The rapid development of the retail industry changed the way that companies do business, and with it came the issue of price competition. In an effort to stay competitive, you can’t just rely on your product’s quality and brand image to keep the product pricing up – unless you secure a monopoly, it is only a matter of time before someone else comes in and offers the same product at a lower price.
To maintain control over pricing and protect their margins, many companies have implemented Minimum Advertised Price (MAP) policies – agreements between retail partners and manufacturers that set a minimum price for a product. As the Manufacturer’s Suggested Retail Price is not legally binding, MAP policies are designed to ensure that retailers do not undercut each other in an effort to gain market share.
Why would you want to introduce and monitor Minimum Advertised Price pricing? What are the key benefits and drawbacks of minimum advertised prices? How do you ensure that your MAP policy is effective? In this article, we will explore how MAP policy works and discuss how to best use it in an eCommerce environment.
What is MAP Pricing Policy?
There is much more to product pricing than just adjusting the price to your target audience’s needs. Many strategic products serve as loss leaders, aiming to attract customers and generate brand loyalty. With that, those products can go below the cost of manufacturing and distribution.
While this can be great for those businesses, it may also change the way your brand’s products are perceived. For example, if you are selling a product that normally retails for $100 and it suddenly starts selling at 50% off, customers may think the quality of the product is subpar, or they may expect to see discounted prices all the time.
MAP pricing policy is designed to protect your profit margins and prevent retailers from taking advantage of overly competitive pricing strategies. It establishes a minimum price that all retailers must charge, helping to maintain the perceived value of your product and prevent any damage to your brand’s reputation, bottom line, or relationship with retailers.
Manufacturer’s Suggested Retail Price
MSRP, as the name suggests, isn’t to indicate what the final price of a given product should be – rather, it signals to retailers the recommended selling price for a particular item considering the journey it’s taken from the manufacturer to their hands.
Third-party marketplaces can use this to their advantage, setting the price below what the manufacturer suggests. As a result, they can drive sales and increase their profits while the manufacturer takes a hit.
Minimum Advertised Pricing
The Minimum Advertised Price policy ensures that this practice is not abused. It sets a minimum retail price that all compliant retailers must adhere to in order to continue selling the product, preventing them from undercutting each other and driving prices down.
To be effective, a MAP policy must be enforced and monitored to ensure that retailers are in compliance. If a retailer is found to be selling a product at or below the wholesale price, they may face financial penalties or even have their supply of the product revoked.
Are MAP Policies Legal?
The legalities of Minimum Advertised Price policies have often been a subject of debate. It is generally accepted that, as long as the policy does not restrain trade or create a monopoly, it should be allowed under the US federal antitrust law.
However, it is important to note that certain countries and states have stricter regulations in place. The EU, for example, forbids setting a Minimum Advertised Pricing policy without a specific suspicion of anti-competitive practices.
Benefits and Drawbacks of a MAP Policy
MAP is an effective way to maintain control over pricing and protect your margins. It prevents retailers from undercutting each other, which can lead to a more stable market for your product. More specifically, it helps:
Avoid Price Wars
It is safe to say that having a loss leader is an undeniably effective way of promoting your store in any industry. But with that, it can fuel price gauging and other practices that retail stores can use to undercut their competition. While typically, those businesses take the costs for their loss leaders, the loss of price perception and brand recognition can be damaging.
Secure Brand Value
As mentioned above, customers often perceive products with discounted prices to be of lower quality even if the product itself is still top-notch and the recommended retail price is relatively high. This means that businesses must carefully consider the impact excessive discounting may have on sales in other channels.
Once you set minimum advertised prices, you can be assured that online shoppers compare prices within the same range, which in turn helps to protect your brand value and reputation.
Support Competitive Pricing
It can be argued that setting a minimum-level price can actually promote competitive strategies. Instead of cutting the price down, retailers have to resort to other methods of attaining high sales, such as better customer service, delivery options, or offers.
Level In-store and Online Retailers
Online stores often report lower running costs compared to brick-and-mortar stores, and that gives them a competitive edge allowing them to set lower prices. Minimum Advertised Price policies can provide a level playing field for all retailers, regardless of the type of business model they use.
However, there are drawbacks to MAP pricing as well:
- Limitation of growth – MAP policies can limit the potential for growth, as retailers may be hesitant to invest in products with a fixed price. As such, it is important to consider the impacts of MAP guidelines on different channels and customer segments before introducing any policy.
- Non-compliance – if not monitored closely, it’s possible for retailers to ignore a MAP policy or set prices lower than what is agreed upon. This means that businesses must ensure that their partners are complying with their agreement and take appropriate actions when necessary – and those may not always be covered by the law.
