MAP Pricing vs MSRP
Posted on 18th March '19 in Ecommerce - Comments
As an entrepreneur, you know that the pricing of your products has a big effect on how potential customers perceive your brand and their willingness to purchase your goods. It's one of the largest concerns many shoppers have, and once distributors and third-party retailers enter the equation, the prices they choose to sell at can further impact brand perception and stability.
In the online, ecommerce world, those third parties can employ a variety of means -- from general discounts to personalized direct deals to consumers -- to try to undercut one another, which can lead to conflict and disrupt the consistency in the pricing of your products online.
Naturally, you'd want to establish some consistency in this arena, to protect your brand and level the playing field. Today, we're going to take a look at two acronyms that factor into you exerting some control over the price of your goods -- MAP and MSRP. While both deal with pricing, each has a different specific meaning and different potential outcomes for your ecommerce strategy.
Breaking Down the Terms
First things first, let's establish what these two terms stand for and what they mean. MSRP stands for "Manufacturer Suggested Retail Price," and like the name indicates, it's the price that manufacturers believe an item is worth and what they feel their retailers should set it at. Manufacturer's aren't allowed to require retailers to sell at a certain price however, so you can think of MSRP as more of a starting point, calculated by manufacturers using production costs and market conditions, then taken into consideration by retailers before they implement various discounts to entice customers to buy.
MAP, which stands for "Minimum Advertised Price," is slightly different. This is the lowest price that retailers can use to publicly advertise a product. They can still sell it at the prices they want to, but if they're showing that product -- online, in print, or anywhere else -- they're supposed to display it with the minimum advertised price. Like MSRP, MAP is set to potential consumers an idea of what an item is worth as they shop around, and keep that suggested value consistent across various channels to avoid confusion in regards to the quality of the manufacturer brand.
Quick Recap: MSRP is calculated from the total costs the manufacturer incurs from producing said product, and helps standardize pricing for items throughout the market. MAP, on the other hand, represents the lowest price that retailers can display a product for in online and print advertisements. Just as with MSRP, retailers can still sell items for less than MAP in private negotiations, they just have to maintain that consistency when listing the product publicly in their online (or brick-and-mortar) inventories.
Now, in a world where online sales and dynamic pricing dominate, some see MSRP as antiquated. As it turns out, though, MAP and MSRP can work in tandem, and using MSRP as MAP can be beneficial for manufacturers looking to maximize positive outcomes across the board, as I will explain in the following section.
Deciding Which to Implement
Now that you understand the basic differences between MSRP and MAP, the question remains -- which to lean toward and why? While it's true that some retailers still display both, what you'll find in the ecommerce world is that the pricing of products has become so fluid (due to factors like availability and a shopper's location, buying history, personalized deals, etc.) that few sell at MSRP and the strategy has become less relevant.
Because of this, MAP policies, which work as an agreements between a manufacturer/brand and its various resellers, serves as a way to achieve some consistency in the way prices are advertised and help mitigate conflicts between third-party retailers (like the pricing war scenario we alluded to earlier). It takes some work to maintain a MAP agreement, though, so let's jump into how you can make this policy work for your brand.
In conversations with entrepreneurs, one complaint I've heard repeatedly is the difficulty of finding the right MAP (minimum advertised price) for their products. Further still, I've heard others express frustration with figuring out how their MSRP (manufacturer suggested retail price) should work relative to their MAP. I'd like to take the opportunity to address these concerns, and explain why, oftentimes, MSRP can actually work as the best MAP.
How MSRP Can Work as an Ideal MAP
First and foremost, let's talk about promotions and discounts. Promotions can help increase a product's visibility and short-term revenues, but can sometimes have a deleterious effect on a retailer's profit margin due to the discount. Using MSRP as a MAP can help counteract the downside for retailers, allowing them to generate solid profits while still creating promotion for a manufacturer's product.
How? Remember that MSRP takes into account all of the projected costs in selling an item, from manufacturing to distributing and beyond (often including standard retailer/wholesaler markups). If retailers were discounting from a MAP that was set lower than MSRP, they'd lose out on a fair share of income while running promotional discounts. With MAP set at MSRP, however, they can adjust prices based on seasonality, availability, and for promotions more comfortably than they'd be able to otherwise.
