This is a comprehensive guide to everything you need to know about MAP pricing and MAP policies.
MAP pricing is a very helpful technique that manufacturers use to standardize their product prices and to maintain the reputation of their brand name. This is a comprehensive guide to everything you need to know about MAP policies.
A minimum advertised price, or MAP, refers to the absolute lowest advertised price allowed for a given product, set by manufacturers for retailers. This is different from MSRP, a manufacturer’s suggested retail price, which is a recommendation for what retailers should list a product at, rather than a limit to advertised price. With both policies, manufacturers can enforce their prices and impose penalties for retailers who contravene them.
For example, if Company A sets an MSRP at $80 and a MAP for their newest product at $50, any retailers or resellers are obligated to advertise that product at $50 or above. The two policies can work together to ensure manufacturers maintain their margins and a strong brand.
There is, however, a MAP loophole for retailers to exploit where they can conduct private negotiations and sell products below the MAP, as long as they never advertise a lower price.
MAP policy is typically one-way, with manufacturers setting and enforcing their prices with retailers. Having the power to set and enforce MAPs allows manufacturers to avoid being caught in price fixing activities and price wars, in addition to steering clear of antitrust law violations. Across the board, MAP policies standardize the prices of products across all resale channels and provides every retailer with an opportunity to compete in the marketplace.
To make sure MAP and MSRP policies work for manufacturers, they have to be publicly established, continuously monitored, and aggressively enforced.
One criticism of MAP is that it resembles price-fixing, but it actually has no bearing over what specific price retailers sell their products at. Rather, it sets targets for advertising in order to maintain brand reputation and marketplace competition between online and physical stores, and in other areas like customer service and order fulfillment.
In order to create a legal MAP policy, it must be unilaterally implemented through announcement rather than direct contracts with retailers. In fact, it is helpful to explicitly mention in any MAP information that any end sale prices are unaffected by the policy in order to be on the safe side regarding price fixing activities.
MAP pricing policies exist for several reasons, and one of the most prominent one is that it keeps brand identities intact.
For example, if a brand sells one of their products at the same price at both in-store and online stores, it will appear more valuable to customers. In contrast, if there isn’t a MAP pricing policy and that same product has varied prices in different stores, it suggests that the products don’t have the same quality.
Some other reasons to implement minimum advertised price policies are:
Bear in mind that consistent pricing is critical because it reflects a brand's value to the consumer. A clear MAP pricing policy ensures the value and importance of your product's price, which provides your products with a consistent reputation.
Unfortunately, MAP violators and counterfeiters can destroy the reputation of a brand. If a retailer sells a counterfeit product to any consumer, not only will it end up as a bad customer experience, but the brand itself will also start losing customers. A consistent minimum advertised pricing policy keeps your products from MAP violators and counterfeiters.
Follow the steps below to create a comprehensive and effective minimum advertised price policy:
The first step towards making a MAP pricing policy is to research the market for similar products’ prices from competitors. Manufacturers should set MAPs close to their competitors’ levels because most of the price strategy rules will apply in this situation. Too high or too low a price will lead to being singled out and investigated under antitrust legislation.
It is imperative for brands to understand their current standing in the industry because not all brands are as well-established as Nike or Apple. Such big brands have a loyal following and a reputation, and can charge any price they want. But smaller names have to be realistic in setting MAP policies based on their brand position by studying market reactions to pricing changes.
It’s one of the most critical steps while making a MAP pricing policy because brands have to address the following factors:
MAP pricing policy allows brands to set the profit margin they’re comfortable with, and it protects against margin degradation.
After the completion of the first three steps, manufacturers will be able to draft a template to communicate MAP pricing policies across their distribution network. Keep in mind that getting the generic MAP policy templates from the internet is never a good choice. That's why a bespoke and customized MAP policy unique to all specific requirements is critical, and generic templates cannot fulfill that.
An in-house MAP policy template will allow brands to deal accordingly with policy violators as well.
After drafting a MAP policy template, brands should consider consulting with a legal advisor to make sure that everything about the MAP pricing policy is legal. Consulting with a legal team also allows necessary changes to be made in the MAP policy if required.
