Online MAP Enforcement:  Evidence from a Quasi-Experiment

Ayelet  Israeli

Article | Marketing Science | September–October 2018

Online MAP Enforcement: Evidence from a Quasi-Experiment

Abstract

This paper investigates a manufacturer’s ability to influence compliance rates among its authorized online retailers by exploiting changes in the Minimum Advertised Price (MAP) policy and in dealer agreements. MAP is a pricing policy widely used by manufacturers to influence prices set by their downstream partners. A MAP policy imposes a lower bound on advertised prices, subjecting violating retailers to punishments such as termination of distribution agreements. Despite this threat, violations are common. I uncover two key elements to improve compliance: customization to the online environment and credible monitoring and punishments. I analyze the pricing, enforcement, and channel management policies of a manufacturer over several years. During this period, new channel policies take effect, providing a quasi-experiment. The new policies lead to substantially fewer violations. With improved compliance, channel prices increase by 2% without loss in volume. The reduction in violations is particularly stark among authorized retailers with lower sales volume, those that previously operated unapproved websites and those that have received violation notifications for the specific product before. Moreover, low service providers improve their service. At the same time, there is an increase in opportunistic behavior among top retailers, retailers that received notifications for other products, and for less popular products via deep discounting.

Keywords: Pricing policies; pricing; channel management; legal aspects of business; retail; Price; Policy; Governance Compliance; Distribution Channels; Management; Retail Industry;

Format: Print

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Citation:

Israeli, Ayelet. "Online MAP Enforcement: Evidence from a Quasi-Experiment." Marketing Science 37, no. 5 (September–October 2018): 710–732.

This case provides a post-mortem of the advertising technology (adtech) company Sizmek. Sizmek grew via multiple acquisitions, with the vision of becoming an integrated adtech company that could leverage AI to buy digital media, while creating and serving display and video content. At its peak, one of its acquisitions had an IPO valuation of almost 1 billion dollars. However, Sizmek struggled with an integration that was taking longer than expected, but also with misalignment of agency incentives, stricter data privacy regulations, and the rise of the walled gardens – Google, Facebook, and Amazon – that made the adtech ecosystem very competitive, with dynamics of winners-take-all markets. By 2019 Sizmek had to file Chapter 11, and was sold in pieces. Is there anything Sizmek could have done differently in their go-to-market strategy, product road-map, or overall partnerships to avoid such rapid collapse?

Thingtesting, a brand discovery and testing digital community devoted to uncovering and exploring direct-to-consumer brands, had just received seed funding and was contemplating a second year of growth. The new year brought many challenges, as founder Jenny Gyllander had to decide how to scale her fledgling company. As the company matured, she had to decide what role she would play going forward: should she continue to operate as head curator and content developer of her own reviews or open up her platform to invite and crowdsource the reviews of her followers. Her value proposition positioned her at the nexus of several different audiences: millennial consumers eager to try new brands, venture capitalists eager to invest in them, and the companies and brands themselves, who were interested in seeing their new products succeed. What was the best path to monetizing the business? As Gyllander navigates the emerging landscape of influencer marketing, she needs to decide how to transform her online audience into a co-creating community and how to best wield her own influence to create value for her followers and other constituencies in a way that could fund a profitable business model.

Technical Note | HBS Case Collection | March 2020

Influencer Marketing

Jill Avery and Ayelet Israeli

Despite a heavy barrage of advertising, most consumers declare that their purchases are most influenced by the experiences, advice, and recommendations of others, and not by marketers. Interpersonal communication between and among consumers serves as a potent path for influence, and by 2022, marketing managers are expected to spend $15 billion on influencer marketing, a marketing technique in which companies partner with people with specialized knowledge, expertise, authority, social position, and/or personal relationships that enable them to have influence over others to co-produce marketing messages to promote their brands via offline and electronic word-of-mouth. This technical note provides an overview of influencer marketing and discusses the various roles that influencers play for marketers, including delivering marketing messages in a more authentic voice and setting than that offered by more traditional advertising media where messages are authored by firms. It categorizes different types of influencers, explains the social psychological processes that make interpersonal influence work, and provides guidelines on how to identify people with influence. It discusses the opportunities and challenges related to measuring the performance of influencers and assessing the costs and return-on-investment of influencer marketing programs. Finally, it highlights emerging risks in the contemporary influencer marketing landscape.

Keywords: influencers; Marketing; Marketing Communications; Brands and Branding; Marketing Strategy; Media and Broadcasting Industry; Advertising Industry; Consumer Products Industry;

Citation:

Avery, Jill, and Ayelet Israeli. "Influencer Marketing." Harvard Business School Technical Note 520-075, March 2020. View Details

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