In this scenario, when used tactically at select times of the year, promotions can make more sense for manufacturer and retailer alike.
Using MSRP as MAP also helps to protect a brand's retailers from the perils of that competitive "race to the bottom," particularly those brick-and-mortar stores who often bear the brunt of being undersold by online competitors.
With a standardized price point (that, again, already considers profits for resellers, in many cases) as a MAP, both manufacturer and brick-and-mortar stores can benefit in two key ways, the first being that a physical location can avoid being used as a mere "showroom" for potential customers.
In some cases, people who want to buy a product will simply go to a physical location to "see it up close" before heading home and purchasing said product online. This phenomenon can hurt a brand's physical resellers, as they won't profit from just displaying a manufacturer's wares, and, on account of low profits, might elect to discontinue their relationship with a manufacturer. With a MAP that's set to MSRP, they can remain competitive with online sellers, and prevent being undersold from the get-go.
There's a dual benefit here that also helps out brands. Because brick-and-mortar stores are more likely to make sales when they can compete with online sellers, they will also be more apt to feature a manufacturer's products, often enthusiastically so, resulting in greater prominence for a brand and increased interest in what they are selling.
Using the MSRP price point as MAP can also help out online sellers. In addition to also being protected from being undercut by less scrupulous third-parties, online retailers will also enjoy increased profit margins. What's more, with MSRP as MAP, there's a greater simplicity for retailers across the board, with no tricky math necessary to calculate a MAP that's different from MSRP (and no potential for error in doing those calculations either). So, in theory, everyone wins -- so long as the MSRP as MAP is well-enforced.
Ensuring MSRP and MAP Work to Support One Another
The MSRP as MAP strategy can be potent for all parties involved, but it's ineffective if a manufacturer doesn't take the enforcement of their MAP policy seriously. Resellers need to have confidence that they'll reap the benefits of playing by a manufacturer's rules, and that confidence can be shattered if bad actors are allowed to flagrantly undercut a MAP without repercussions.
It's up to brands to stay proactive in dealing with advertised price violations, which requires an aggressive dose of enforcement on their part. While it's virtually impossible for manufacturers to stay vigilant 24/7 through manual means, third-party and automated solutions for MAP monitoring can provide them with the edge they need to ensure that all resellers are adhering to policy. It's in every brand's best interest to research these solutions carefully, and determine which will best suit their needs so that they can continue fostering the best relationships possible with their most trusted retailers.
Making the Most of MAP Policies
Generally speaking, setting a MAP policy benefits all parties involved. You, as the manufacturer, get to establish baseline pricing for your products and manage consumer expectations about the consistency of your brand. Retailers, on the other hand, can highlight their various advantages to consumers (like customer service and the like) without having to worry about vastly-reduced advertised prices on the same goods from other retailers, allowing them to remain competitive.
You'll probably want to confer with experts and legal counsel of some sort to make sure whatever agreements you propose are worded accurately and remain above board. Savvy retailers, though, will usually see how a MAP policy can be mutually beneficial, and will, thusly, agree to them willingly if all the terms are fair and will follow them without issue. You might even include additional incentives into a MAP agreement to make it more enticing to a retailer, such as exclusivity in a certain region, better wholesale pricing, etc.
The major difficulty with MAP policies typically comes with monitoring that resellers adhere to the minimum advertised price, and enforcing violations of your agreement. There's a certain ease with which unscrupulous resellers can simply display products for less than what you've agreed to in hopes of undercutting competition and drumming up increased sales, and since the internet is a large place, they might reason there's little chance of getting caught doing so. What's more, the realm of ecommerce also presents a fertile ground for counterfeiters to muddy the waters and pass off dupes as the genuine article (at prices well below MAP).
It's up to you as a manufacturer to stay on top of potential violations, and enforce them through written warnings or placing a ban on certain third parties from dealing in your wares. This is something you can do on your own, however, to make the process easier and more efficient, it's worth availing yourself of expert guidance in the matter, through specialists who offer software solutions and managed services tailored to the task of MAP enforcement.
You can check out the rest of the Trade Vitality blog for further information on best practices when it comes to setting your MAP and monitoring violations, and learn more about how various solutions can aid your brand by exploring the site.