IMAP policies, which set minimum pricing standards for retailers. The Leegin ruling overturned the 1911 ruling of Dr. Miles Medical Co. vs John D. Park & Sons Co. (220 U.S. 373) that stated it was illegal under the Sherman Act for a manufacturer and retailer to agree on set minimum prices that the retailer can charge. Leegin successfully chipped away another small portion of the anti-trust laws, established almost a century ago.  In two lower court decisions, the court favored PSKS, citing the Anti-Trust laws as their support. Forbes.com quotes Justice Kennedy when explaining the 2007 Leegin decision:

"the rule of reason is the accepted standard" for determining whether a case is in violation of antitrust law. He [Kennedy] argued that a bevy of economic evidence exists to support the claim that price-setting agreements can actually promote competition and is "unlikely to have anticompetitive effects."  

In recent times, the Supreme Court has heard several anti-trust cases; ruling in favor of the defendants being sued for anticompetitive conduct in each instance.

Defense for IMAP’s

Internet Minimum Advertising Policies (IMAP) are programs that manufacturers utilize in order to keep retailers from advertising prices below a specified amount. The general argument, by manufacturers and the Court, in favor of the IMAP:

  • curbs loss leaders
  • encourages healthy competition
  • increases customer service efforts

Loss Leaders

Loss leaders is a marketing terms used to describe a pricing strategy that markets products at a significantly reduced price in order to attract customer’s attention. Retailers count on customers purchasing the discounted product along with products that are not discounted. This can be an effective strategy, however, the downside is when an entire business model is to be the “low price leader” and subsequently undercuts all their competition with low prices.

 It is not uncommon for internet retailers to receive several legal notices a week regarding strict adherence to manufacturer’s IMAP’s. The reality is, few e-tailers acknowledge manufacturer IMAP’s. Some online companies do not always focus on customer service to win customer loyalty, instead they depend on loss leaders. E-tailers that depend on loss leaders will ignore manufacturer IMAP’s under the presumption that the legal battle is too expensive for the manufacturer to go after every e-tailer; therefore they will probably not face consequences. When not all e-tailers follow the IMAP policy, it is difficult for one or two companies to agree to manufacturer price minimums, when they know the outcome is decreased sales. The decision ultimately becomes: loose business to competitors vs. obey the IMAP.

Healthy Competition

Healthy competition, among retailers and e-tailers a like, ensures an improved customer experience. Healthy competition revolves around:
availability of product information

  • Learning Center
    • Definitions
    • Buying Guides
    • How-To Instructions
    • Videos
  • site design and functionality
  • promotions
  • Customer policies


When businesses focus on these aspects to attract customers, their customer’s will notice the difference. They will feel secure and encouraged in purchasing from a reliable company.

Customer Service

Perhaps the largest effect of adhering to manufacturer IMAP’s, thus having an increased price, as well as competing with other businesses, is the increased customer service efforts. Customer service departments strive to meet customer demands to maintain customer loyalty. Customer satisfaction guarantees are common and policies like “Yes! We can!” and “Just say Yes!” are emerging. This focus on customer service is a tremendous benefit that results from healthy competition. Customer service departments use features like Live Person, that allow instant access to customer service representatives without the cost of a phone call; and provide account information online, at the click of a button, for the most current, up to date order status information.

As more manufacturer’s begin to crack down on IMAP’s and similar policies, the more the court is going to have to revisit anti-trust laws. As new rulings are handed down, the affect is not only on the business involved in the lawsuit, but on every other retail business, even online. Customer’s may notice fewer highly discounted products as businesses begin to conform to IMAP’s; however, customer’s should be thankful for IMAP’s in that they encourage healthy competition among businesses and will bring an elevated overall customer service experience.

 

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