Management of MAP (Minimum Advertised Prices) and MSRP (Manufacturer’s Suggested Retail Price) is becoming more and more important for brands. According to the research, the typical brand that has many different online distributors, faced with price violations among 23% of all products. This is not all. The average price drop on products is 17% below the expected price. (Read more here)
So, we created this ultimate guidance of how you should handle your MAP/MSRP policy and monitoring. We have looked at the subject from brand, retailer and consumer perspectives as well as divided into different use cases.
What is MAP?
Let’s start with understanding what MAP really is. In the simplest form, MAP is the lowest price a retailer can sell the product for. In other words, MAP is the policy to make an agreement in which a manufacturer sets advertising price limits for distributors and resellers.
According to Federal Trade Commission, the manufacturer has the right to stop dealing with a retailer that does not agree to the policy regarding a desired level of prices.
But, It is important to note that a MAP policy does not establish an exact price that a reseller can sell a manufacturer’s product, it keeps resellers from dropping the prices below a certain level. For example, if a sunglasses manufacturer sets a MAP of $75 for its best selling item than all online distributors that the brand made an agreement are obligated to advertise this product minimum at $75 or more.
So, it is possible for retailer to sell below MAP and it’s not illegal but MAP policy gives the brand a right to terminate the contract if they closely monitor distributors and detect if the resellers violated the policy.
It is actually focusing on brand identity rather than the price because by offering reasonable and consistent pricing, you send a clear message about the value of your brand to consumers.
What is the difference between MAP and MSRP?
Have you ever seen the statement of “Suggested Price” on a product packaging? This is exactly what MSRP means: Manufacturer’s Suggested Retail Price. MSRP can be described as the price, recommended by manufacturers to the retail partners to sell the product for. MSRP does not set any limit, but just inform the partner of the ideal value of the product whereas MAP is a limitation in terms of pricing. Brands first started using MSRPs to standardize prices of their products across multiple distributors. Retailers often use the MSRP with popular, widely available products (i.e., consumer electronics and appliances).
I’d also like to point out that MAP is only applicable to the US as it stands against the law in EU. On the other hand, while Manufacturer’s Suggested Retail Price (MSRP) can be applicable both in Europe and US but more popular in EU regions, but it’s usually named Recommended Retail Price (RRP).
Generally, brands incentivize resellers to sell at MSRP for the purpose of reducing the price wars between retailers while keeping the desired margins. Also, the brand is eager to do the pricing calculations for their retailers and generate a fair price which putting their own costs and margin, resellers’ profitability into the equation. So, it is always wise idea to respect the manufacturer’s suggested prices.
However, in the real market conditions, things are not so straightforward. Most online retailers very often sell below the MSRP to capture the customer attention. Especially now with a gigantic retailer – Amazon and the rise of resellers operating in Amazon who don’t respect to MSRP or other price suggestions, it’s becoming a real hassle to maintain the Manufacturer’s Suggested Retail Price (MSRP).
Is MAP legal and applicable?
MAP monitoring and applying enforcements to violators are perfectly legal under U.S. antitrust statutes. Since minimum advertised price only relates to “advertised” pricing and does not tell a retailer what they can sell it for in their store, this practice is legal and serves as a protection for the manufacturers.
On the other hand, European laws restrict brands to force minimum advertised prices to retailers as it is considered as limiting competition. This essentially takes all the ability to price a product out of the hands of the manufacturer and ensures that it is the free market, which sets the price, and the mark-up on the product.
However, monitoring price fluctuations can help manufacturers effectively define future relationships with a retailer, while also delivering many incentives for retailers and distributors.
Is MAP applicable in Amazon?
Since Amazon is the most competitive marketplace and many resellers feel pressure to decrease their prices in order to win in the competition, brands must closely track Amazon resellers’ pricing actions to make sure that it’s in consistency (or above) with the MAP policy.