The final step is all about enforcing the MAP pricing policy across all retailer networks. It will make sure that the brand isn’t granting favors to any specific retailer, and every MAP policy is consistent. Ultimately, manufacturers will have a price-fixing free network of retailers that protects the reputation of their brand.
Once you finalize your MAP policy, the next step is to determine the prices themselves. Brands have to be very careful while selecting the MAP prices because it’s very challenging to balance all the competing strategic interests. It’s impossible to state the concrete rules to set the MAP pricing, but the following are some of the key factors that you must consider for your pricing decision:
For every specific product, MAP pricing must be at the same level across the distribution network. It keeps brands on the right side of antitrust legislation. This means that manufacturers have to take into account each of their most significant retailers’ unique needs while deciding the MAP price for a single product.
Their best strategic retailer will train its sales team and showcase your products on the shelves where they are prominent. For that matter, brands must not set a MAP price that doesn't provide their best retailer with a profitable margin.
Brands have to set their MAP prices at the lowest level that they can comfortably withstand. If MAP prices are any higher, it will give retailers a chance to actually sell the products at big discounts all the time because the margin will be too high. Products that are always on a discount never earn brands a good reputation. Manufacturers don't want to create this issue for retailers and their own brand as well.
While setting the MAP prices for products, brands must consider its effects and results regarding the customers' perception of their image. They have to carefully manage it because if it’s too high, it might not appeal to the end-users. On the other hand, manufacturers don't want their products to be viewed as a low-value commodity or discount brand. They have to choose somewhere between keeping sales and perception up to the mark.
Setting the MAP pricing is not a linear task because you’ll have to address many complexities to make a compelling strategic decision. That's why the more effective option is to use an automated and efficient solution that protects your brand's reputation.
Dealing with MAP violators can waste a lot of energy and time on the part of brands. They can use the following techniques to minimize the violations from occurring.
Issues like unauthorized retailers, grey market sellers, and minimum advertised price policy violators normally occur because of the leaky or incoherent supply chain. Brands must know everything about their retailers and make sure they understand the channels and techniques used to sell their products.
There are always sellers and retailers out there who know the techniques to avoid the brand's minimum advertised price and other pricing policies. It is helpful for manufacturers learn those tricks and tactics to counteract retailers who try to take advantage.
Manufacturers must communicate everything about their MAP pricing policy with retailers to maintain a strong relationship. It allows retailers to understand that the prices of their manufacturers’ products are most competitive in the market. That relationship helps to increase the sales of products and can also improve the brand's credibility.
Amazon's policy states that they will not interfere in any retailer-manufacturer dispute over minimum advertised pricing. According to Amazon's policy, the MAP pricing policy is entirely an internal business problem that doesn't have any effect on the end-users or the marketplace.
In its policy, Amazon states that for the same product, the retailers' competition over the price benefits the end-users. Amazon believes that such competition is good for the marketplace, even if it upsets manufacturers.
Amazon can only help brands in such cases where an unauthorized third-party retailer is showcasing their products. Since they will have to provide proof to Amazon that their copyrights or other intellectual properties are being violated, there are certain tips and tools that you can use to deal with such unauthorized retailers on Amazon:
Amazon Brand Registry 2.0 is a program where manufacturers and brands are enlisted to counter copyright and intellectual property violations. They get a sophisticated set of online tools after signing up for Amazon Brand Registry that help identify unauthorized third-party resellers.
Brands should also learn the most common ploys that unauthorized 3Ps use to acquire inventory on Amazon. If manufacturers know how these tactics and techniques work, they can act accordingly to find unauthorized sellers and take necessary measures to prevent them.
Many third-party sellers know the prohibition policy of Amazon, and that's why they sometimes open an Amazon store by using a different name. In order to prevent such retailers, using product serialization is the best technique. Brands assign a unique serial number to each particular unit of product sequentially. They can then test-buy the product from retailers, and if the product is not serialized, those specific retailers can be reported as fraudulent to Amazon.
Brands and manufacturers, should set a comprehensive MAP policy now to prevent retailers from affecting their products' price perception. They need to remember to upgrade MAP pricing policy as needed and ensure they’re always monitoring compliance to protect margins and their reputation in the marketplace.
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