While minimum advertised price policies (MAPP) are one of the most powerful brand protection strategies a company can employ against price erosion, it’s an unfortunate fact that they don’t always work. But why? If they’re so good, how could they not be successful? That depends on a myriad of factors.
Is the brand implementing the MAP Policy for the right reasons?
Does a MAP Policy make sense for the brand’s particular products?
Are the right products being included in the policy?
Is there buy-in from the company’s leadership?
Will the company actually follow through by suspending sellers?
Does the brand have a MAP monitoring and enforcement tool in place?
If the answer to any of these questions is “no,” there is little hope of a successful program. But in reality, some MAP Policy programs fail even if the answers are “yes.” One of the most commonly found (but easily avoided) reasons for that is the actual MAP price. If it’s too high then consumers won’t buy the products and resellers will turn to competitive products. If it’s too low then consumers will gobble it up but retail partnerswon’t have enough profit margin to make it worthwhile. So how can a brand find the just right MAP price for a product?
Price for reality. A MAP Policy price is not really “intended” to be the minimum suggested retail price (MSRP). MAP prices exist so that resellers can extend certain discounts on products to stimulate sales. The brand just doesn’t want those prices to be too low because it cheapens the brand’s value. E-commerce has created a consumer expectation for discounts and that should be respected. Not because you like it, but because it’s reality. Play to that, not against it. The discounts don’t need to be huge, but they should be enough to make shoppers click that buy button.
MAPP Trap often recommends that our clients monitor their products online for at least 30 days before locking in a MAP Price. Using the data, the brand can see the value attributed to the product by the market. If it’s extremely low, setting an initial MAP price that’s too high won’t be successful. This requires the use of an incremental pricing strategy that gradually tugs the prices upward to a more acceptable place.
Let’s take a typical example and use the concept of keystone to arrive at MSRP. The landed cost of a Luxury Item is $300. Now let’s keystone that item to arrive at a wholesale price of $600. Continuing keystone, the MSRP is $1,200. The brand decides to use a simple calculation of 10% off MSRP to arrive at MAPP, making the minimum advertised price of $1,080.
After monitoring for 30 days, the brand discovers that the real average online listing price is $750. That comes to 37.5% below MSRP and a very thin retail margin! In order to bring prices in line, the brand understands that expecting to raise the average listing price by $330 overnight is impractical. Why? Because not all online retailers will honor such a sudden price increase and decide to sell of their units on hand. That would keep the online list prices low until they sold through. It would also mean the brand would end up suspending a lot of potentially compliant sellers for MAP violations.
It’s far better that the company accepts reality and employs a graduated MAPP enforcement plan and raises the price over the course of 60 days. The first month MAPP is launched at $915. The next 30 days they raise it to $1,080.
If the brand wants the MAP price to be MSRP, then, since MSRP is a price that’s designed to show value and margin, use an inflated MSRP and make the MAP price what the MSRP was. This gives the resellers a higher margin to begin with and when they lower prices to MAP everyone still wins.
Let’s look at the same Luxury Item. Keystone put the MSRP at $1,200 so the brand artificially inflates that amount by 10% to $1,320 and makes the MAPP $1,200. If the online conditions were the same and the real average online listing prices was 37.5% off of MSRP, that listing price would be $825. The price raise is far smaller here than it was in the first case and could be accomplished in one effort.
Have a formula. Once the reality of the pricing is known, then it should be reviewed as data because arbitrary is not repeatable. What percentage above cost (or wholesale), or below MSRP if you’d rather, is that price? Feel free to round up!
Once you see the pattern in the data, apply it to all products that are under the MAPP. This makes for a more consistent and understandable method to determine price. If you find that a different formula (most often the percentage change) applies to different lines or brands within the company’s catalog, that’s fine. Just be sure to apply the same percentage difference to all the products in that line.
In the second Luxury Item example (the one with an inflated MSRP), the formula to arrive at MAPP is:
Cost X2 = Wholesale Price | Wholesale Price X2 = MAP Price | MAP Price X 110% = MSRP
You can see how having a set formula to follow will make it so much easier to determine and then change MAP prices if desired. It will also make it a breeze to apply MAP to products that are newly launched.
Be willing to change. Sometimes finding the sweet spot can require a bit of trial and error. Hopefully, not too much, but some tweaking should be expected. Since MAPP is a policy and not an agreement, a company can change it whenever they want. Just make sure to inform your customers before you make the change, then reset all authorized resellers to a pre-violation stage in your enforcement strategy.
Last but not least, even if a brand has ticked every box and has the perfect policy, the best enforcement plan, and the exact right prices, a MAP Policy can still be unsuccessful. Sometimes it requires a bit of patience. Runaway pricing doesn’t turn around overnight. It may take some time for resellers to accept the brand is serious but once they do, the strategy will provide immense benefits for years to come.