*Originally posted on December 4th, 2017. Updated on June 28th, 2018.
Minimum advertised price (MAP) policies and MAP price enforcement have been around since the early 1900s. However, they’ve perhaps never been more relevant and useful than they are today.
That’s because we live in a world of instant price comparison. Shoppers can get pricing on a product from multiple online sellers with just a few clicks. Pricing information on products is literally at their fingertips.
MAP price policies are especially vital when you consider the fact that ecommerce sales brought in nearly $395 billion in 2016 and accounted for 11.7 percent of total retail sales – a 15.6 percent increase from 2015.
Even when shopping in a brick-and-mortar store, 67 percent of consumers still perform product research for retailers online at least occasionally.
And why wouldn’t they? It’s just so easy to compare the price of similar products.
Without some type of price floor in place, however, retailers and manufacturers are likely to find themselves in an ugly price war. And considering the fact that Amazon alone accounts for 43 percent of all U.S. online sales, it’s a price war that they’re probably destined to lose.
What is the purpose of MAP pricing?
A MAP price, or minimum advertised price, is the price that resellers cannot advertise below. This helps protect the brand’s value by not allowing retailers to put their items on sale or clearance for low prices. The purpose of MAP pricing is to protect the value of the brand. This is different from MSRP, because MSRP stands for manufacturer suggested retail price, meaning it is a suggestion rather than a minimum.
Minimum Advertised Price Policies Are Best for Business
Creating a pricing boundary is essential to the stability and longevity of manufacturers as well as resellers. In the short term, it prevents them from getting caught up in a price war.
But in the long term, the implications of implementing MAP policies are much more profound. While slashing prices can increase conversions, the victory is only fleeting, and it often leads to brand erosion over time.
MAP policies help preserve brand value because consumers tend to have a more positive perception of a brand based on price. They view the products as being of higher quality, and are likely to be more loyal and become repeat customers.
Regulating how low retailers can go when selling your products ultimately makes your company more competitive, more profitable, and allows you to maintain stable footing within your industry.
But here’s the thing: MAP policies are only effective when they’re properly enforced.
Ensuring that resellers are actually following through with your MAP and playing by the rules is essential. Otherwise, the time and effort you put into developing those MAP policies is futile.
MAP Enforcement Best Practices Are Critical
Like many areas of business, best practices are a critical component of successful operations.
In the case of MAP enforcement, establishing best practices for pricing accomplishes the following:
- Allows your company to oversee reseller prices in an efficient manner
- Provides resellers with concrete pricing guidelines to abide by
- Helps ensure compliance across the board
- Reduces the likelihood of issues occurring
- Streamlines the resolution process when they do occur
- Prevents unnecessary friction from arising between your company and resellers
With that in mind, here are some MAP enforcement best practices to consider in your business:
Explain That Minimum Advertised Price Enforcement is Mutually Beneficial
MAP policies don’t just benefit manufacturers – they also benefit the reseller.
It’s important that your resellers know this because they’ll better understand the underlying logic behind price monitoring.
While price cuts may result in a quick sale, the reseller is ultimately losing profits, and this type of pricing policy can dilute their brand equity as well. This can be incredibly harmful in the long run, and they may lose the battle to other retailers. Once they lose a customer’s respect and loyalty, it’s hard to gain it back.
MAP enforcement is a win-win because it helps resellers drive bigger profits and protect their brand image. It’s a practice that’s truly at the heart of safe selling.
Explaining this to each of your retailers can go a long way toward gaining their compliance. When they understand that it’s in everyone’s best interest, they’re much more likely to be on board with this pricing strategy.
Create Clear Compliance Guidelines
Transparency and clarity are two things you should aim for when creating pricing guidelines. It’s best to use a plainly-worded statement explaining that your MAP policy is intended to serve the best interests of your company as well as the reseller.
Try to avoid nebulous terms that could lead to confusion or uncertainty. For instance, it may be okay for a reseller to advertise a product with a message involving discount pricing as long as the product displayed is listed at or above your MAP. But it’s unacceptable to list the product below the MAP, which would be considered a violation.
Clarity is especially important when it comes to addressing penalties, so be crystal clear about what a reseller can expect if they violate your MAP policy.
- The first offense will involve documenting the violation, and the reseller will receive an official warning notice. This might include a screenshot displaying the product being sold for below policy advertised price, the SKU and UPC of the product, and the time and date for reference.
- The second offense will involve an escalated warning notice explicitly stating that you’ll stop supplying the reseller with your product if it continues. Again, include a screenshot along with all other applicable information.
- The third offense will result in you immediately ending your relationship with the reseller.
Note that it’s usually best to keep these guidelines pleasant but serious. You want to get your point across but avoid sounding adversarial if at all possible.
It’s also worth noting that being too stiff with penalties can actually lead to more violations. As Northwestern marketing professors Eric T. Anderson and Anne T. Coughlan say, “When manufacturers impose punishments that seem too draconian, retailers do not believe that they will be punished upon violating MAP, which leads to MAP violations.” So it pays to be realistic about the penalties you assign.
When it comes to making changes to your MAP, be sure to outline the time frame resellers have to adjust their pricing for the products they’re selling. Again, specificity is key for avoiding misunderstandings and ensuring that all parties are on the same page.
The bottom line is that your compliance guidelines should be straightforward and comprehensible. Cover the key areas in plain English, and try to avoid any ambiguity.
Maintain Up-to-Date Contact Information
It’s critical that your reseller database is continually updated with accurate information. This is what enables you to notify retailers of enforcement violations.
Ideally, you’ll use a vendor management software platform that allows you to store contact information in a centralized database for easy access. Also be sure to instruct resellers to notify you when any pertinent contact information changes.
Promptly Notify Resellers of Relevant Changes
It’s very common to make changes to a MAP policy. Maybe you’re lowering the MAP to become more competitive or raising it to account for annual inflation. Or maybe you’re just lowering it temporarily for a certain event such as a Black Friday sale.
Regardless of the reasoning, it’s your right to make periodic adjustments. However, it’s crucial that you promptly notify resellers so that they’re aware of the changes.
Ideally, you’ll provide advance notice so they can make the necessary modifications and ensure 100 percent compliance. This is all the more important in today’s world of online shopping.
Swiftly Address Violations
As soon as you’re aware that a violation has occurred, jump on it immediately. Delaying only leads to more complications.
In more serious cases, violations can lead to overnight brand dilution and take a major chunk out of your profit margins. It’s critical that you contact the offending party as soon as possible and make them aware of the infraction.
Be Consistent About Enforcement
Finally, you’ll want to ensure that you’re consistent about enforcing your MAP policy across all resellers. Whether it’s a large-scale online retailer generating millions in revenue selling products or a tiny mom-and-pop brick-and-mortar outfit, you should maintain the same level of diligence with your enforcement.
This accomplishes two important things. First, it sends the message that you’re serious about your company’s price monitoring, which legitimizes your policy. Second, it shows you’re not playing favorites, which should help you earn the respect of resellers across the board. This too can factor into your overall brand equity.
A Modern Necessity
Having a MAP policy is more important than ever. With more than half of the U.S. population having shopped online in 2016 (59 percent), and 80 percent of Americans actively trying to find the lowest price for products when shopping online, price monitoring has become a necessity. It’s key to keeping your company out of an ugly price war and protect against brand erosion.
But for your MAP policy to have any real effect, you must enforce it. Establishing a list of best practices is an effective first step, and should help streamline the process.
In turn, you can establish a level of homogeneity across all of your resellers, maximize your profitability, and preserve your brand. This will prevent the dreaded pricing wars between manufacturers and retailers.