There’s no denying that your pricing strategies have a major impact on the overall success of your company.
For one thing, the price at which you offer your products is one of the determining factors as to whether or not consumers will actually do business with your company. As marketing consultant agency Stax Inc. found by surveying over 40,000 consumers, product pricing ranks among the top three factors considered when making a purchase for about half of the population – and is the most important factor for nearly 20% of consumers.Of course, to determine the optimal price at which to offer a certain item, there’s a lot to consider. You’ll have certainly set a goal for how much profit you aim to generate from selling the product – meaning you can’t simply undercut the competition at all times in order to drive sales. Additionally, offering a product to consumers at a price that’s lower than they expect can inadvertently have a negative effect on the perceived value of that item – as well as your brand as a whole.
On top of all of this, you also have to consider the MAP policies dictated by the manufacturer and/or supplier of the products you sell in your store.
Which is exactly what we’ll be discussing throughout this article.
What, Exactly, Is a MAP Policy?
Simply stated, the acronym MAP stands for Minimum Advertised Price.
A MAP policy, then, is an agreement between a supplier and each of their retail partners that defines the lowest price at which said retailers can advertise a specific product.
(Note that MAP policies specifically refer to the minimum price at which a product can be advertised, not sold. We’ll get to that momentarily.)
MAP policies are typically defined by the supplier, and apply uniformly to each of their retail partners. In other words, if a supplier defines the MAP of a given product to be $10, all of its retail partners must advertise the product for a price of at least $10.
Now, there are a number of reasons suppliers choose to enact MAP policies for their products.
First and foremost, the supplier, of course, wants to look out for itself. As we mentioned earlier, the price at which a retailer offers a product can affect the product’s perceived value in the eyes of the consumer. If a retailer were to advertise a product for lower than the supplier believes said product to be worth, this could lead consumers to assume the product is cheaply made, or of poor quality.
Additionally, other potential retail partners might also assume a product is poor in quality, leading them to decide against doing business with the product’s supplier. Say, for example, a retailer advertises a manufacturer’s product for $50, while listing similar products from other suppliers for $75; a competing retailer doing some competitive research might decide to stay away from the cheaper product due to its poor perceived value.
Another reason suppliers enact MAP policies is to maintain as much control as possible over their product even after it leaves their hands. Since their retail partners can’t compete by simply undercutting one another, they’ll need to provide value in other ways – usually via additional customer service and support. In turn, the end-user is able to utilize the product in question exactly how the manufacturer intended for it to be made.
(If, on the other hand, the manufacturer didn’t have a MAP policy in place, retailers could focus on making sales by undercutting their competitors – and would likely care less whether or not the end-user gets any value out of the product after they purchase it. If the consumer isn’t able to get value out of the product, the manufacturer will almost certainly share some of the blame.)
Needless to say, MAP policies certainly have an effect on retailers’ pricing strategies; we’ll get to that in a bit.
Before we do that, though, there are still a few things we need to clarify regarding the nuances surrounding MAP policies.
Are MAP Policies Legal?
At first glance, the implementation of MAP policies in the first place might seem a bit shady – if not downright illegal.
Simply stated: MAP policies are perfectly legal. There’s no loophole, technicality, or anything like that; MAP policies simply do not violate the law.
That said, the implementation of MAP policies are not to be confused with instances of price fixing – which is illegal.
To illustrate the difference between MAP policy and price fixing, let’s look at a few examples:
- Company A, B, and C are direct competitors that sell the exact same products. Company A contacts Company B, and they both decide to lower the actual (not advertised) price of a specific item.
In this scenario, Company C is put at a disadvantage due to an inside agreement between Companies A and B. This is considered horizontal price fixing, and violates federal antitrust laws.
- Companies A, B, and C all sell electronic equipment. They communicate with each other, and agree to all sell a specific TV model for the same (increased) price.
Again, any company other than A, B, or C is at a disadvantage. Worse yet, if A, B, and C are the only retailers who sell the TV in question, consumers who wish to purchase said TV are forced to pay the increased price.
