Determining the correct MAP price or MSRP for a product is extremely important. Too high and nobody may buy it. Too low and it may be viewed as a cheap, commodity item. If only there was a price-predicting crystal ball to guide us!
Obviously, any MSRP must support acceptable profit margins for both the brand and the retailer. But should it be a multiple of landed cost to wholesale then some multiple of wholesale to retail? Should it be the price a brand wants the product to sell for (based on determining a perceived value)? There are many methods to help figure it out.
Ultimately, whatever the MSRP is determined to be, unless a brand has an MRP (minimum retail price) policy, all they can really do is establish a wholesale cost that supports reasonable MAP pricing (minimum advertised price) and offers an MSRP (minimum “suggested” retail price). Both of these should reflect the perceived value and support fair margins. So, what’s the difference between these three pricing concepts? There are several.
1. MAP (Minimum advertised price)
A minimum advertised price (MAP) policy is a unilateral statement by a brand that tells retailers the lowest price at which a product MAY BE “ADVERTISED.” The ultimate in cart or cash register price is not contemplated. MAP Pricing is determined using the same criteria as MSRP but it generally allows for a certain level of discounting. The ultimate objective of a Minimum Advertised Price is to help retailers sell high volume, while maintaining an acceptable profit margin for all (often described as a level playing field).
2. MRP (Minimum resale price)
Unlike a MAP Pricing policy, MRP is a policy that states the minimum price at which a product MUST BE “SOLD.” In a brick and mortar store, it’s the cash register price. In ecommerce, it’s the final checkout price from the shopping cart. Although many retailers feel that minimum retail pricing policies are antitrust, when implemented properly, they’re not. They are, however, extremely difficult to maintain equally. This is one of the reasons that brands like Apple and Coach have their own stores and limit distribution to a small selection of retail partners. It’s also the reason that most brands use MAP Pricing.
3. MSRP (Manufacturer’s suggested retail price)
Unlike MRP and MAP Pricing, MSRP means Manufacturer’s Suggested Retail Price and is not a policy. Brands establish MSRP in order to show retailers the optimal price at which a product “SHOULD/COULD BE SOLD” in order to make an acceptable margin. The suggested price is determined using a variety of factors such as the cost of landed goods at scale, as well as a price that conveys a perceived value. Unlike an MRP policy price, Manufacturer's Suggested Retail Price is not an edict, just a “suggestion.” Therefore, MSRP is not a policy.
In many industries, MSRP is determined by doubling the wholesale cost; a practice known as “Keystone Pricing.” However, not all industries use this practice because profit margins are different depending on the brand’s distribution model. For instance, in the apparel industry, MSRP is generally determined by tripling wholesale. And when a brand sells via wholesale distributors, they sometimes allow the distributors to determine the MSRP.
One of the drawbacks to MAP Pricing and MRP policies is that, even if properly implemented, there is no legal remedy for either. Penalties for non-compliance of MAP is limited to changes in business relationships. Some of those MAP violation penalties include: loss of discounts, terms, coop funds, authorized reseller status and, ultimately, the ability to purchase the brands’ products. In order to set a basis for legal remedy, brands utilize other policy types, such as IP Rights and Authorized Reseller policies.
If you’d like to discuss your MSRP Pricing, MAP Pricing or other online strategies with one of MAPP Trap’s experts simply email email@example.com. Of course, if you’re a true Swami with a spot-on crystal ball, please email us with our fortune.
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