MAP enforcement isn't just for brands and manufacturers. It has positive impacts on retailers, too.
Minimum advertised price (MAP) policies are one of the most effective methods brands use to target resellers who undercut their wholesalers’ business by selling goods below the minimum price. With MAP enforcement technology, brands are able to monitor and receive alerts of MAP violations. With so many solutions on the market, MAP enforcement has become commonplace among brands and retailers alike.
There are four key benefits to MAP enforcement for retailers, each of which contribute to a more profitable, equitable climate among all different marketplaces and can even be used to retailers’ advantage.
At its very root, MAP policies help stabilize the retail price of goods at or above a minimum level. The most basic effect of MAP is maintaining a higher retail price for products, and retailers aren’t forced to cut margins in order to compete with one another. Every sale yields a higher margin and more profit.
The concept remains the same even if some retailers see sales volume dip as a result of higher prices. There’s still a positive impact on cash flow since the higher return offsets the reduction in number of products sold. It’s also a good reminder that higher margins create less demand for capital if prices remain stable through the year.
Earning potential becomes powerful as a result of higher profits with moderately lower but more stable sales volumes. This allows retailers to invest more into marketing and sourcing new products.
The manufacturer-retailer relationship is what keeps the marketplace afloat. When retailers have increased purchasing power and they re-invest in their suppliers, it demonstrates a commitment to the business relationship; when retailers also adhere to brands’ MAP policies, the alignment in values encourages brands to stick with partners who are in line with their overall strategies.
Adherence to MAP policies solidifies those relationships by building trust. Every party has something to gain by embracing MAP, especially in situations where there’s an exclusive Amazon distribution contract at stake. Both parties are rewarded with stability and the opportunity to partner with symbiotic organizations that each support the other’s business goals.
When retailers avoid MAP enforcement, they’re faced with costly risks from a few different perspectives.
First, there are automatic repricing software options on the market to keep retailer prices competitive. They can come with steep ongoing price tags to maintain operations and can eat into profit margins when competitor prices trigger price adjustments. The loss of the margin plus the cost of the software itself contributes to a double-edged sword that can significantly reduce retailer profit.
There’s also time and cost associated with price monitoring. Outside of MAP enforcement, retailers typically still have to monitor their competitors’ prices and make adjustments. Even with software to guide the process, it still takes time and energy away from primary business operations. With MAP enforcement, the process is streamlined and doesn’t require monitoring; retailers can focus on their own priorities.
Retailers who operate outside of MAP enforcement can also be at the mercy of unpredictable sales volume as they compete with each other for the lowest price. Fluctuations in price contributes to fluctuations in sales, and that leads to inventory levels becoming difficult to forecast. Some retailers in this space end up missing out on sales because of unpredictable cash flow and inconsistent sales forecasts.
The ongoing competition also poses a challenge to retailers outside of MAP enforcement. Since competition hinges on strategic price adjustments, retailers are forced to commit time to pricing strategies and attempts to deceive competitors. The industry can easily fall into a self-reinforcing cycle of price wars that reduce margins to nearly zero for everyone involved.
As the lowest-margin-wins competition goes on, the loss leaders emerge. These businesses are the ones operating outside MAP enforcement that succeed at selling most or all of their products at a loss to increase sales numbers. This tactic is usually effective at driving traffic to the retailer’s store, but often leads to poor business outcomes in the long term and forces competitors to sink to their levels to remain viable.
Most of the outcomes are related to price wars, which hurt retailers, brands, and manufacturers alike. Especially when automatic repricing tools are used, consistently driving prices down. MAP enforcement takes price wars out of the equation because every brand is able to set the lowest acceptable retail price and all resellers must comply.
Finally, retailers who are faced with MAP policy violations risk serious damage to their business. In most cases, breaches result in damage to their reputation with consumers and their vendors, but they can also include loss of selling privileges. Being faced with the tangible consequences of MAP policy violations, retailers are encouraged to engage in responsible selling practices.
Arguably, the most significant influence of MAP policy is the effect it has on smaller businesses. It provides a safety net to compete with larger or more established competitors, since they’re no longer operating at the whim of large-scale margin decisions. Smaller businesses with less infrastructure and smaller scale operations can maintain the margins that allow them to maintain profit rather than get priced out of the market. Retailers of both sizes then rely on their customer service, quality of goods, and their reputation to determine success in competition with each other.
MAP enforcement’s impact on margin maintenance can even help physical stores maintain their footprint since online retailers are limited to the same price; they may end up seeing more profit from sales, but they are unable to make physical retailers obsolete due to overhead costs.
With MAP enforcement, the era of price wars and price cascading can come to an end. Businesses of all sizes have the chance to compete. Resellers can remain competitive while aligning with their brands’ market strategies, which strengthens relationships across the marketplace network.
If you’re reading this post as a retailer and interested in creating a level playing field with your competitors, start your free 14-day trial of MapAuthority and let us show you how our patent-pending tool can be a game changer for your Amazon business.
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