- Manufacturer X sells its products to Retailers A, B, and C. The manufacturer contacts Company A, allowing said company to sell its products for lower than the price the manufacturer agreed upon with B and C.
This is an example of vertical price fixing, and is also a violation of federal antitrust laws.
The essence of MAP policies, as we said earlier, is that the manufacturer acts alone in its determination of how much its products can be advertised for. There’s no unequal treatment among the supplier’s retail partners; they are each required by the supplier to follow the same exact policy. And, again, the retailers are free to sell the supplier’s products for however much they wish; they simply can’t advertise the products for less than the agreed-upon minimum advertised price.
(As a quick aside, it simply makes sense that a manufacturer or supplier is legally allowed to determine the price of its own products.)
Before moving on, we definitely need to point out that retailers that violate an agreed-upon MAP policy can face legal consequences – albeit in a roundabout way.
When a retailer violates a MAP policy (i.e., advertises a product for less than the agreed-upon price), the supplier can typically take the following actions:
- For a first offense, the supplier will send a written warning to the retailer
- If the retailer doesn’t comply, the supplier will simply stop doing business with the company
- If the retailer doesn’t comply – and still has the supplier’s products stocked in inventory – the supplier can file a cease and desist order
- If the retailer still doesn’t comply, the supplier may decide to take legal action
Note, however, that MAP policies are not legally binding. In other words, retailers who violate these agreements are not breaking the law; they’re simply breaking a non-contractual agreement. That said, if the situation warrants, the supplier may decide to dig into other areas of the partnership that are under contract – and stop at nothing until the retailer either abides with the policy or agrees to sever ties.
MAP vs. MSRP
While a product’s MAP and MSRP are related to one another, they aren’t synonymous.
While MAP is, again, the lowest price at which a supplier requires retailers to advertise a product for, the product’s MSRP is its Manufacturer’s Suggested Retail Price.
Earlier, we mentioned in passing that, when defining the minimum advertised price for a product, suppliers essentially consider how much they believe the product to be worth. The product’s MSRP, then, is the price at which the manufacturer believes it should be sold by retailers.
(To quickly illustrate the difference between both terms, a manufacturer might believe a product to be worth $10. Knowing that retailers will obviously want to profit from selling the product, the manufacturer might then determine the product’s MSRP to be $12.)
Now, a product’s MSRP is merely that: a suggestion. There’s no agreement – contractual or not – between suppliers and retailers regarding MSRP. When suppliers determine the MSRP of a product, they’re simply making an in-house decision that contributes to their definition of the product’s MAP.
(Another quick aside: By today’s standards, MSRP is a bit “old hat” due to a number of factors, such as dynamic pricing and personalized offers. At any rate, MSRP isn’t all that useful for retailers, so we don’t need to dig much more into it.)
Effects of MAP Policies on Online Retailers
Now that we have all the logistics of MAP policies hammered out, it’s time to answer the burning question:
How, exactly, do MAP policies affect the way in which ecommerce companies do business?
With everything we’ve said so far, it’s easy to assume that MAP policies only benefit manufacturers, and basically restrict retailers from implementing certain pricing strategies.
Remember, though: MAP policies merely dictate the price at which a retailer can advertise a given product; they can still sell it for as low a price as they want.
Additionally, as we said, MAP policies are uniform for all retailers selling a given product. That said, the “restrictions” set by the policy don’t equate to competitive disadvantages; they actually place each retail company on equal footing.
At any rate, let’s quickly run through the ways in which MAP policies do affect ecommerce retailers.
First and foremost, the definition of “advertised price” encompasses a wide range of areas – especially for retailers operating primarily (or solely) online.
The following are examples of instances in which MAP policies are required to be followed:
- Google Shopping results
- Landing pages
- Product comparison pages
- Product pages
(For comparison, in brick-and-mortar stores, the shelf price of an item is always the item’s actual price. However, for online stores – where the product page acts as a “virtual shelf” – the price shown must be the minimum advertised price.)