Amazon and big marketplaces often apply MAP but only if the brand owner informs them of violation. If brand or manufacturer figure out that the products are being sold below the MAP pricing policy by a Amazon reseller, they can report them. Amazon will warn them after the first violation. If they still do not respect to the MAP agreement, Amazon will have the right to remove them from the marketplace.
Amazon stands strongly and supports the manufacturers for the copyright issues as well. This is also called trademark infringement. It means the unauthorized sell of a product or service.
When the unauthorized action occurs on Amazon, the brand may call out a form (provided by Amazon) against the violation of the same or similar mark to prevent further use of the brand for the wrongful use.
In most cases, Amazon has the right to remove a seller, if they determine the unauthorized trademark usage or aggressive price violation. It is also a win-win situation for Amazon as well. By protecting the brands, they will prevent the confusion among consumers and add value to both their own identity and the partner value.
MAP benefits to brands
MAP policy offers many advantages for the brands especially in establishing a branding character and consistency. Here are the basic reasons for brands to apply MAP.
Promote fair competition across all distribution channels
As the manufacturer, you can reach every potential customer through your small and large resellers. They are both valuable. So you should care to promote fair competition across all distribution channels and to allow smaller sellers to compete with larger retailers.
Maintain brand identity and value
Consistency is what consumer expects from the brands and MAP policy is the key for consistency in pricing. When you establish a minimum price for your products to be advertised, this will help you maintain your brand identity and value across your entire channel. It is a great way to maintain price integrity, which is a perfect sign of being a trust-builder among customers.
To attract the consumer, resellers can choose to lower the prices rather than enhancing their marketing, their shopping experience or their customer service. It is easy to make advertising with a super low price on it. But, MAP helps you prevent underpricing among your resellers, and make them change their vision. By using an intelligent MAP monitoring platform, you’ll be able detect the violators easily and review the relationship with them.
Attract new retailers to your products
A successful application of MAP means that you are serious about maintaining the integrity of your brand and supporting reseller while they are selling your products. As we have already mentioned, consistency makes them trust you and want to sell your products.
Helps you identify best resellers
MAP policy brings monitoring the prices that all of your resellers are charging for your products. This is a great chance to identify your best resellers which respect your desires, provide great customer support, generate traffic to your products.
So you can be aware of which resellers to establish a deeper relationship with.
Combat against grey market
Grey market is reselling your products by unauthorized vendors. With MAP monitoring you can find and track the low prices that has been set for your product. This approach helps you detect unauthorized resellers and opens you a way to combat against it with the law enforcements.
MAP benefits to customers
With MAP, the price is becoming less competitive and the retailers are forced to attract customers in other ways such as perfect customer experiences, additional coupons, and campaigns. That will generate an added value for consumers.
Moreover, unauthorized sellers (which will be mentioned in the further part of the article) that are selling unauthorized products can be detected and eliminated from the market thanks to price monitoring which allows you to spot your products being sold at ridiculously low prices. In this way, consumers will get rid off receiving fake products or as you’ll prevent unauthorized sellers, they will be also avoided getting poor support from unauthorized sellers.
MAP benefits to resellers
It protects the margins so the products can be properly advertised and supported. It opens opportunities for retailers to develop a strategy to compete in different areas like customer support, UX. MAP also eliminates unauthorized sellers so legitimate retailers can sell more and help authorized resellers become stronger in the market.
Also, when the brand is consistent in executing their MAP policy, it is supposed to become a better partner and cooperate with the reseller, like taking back stock when the seller cannot sell it.
How do you define your need of MAP and what to consider?
When considering a new MAP policy, you have to check to see if there is any gap between the way you view your brand and customers perceive your brand. Next, look at your competitors’ prices for similar products, or observe popular prices of your products if you already have a reseller network. They can be a useful benchmark for your prices to keep you competitive, and help resellers choose your brand over a competitor’s.
How to apply a fine-tuned MAP monitoring cycle?
The cycle is fine-tuned if it is applicable to every other reseller completely and consistently. In case when you miss or don’t care about some violations, this may sound like you do not take your MAP policy seriously. And your resellers will start to ignore your endeavors to enforce it. So you need to apply your MAP policy effectively without exceptions.
