MAP PRICING STRATEGIES: HOW TO CHOOSE THE RIGHT MAP PRICE

MAP PRICING STRATEGIES: HOW TO CHOOSE THE RIGHT MAP PRICE

There have been many articles written about the how’s and why’s of minimum advertised price policies. Very little, however, has been discussed about how a brand should choose the right MAP prices for their products. That leaves a lot of questions. Should MAP be MSRP? A percentage below that? Should it be some margin above cost or wholesale? Should all of a brand’s products be MAP? Is that even allowed?

WHAT IS A MAP POLICY?

First, let’s review what a MAP policy is, what it covers and what it doesn’t cover. A minimum advertised price policy (aka MAPP) is a unilateral statement made by a brand owner, in writing, that states the price at which sellers may “advertise” their products. It does NOT dictate the price at which a product must be sold.

Brands implement MAP policies in order to help establish brand value and protect margins by maintaining a level playing field for all of their resellers. They are non-negotiable and must be enforced equally to all customers.

A properly enforced MAP policy is not illegal under federal antitrust laws, but there is no legal recourse for non-compliance. If a reseller refuses to abide by the MAPP, the brand’s only real option is to stop selling (or stop their reps and distributors) to the merchant. Should the brand wish to pursue other remedies, there are different policy strategies that can be used.

HOW DO YOU CREATE MAPP PRICING?

The starting point for MAPP product pricing strategies should always be profit margin. Whether it’s a dollar amount or a percentage, MAP pricing should be a realistic price that gives a retailer the ability to make some money. Brands do, however, need to take a few things into consideration when settling on the price:

  1. Should MAP be the same as MSRP? Many brand owners list a minimum suggested retail price (“MSRP”). This strategy is done as a way of helping retailers and consumers understand the brand’s vision of a product’s perceived value and showing them what the profit can be. As a “suggested” price, MSRP is not intended to be enforceable. 

Generally speaking, MAPP is not MSRP and many anti-trust attorneys recommend that brands avoid making them the same. Actually, many anti-trust attorneys feel that MSRP itself is problematic. In Europe any discussion of retail pricing is illegal.

Some brands completely do away with the concept of MSRP and only use MAPP. Others set MSRP very high knowing that most sellers will discount a bit from that. That causes the discounted price to come in at a level they want.

  1. What is the current average online price? For existing products this is essential information. Since the goal is compliance, brands need to be realistic. We recommend that companies monitor their product prices for at least sixty days before locking in the MAP price. That timeframe will give a realistic average price per product. That price can then be used as a baseline with which to make a final decision.

  1. How to set the price? Don’t be arbitrary. Use the data. If the average online price is 5% below where the brand wants it, they can set their pricing formula to either go down from MSRP or up from wholesale. Either works as long as the price reaches the 5% threshold. 

Brands that are suffering from hyper discounts require a bit of finesse. It doesn’t usually work to fight the market, so expecting a product that’s averaging a 20% discount to immediately go to 5% is magical thinking. In cases like this, the brand should take an incremental approach. Set the minimum advertised price a bit higher than the low average. Once the market prices rise, increase the MAP again. Since a MAPP can be changed at any time, this would require the brand to inform its sellers of the new price.
  1. Should the formula be the same for all MAPP products? There is no hard and fast rule on this, but since MAPP should be easy to follow, it makes sense to be consistent. Not only does it help resellers to set MAP automatically, it’s easier on the brand.

  1. What if it’s a new product? Pricing is really an artform so this should be based on providing a desirable profit margin for a retailer, while at the same time, matching or exceeding competitive products. If a higher perceived value is desired then a higher MAP makes sense.

HOW TO CHOOSE WHAT TO COVER UNDER MAP?

Brands should realize that not all of their products need to be covered in their MAP policy. It’s perfectly legal to apply it to a select group. In many cases, being selective actually helps them to be more successful. Here are some considerations:

  1. Which products are the most valuable? Brands should consider which of their products are the most important to the business (and consequently to their target customers and consumers). Not every SKU is a grand slam. Brands should only apply MAP to the products that they would go out of business without. Like it or not, Amazon has conditioned consumers to expect discounts and that’s not going to change. Allowing online sellers to use discounts to attract customers shows that the brand understands their challenges. It also gives them the ability to sell through on slow-moving products while not risking the other, more profitable items. 

  2. MAP policy enforcement management. Another consideration should be that, whatever products the brand chooses to be protected by MAP, will require internal resources to enforce it. If every product is backed by MAP then the enforcement tracking and backend management (sales, accounting, shipping, inventory management, etc.) becomes very complicated. Even though MAPP Trap helps companies to manage their enforcement, it still ultimately falls on the brands to follow through.

  3. Revenue loss mitigation. MAPP is a strategy that’s intended to defend brand equity and profit margins, and the only way to enforce it is to stop shipping to non-compliant sellers. Brands should expect to experience some short-term revenue decreases as they bring things under control. But if MAP only covers 20% of their products, the brand won’t feel as much of a sting as violating sellers become unauthorized and margins stabilize.

There are volumes of books written on how to price products, but none of them (that we know of) includes MAP policy pricing. We urge brands to be smart and patient. Gather the facts, assess the realities and needs, then the solution should work. And if it doesn’t, you can always change it!

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