But, again, if you’re advertising a product for the lowest amount possible, and your competitors are doing the same, you’re not at a disadvantage – at least as far as pricing goes. Which brings us to the next point…
If your advertised price for a product is the same as your competitors’, you’re going to need to find another way to stand out to your target consumer. This isn’t a bad thing; in fact, it’ll almost certainly lead to your providing additional value to your customers in a way that’s much more unique than simply offering bargain-basement prices.
On the other side of this same coin, you also won’t need to worry all that much about being undercut by your competition. With a pricing war all but taken out of the picture, you’ll be better able to focus on providing the aforementioned added value that will make your company stand out.
Another thing to consider is the fact that, by following a supplier’s MAP policy to a T, you’ll inherently strengthen your business relationship with the company in question. Needless to say, a positive relationship with your suppliers is simply good for business.
Looking at things a different way, if a competing company who works with a common supplier neglects to follow the supplier’s MAP policy, it may cause the supplier to cease doing business with them. It goes without saying, of course, that having one less competitor can provide an opportunity for your company to grow.
So, while MAP policies may at first seem a bit restrictive for retailers, they’re actually beneficial in that they spur retail companies to maintain a sense of trust among their suppliers, and to provide maximum value to their customers in a variety of ways.
“Getting Around” MAP Policies
After what we just said about being honest with your suppliers, that heading probably came as a bit of a shock.
But, once again, remember:
MAP policies dictate the price at which you can advertise a product. You can set the actual price of your products however you like.
(Again, though: there’s a fine line between “advertised price” and “actual price” when it comes to ecommerce.)
That said, let’s go over some of the ways you can satisfy your suppliers’ MAP policies while also offering your products at a price your customers can afford.
Your first option is to hide the true price of your item until the customer has added it to their cart.
In the example above, the website lists (what’s assumed to be) the minimum advertised price of the product. Once the customer adds the item to their cart, they’ll be provided with the actual price of the product.
(Note: Regarding ecommerce, landing pages, product pages, etc. are considered advertorial in nature, while checkout pages are considered transactional. Therefore, once a customer reaches the checkout page, the retailer can display the actual price of the product being purchased.)
If you’re going to go this route, we’d advise that you opt to display the MAP, as opposed to not displaying a price at all. Reason being, you’ll almost certainly lose out on a ton of business from potential customers who simply don’t want to go through the extra step of adding the product to their cart in order to see how much it costs. By providing the MAP, you’ll at least give your customers a ballpark idea of the cost of the product in question.
You may also choose to provide visitors to your site with a coupon or discount code on your main page (or subsequent landing pages). Similarly, you might opt to provide a “buy one, get one” offer (or any variation of the sort).
However, to adhere to your supplier’s MAP policy, such offers can’t be product-specific. In other words, the offer must apply storewide (or, at the very least, to a specific category of items). It also must be clear that your retail company is extending the offer – not your supplier. Again, this goes back to the notion that MAP policies are meant to avoid instances in which a manufacturer’s products appear cheap in the eyes of the consumer (or other retailers, who may reconsider doing business with a manufacturer if they perceive their products to be poorly-made).
Similar to providing discounts, online retailers can also opt to provide free shipping to customers – either immediately or after they reach a predetermined threshold.
In compliance with MAP policy, it’s crystal clear that the retailer is offering free shipping as an additional service – which has no bearing on the perceived value of the product(s) being purchased.
Overall, while you can use the aforementioned strategies to indirectly advertise lower prices for the products in your catalog, you want to avoid pointing out specific products as much as possible in doing so. Again, your goal is to simultaneously satisfy your supplier’s MAP policy and attract potential customers by promising affordable pricing.
By today’s standards, most – if not all – suppliers you end up working with will require you to adhere to their MAP policies and guidelines.
Again, this isn’t a bad thing. Not only will doing so strengthen your relationship with these suppliers, but it also encourages you to get creative in how you provide value to your customers.
While adhering to these stipulations may at first seem restrictive, doing so can actually lead to major growth for your company.