- Lack of flexibility – MAP policies are typically fixed, meaning that retailers cannot adjust the price to their target audience’s needs. This can be a problem for businesses that want to offer discounts or special promotions on certain products.
How to Create a Minimum Advertised Price Policy
The MAP policy you create for your product or products should be tailored to meet your specific needs. You’ll need to consider a variety of factors, such as the market, competition, pricing strategy, and more.
When creating a Minimum Advertised Price policy, there are a few key steps:
Understand Your Brand Positioning
The first step you need to take is to research your position in the market and consider your brand’s mission and values. This will help you determine the type of pricing strategy that best suits your products and how to effectively implement a MAP policy for them.
For example, if you are selling luxury goods, then you may want to set a higher minimum advertised price than if you were selling everyday items. Your goal should be realistic – it should reflect the price that your customers are willing to pay for your goods and services but also the lowest price that satisfies your brand image.
Research the Competition
The second step is to research what your competitors are doing in terms of retail pricing – that is, both your direct competitors and other retailers. Whether they implement minimal advertised price rules or not can be a good indication of what price range you should consider.
If you are aiming to be perceived as a premium brand, it may be beneficial for you to set higher MAPs in order to differentiate your products from others. This is prevalent in the fashion industry, where certain luxury brands offer exclusive products only in their selected physical stores or in hot drops.
On the other hand, if you are selling everyday items and competing on price, it is important to keep your MAPs in line with industry standards – or below.
Devise Your Product’s Price Margins
Once you have an understanding of how your pricing strategy should look, it is time for you to decide which prices will best benefit both your company and consumers. Consider setting the lowest margin that still allows for a healthy profit – this way, customers can benefit from competitive prices while still allowing you to make a good return on investment.
It is also important to consider discounts or promotional offers when devising product margins. Incentives such as Black Friday discounts can go far, but they shouldn’t surpass your lowest price point.
Construct Your MAP Pricing Policy
Now that you have a solid understanding of your pricing strategy and product margins, it is time to construct your MAP policy. Depending on the type of products you are selling, you may want to set different minimum prices for each item or group them together under one agreement.
In order to ensure that retailers follow the terms of your MAP policy, include a clause in agreements that outlines consequences if they do not comply – such as fines or suspension from distribution privileges. Remember that a MAP policy is not legally binding, so while it is a part of your agreement with other retailers and you can enforce MAP pricing within it, it is ultimately up to them whether they want to abide by the terms or not and you cannot take any legal measures against them.
Having said that, you’ll have to constantly monitor MAP pricing and ensure that retailers are following the terms of your agreement. It is important to regularly review prices in order to make sure they are still competitive, as well as keep an eye on competitors’ pricing strategies.
This, of course, is not a task you want to do manually. You can use a MAP monitoring solution that allows you to track prices and compare them with other retailers. This way, you can quickly and easily identify any anomalies in pricing.
MAP Pricing Policy Enforcement
Once you have set the minimum advertised price for a product, it is essential to ensure that retailers are following your policy. As mentioned above, you can monitor the final sales price of your products with e-commerce monitoring solutions and see whether they follow your Minimum Advertised Price policies.
Once you have noticed an online retailer or marketplace that is not following the MAP policy, you can take the following MAP enforcement steps:
- Issue a Warning – first, you should report the MAP violation to the retailer and ask them to immediately adjust their pricing according to your guidelines. Don’t jump to conclusions too quickly, though – the retailer may have made a mistake, so it’s best to give them the benefit of the doubt.
- Hold Shipping – if the retailer still doesn’t comply with your MAP policy, you can hold their shipping to prevent them from selling the product at a low price. Needless to say, as the manufacturer, you have control over when and where the product is shipped, so you can use this as leverage to ensure that your MAP policy is followed.
- Reduce Assortment – issuing a warning and holding shipping don’t necessarily guarantee MAP compliance, as the retailer might have enough stock already, so you may want to take further action. One way of doing this is by reducing the number and assortment of products they are allowed to offer. This can be tricky, though, as certain procedures may not be allowed by law – so it’s best to get in touch with a legal advisor before taking any further steps if you haven’t already. One of the ways in which you can reduce assortment is to set up Selective Distribution Agreements on specific products. This way, you can limit the number of retailers who are allowed to offer your products, and you’ll have more control over who is selling them (and for what price).
- Revoke Authorized Resellers Status – lastly, if none of the above steps work, you may want to revoke the authorized retailer status. This should be done only as a last resort when all other methods have failed, and there is no choice but to terminate the agreement with them. Unauthorized resellers can still sell your product, but they won’t be able to use any of the promotional materials you provide for your online shoppers – preserving your brand integrity – and will have a harder time competing with authorized retailers.
Manager with experience in leading team of software developers and testers during implementation of internal and external IT projects. Ceo of Brandly360.com.