So what are the common steps to take to complete a fine-tuned MAP monitoring cycle?
- Set MAP levels
You will need to start with setting the price level that will be the criteria for detection and categorization of the violations. In this step you should analyze the market meticulously and end up with a price that is advantageous and applicable in competition.
- Monitor the market to detect the violators
As a part of applying MAP, you need to detect violators, which is easy to do with the tools designed specially for this aim. For the companies with a wide retailer chain, it is not possible to detect violators manually. So automation is certainly very important for succeeding in MAP enforcement system. Automated MAP monitoring is the most efficient and effective approach especially if you’re distributing a large number of SKUs (Stock Keeping Units) through multiple channels.
- Act Upon Violations
In US, the laws let the brands ban retailers from advertising their products below MAP so they are allowed to impose sanction on the retailers. Here are the steps in case of violations:
- 1st Violation: Warning
- 2nd Violation: 30-day shipping hold on violated SKU
- 3rd Violation: 45-day shipping hold on violated SKU
- 4th violation: No longer selling that SKU through the reseller’s channel
What are the other actions that retailers can take in the EU market in order to prevent price erosions?
As we already discussed before, applying the minimum advertised price and enforcing it on the retailers is not applicable in the EU. That’s why brands operating in the EU should focus more on protecting brand value and use their resources at the optimal level.
What are they?
Considering the relationship
If you detect continuous violations from a specific reseller regarding the way they manage and expose your brand, you may consider terminating supplying them with your products.
With distribution channels that do not hesitate to drop off your prices and disturb your brand’s value, you should decide if they are worth sustaining the relationship with or not.
In case you have capacity restraints in your plants and you cannot deliver sufficient volume in the market you may want to prioritize your complying partners rather than the violators. You should allocate your resources in a smart way.
This is where automated MSRP monitoring solutions can do the heavy lifting of online channel monitoring, find potential violations, display a wider perspective over their retailers
Detecting Non-Authorized Resellers
An estimated $7 billion to $10 billion worth of products are sold every year just in the US by unauthorized resellers. For these brands, controlling grey market distribution presents a serious problem.
These unauthorized retailers are off your radar and are often the most aggressive violators. If you’re concerned about grey market sellers, the ability to monitor data outside of your authorized reseller network is important.
Examining the price trends of your products at online marketplaces also helps you to evaluate this data. This will make illegal networks obvious, which will allow you to prevent from the outset trading with offenders.
Select specific distributors
Court of Justice of the EU handed down its judgment in a dispute between manufacturers and retailers, which sell products over the Internet. The CJEU found that it is permissible for suppliers to prohibit members of a selective distribution system for luxury goods from using third parties’ websites to distribute the contract products.
Online distributors can get your product into the market across the online world. The right partner can significantly increase your sales, improve your margins and help you reach untapped market. On the other hand, if the partner has some missing points, they can cause you some problems in many way.
So, before entering the market, you can select the most important distributors and prohibit the resellers, which carry the risk of putting your prices in the fierce competition. A detailed analysis of possible partners before you start working together will be much healthier long-term.
Relation manufacturer-retailer in order to keep your prices at a good level
From the retailer point of view, it is the best practice to follow pricing policies. Manufacturers should incentivize retailers by offering sales bonuses for reaching milestones, exclusive products, dedicated product marketing, cross-branding marketing support, and more. Find effective ways to motivate them to respect your prices. Incentivization program can actually help strengthen the manufacturer-retailer relationship when handled well.
The application of MAP/MSRP policies is advantageous for all parts of sales including the manufacturer, the reseller and the customer in different ways. Consistency in pricing brings attraction to your brand and your products. With MAP, the market will have healthier competition, stronger brand images, and safer customers. This is why brands should follow their MAP policies completely.
We hope that this guide will be helpful to make your MAP enforcement plan for a strong brand identity.
What are your experiences on MAP? Do you monitor your products’ on your resellers? How do you manage all these processes? Please contribute our resource with your comments!