What is Minimum Advertised Price? (MAP)
In 2007, the Supreme Court ruled that manufacturers can work with retailers to set the minimum advertised prices on their products. Minimum Advertised Price, or MAP, is the lowest price a retailer can advertise a manufacturer’s product in online ads or print. This does not affect the price at which a certain product can be sold, but only what they can be publicly advertised for. For instance, if you sell iPhones and Apple has a MAP of $699 you may not print an ad for anything less. However, you can sell the phone for less in private negotiation.
Here’s a great infographic from Trade Vitality on the pros of MAP for manufacturers and sellers:
Is MAP The Same As MSRP?
They are similar, but also very different. MSRP, or Manufacturer’s Suggested Retail Price, is the price a manufacturer recommends to retailers who are selling their products. MSRP was put in place to standardize pricing across the board. However, it does not achieve what MAP policies can when it comes to enforcement. When a reseller buys from a manufacturer the MSRP determines the buying price. The MSRP price reflects the total costs of producing the product.
Once a transaction is made between the reseller and manufacturer the reseller can then sell that product at any price they want. The reseller can still have profitable margins, however, it hurts smaller brick and mortar retailers that can not compete on price.
Even though I just focused on the negatives, MSRP is great for consumers. They are able to get better prices and have more buying options. MSRP is especially prominent in the auto sales industry where the MSRP must be displayed on a car’s windshield. True Car collects data on local car sales and compares the actual sale prices to the MSRP:
What is the purpose of MAP?
If certain products are being sold for far less it can hurt brand and product value while also hurting the other retailers who are following the MAP policy set in place by the manufacturer. MAP levels the playing field so any size retailer can compete at price while earning the same margins on sales.
MAP prevents a public “race to the bottom” for retailers just looking to make sales by dramatically undercutting on price. This is especially critical for online retailers who have been in business for a long time and are facing new competitors each day. As you can see, it can be hard to stand out on Google Shopping when there are MAP policies in place:
Isn’t That Price Fixing?
In short, no. Price fixing is illegal (and for good reason). According to the Federal Trade Commission, illegal price fixing occurs whenever two or more competitors agree to take actions that have the effect of raising, lowering or stabilizing the price of any product or service without any legitimate justification. When two businesses agree to sell the same product or service at the same price or if one retailer sells price information with a competitor, that is price fixing.
Free markets and supply & demand should set the price for products. When prices are not set honestly there is a negative trickle down impact that affects everyone involved.
Consumers are forced to pay a higher price and have fewer product lines to choose from. Retailers can not compete for customers by leveraging price and can not meet their satisfaction needs. Smaller retailers can not compete.
With a MAP policy, retailers can sell the product at a lower price. They just can’t advertise a discounted price below the manufacturer’s MAP standard. Therefore, MAP is not price fixing and is legal. (unlike price fixing)
How Can Resellers Stand Out Under MAP Policy Restrictions?
You may have noticed a recent trend in free shipping offers. Recent research says that free shipping is the #1 incentive to make a purchase online. Around 80% of shoppers spend time researching their purchases before actually buying. Combining free shipping with no tax is one way retailers are following MAP policies but are still able to stand out amongst the competition.
Other ways retailers are succeeding while still complying with manufacturers is by offering “View Price In Cart” options, as well as “Make An Offer” technologies.
Online retailers have also seen success in offering discount codes or coupons. This allows a customer to feel like they are getting the best prices online, while the retailer is still safe from manufacturer penalties.
According to KissMetrics, 54% of shoppers will purchase products left in shopping carts, if those products are offered at a lower price. Offering discounts on products that are already in a shopper’s cart does not violate MAP. “The Balance” recently published an excellent resource for creating profitable pricing strategies that do not interfere with MAP regulations.
Another bonus for complying with MAP pricing is becoming an authorized or preferred retailer for the manufacturer. Manufacturer’s help their authorized retailers by informing them of new products before anyone else or assisting with advertising through funding.
What Are The Penalties For Violating MAP Policies?
Well, that is entirely up to the manufacturer. In the event that no MAP agreement was signed, manufacturers have less authority to enforce their regulations. However, if an agreement was reached between a retailer selling a manufacturer’s product then there is legal action that can be taken. Manufacturers can terminate listings on a retailer’s website and also on channels like Amazon and Ebay. If a reseller is not abiding by the MAP policy the manufacturer can ban the retailer from selling their products. If the seller does not stop at this point then legal action can be taken.
MAP policies and MSRP are good for the retail industry. MAP enforces policies to ensure a manufacturer’s products are not advertised below a certain price. While they are different, both MAP and MSRP play a pivotal role in the future of retail and e-commerce.