Minimum Advertised Price (MAP)The minimum advertised price is a price that is given to retailers by producer of goods. The minimum advertised price is the price that retailers should use when advertising their products online or offline. Using MAP strategy is legal, but it also means that although advertising prices below the MAP strategy is not allowed, it is illegal to deny retailers for selling less than MAP level. If a consumer comes to a store, the retailer is allowed to sell at any price they see fit. The idea behind minimum advertised pricing is that producers can protect their brand image and avoid brand erosion. If product A is sold at $1000 in 9 stores and $700 in one all the time everyone understands that the nine will start lowering prices and erode the price image of that brand. Thus MAP strategies are enforced by brand owners and producers. Minimum Advertised Pricing or MAP is the lowest price that can be advertised by the retailers. It is important to remember here that it’s not the lowest price that they can sell at but in fact the lowest price they can advertise.
Minimum advertised pricing is the reason why you come across “Too low to advertise” when you are shopping. Also you must have noticed it when you are trying to shop online, the website doesn’t show the price until you are at the checkout.
The reason is MAP – sellers can be subjected to sizeable fines if they violate the terms and conditions of minimum advertised pricing. For instance, if the MAP of a laptop has been set at $499 then the sellers cannot use a price less than $499 to promote it. It doesn’t matter where the ad appears, the MAP price rule will be followed everywhere.
Logic behind MAP
MAP is about protecting the value of a product or a service. Manufacturers don’t want their products to be undersold in the market.
Consider the example of laptops, if it was being advertised as $299 while its price was $499, the company behind it would be seeing its product being undervalued and its consumers will see it as a manufacturer with cheap goods.
Now this will hurt the brand and the company but also those retailers that are actually following the MAP price (since customers will opt for a retailer that is advertising a lower price compared to others that advertising higher price).
With MAP, manufacturers are able to level the playing field and ensure everyone makes a profit at the same level.
MAP helps in avoiding a “race to the bottom” phenomenon for retailers that may want to increase their sales by reducing the prices. For retailers that are in the ecommerce, cutting prices is one of few ways through which they try to increase sales, since with each passing day, competition is increasing online.
Isn’t it illegal? You can’t tell anyone the price they want to sell at!
Bear in mind that MAP isn’t restricting sellers from selling at whatever price they want – it’s restricting them from advertising a price that can harm a product or service. If the MAP price is $499, a seller can sell it at $399 if they want, they just can’t promote the price as $399. A manufacturer will be breaking the law if they restrict sellers from charging prices that they want – they can however tell them not to advertise it below a certain price.
Before we go further, its imperative we look into what manufacturer’s suggested retail price or MSRP is since its closely related to MAP.
So what is an MSRP?
When a manufacturer sells their products to retailers, the recommend a price on which the product should be sold at. This is quite important for manufacturers since its part of their overall strategy. The price is calculated after all the costs of productions are factored in and profit margin is kept for the manufacturer and the distribution channel.
Consider a manufacturer that wants to create premium brand like Apple or Lexus – they would want to have a price that creates such an impression. They certainly wouldn’t want their price to be discounted or at par with cheaper items.
With MSRP, manufacturers are able to send out a clear message to their consumer base about their products and what they are really worth.
Why Retailers follow MAP?
Retailers might not like to listen to manufacturers but in retrospect, they can really benefit from MAP policies. They can enjoy two major benefits
1) MAP is implemented uniformly which means everyone is on the same price floor. This helps in stopping price wars and provides protection to smaller retailers. It’s an agreement between sellers and manufacturers that creates a partnership and trust between the two parties.
Every seller knows that they can find a sweet spot between a price they want to sell and the MAP, meaning they can earn a profit and maintain a good rapport with the manufacturers.
2) Another benefit of following the MAP policies is that you can enjoy greater market share. Chances are that your competitors might violate the MAP set by the manufacturer, resulting in products being taken off from their shelves.
Where does this leave you? You will feel like the best way to go is to lower your prices as well, but don’t do it as it will only trigger a price war, causing you not only to take losses but also lose your manufacturer.
MAP and Manufacturers
For both the retailers and the manufacturers, following the MAP is a win – win situation. The manufacturer’s brand is left unscathed and a partnership is formed with retailers. Best part about MAP is that it creates a price floor for retailers – a boundary that separates between price wars and selling safe.
There is a misconception that by following MAP, a retailer is actually benefiting the manufacturer.
But this is not the case. While you can choose not to follow the MAP since sellers have the freedom to choose the price they want to promote and sell at, it can hurt the manufacturers and others that are in the same market as you. Manufacturers tend to penalize by terminating contracts and relationships with retailers, meaning your competitors will have the product and you won’t.
MAP policies are also made to help protect the distribution channels used by manufacturers. Using MAP, chances of “showrooming” are greatly reduced. Showrooming is when consumers visit brick and mortar stores to see a product but later on order it online due to discounts and offers. So by having a restriction on what price retailers can advertise, they help vulnerable sellers and level the playing field.
Strategy cardStrategic importance (retail)Strategic importance (ecommerce)Ease of usePractical implementationStrategic importance for Manufacturers
1. Advertised price is used when price is the main article in advertisements.
2. Advertised price is used to attract customers into stores with the expectancy, that it will boost sales by customers also buying items other than advertised.
3. Advertised price is used to pinpoint the cost leadership position the company is having or aiming for.
4. Advertised price is used in different campaigns.
1. Choose products that are important to your customers, but will not make you loose important margins.
2. Make a clear timeline when and where the price is available.
3. Choose products that attract people who buy other products at the same time so that you will make more sales with list prices1. Use products that really have had higher price than the advertised price.Attachments and toolsMargin calculator