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.