What Is MAP?
MAP stands for minimum advertised price. Essentially it’s something that manufacturers can use to enforce their sellers to not advertise their product for a price lower than X amount of dollars. For example if I am a manufacturer that makes a cell phone, and I have three different stores that sell it. I can set MAP pricing to $199.99, meaning none of those stores can publicly advertise the phone for less than $199.99. The Supreme Court has said that utilizing a MAP is legal and does not represent a violation of U.S. antitrust statutes.
How Does MAP Benefit Both Parties?
As long as MAP is strictly enforced, it can be extremely beneficial in my opinion for both the manufacturer and seller. Lets look at some of the reasons:
- By maintaining a higher price point, the product retains its value, which in turn is better for the brand image behind it.
- Enforcing a MAP can allow some of the small business players to compete with the big guys. For example, if I have a widget that is being sold under a MAP at Mom & Pop Shop as well as Wal Mart…we both know that Wal Mart has the upper hand in terms of purchasing quantity. Generally increasing quantity purchase means they can also get a lower price, and then use that buying power to lower the retail price, therefore not giving Mom & Pop Shop a chance to even touch the pricing. If MAP is enforced, both Mom & Pop Shop as well as Wal Mart would sell for the same price, even if Wal Mart may be paying less per widget. This gives everybody a chance to compete, but as a benefit to Wal Mart for buying more, they make more profit per sale.
- Price wars will not occur between your sellers, which drives pricing down. We’ve seen this first-hand, especially in marketplaces like eBay. 10 different sellers on eBay trying to sell a product can turn a profit that was once a healthy margin into literally pennies on the sale. Sure, this is great for the consumer in terms of price, but imagine the customer service and company behind a sale where they make practically nothing and are hoping for sheer volume just to make a few bucks. More than likely you are going to get treated like shit, or there will be other negative things like aggressive upsells, selling your information, etc. Remember, everything comes at a cost.
- By making all sellers follow the same retail pricing, sellers will need to come up with more creative ways of promoting and selling a product aside from simply marking the price down. With the higher margins that everybody can make on the product, it will allow for budgets to do such things like offer better customer service. This again can become a significant method of positive brand image reinforcement for the manufacturer that just wouldn’t happen any other way.
- By maintaining a MAP, and ensuring their distributors are holding their resellers to a MAP policy, it allows room for wholesale pricing to work. I can’t tell you how many times I’ve seen a wholesale price, while I could literally find a seller selling for less than that. The whole business structure behind reselling and wholesale just doesn’t work if pricing isn’t properly enforced.
As I mentioned above, all of the benefits can only be had if the manufacturer (and wholesale distributors) were to ensure that the MAP policy was strictly enforced. It takes just one seller adjusting their price by 5 cents with no reprecautions from the manufacturer to mess things up. It’s vital for the manufacturer to not play “favorites” with their bigger sellers. Manufacturers as a penalty should threaten to freeze sales for a seller if it is found violating MAP, or even go as far as taking legal action against the seller.
Other Concerns and Problems and Notes
There are certain workarounds and situations that should be of concern.
- It’s much easier for a distributor or wholesaler to not adhere to MAP policy for their resellers. For example if I am the manufacturer, I sell to a wholesaler, who in turn sells to a store. As a manufacturer you would need to be adamant about ensuring your distributors are adhering to policy for the stores they are reselling to. If you find a store selling below MAP, find out who the distributor is if it’s not direct, and threaten the distributor.
- There are workarounds for getting around an advertised price. For example I’m sure you’ve seen sites like Amazon who do things like “Click here to see the price in your shopping cart”. This is a way for sellers to somewhat get around pricing.
- If you look at it from the manufacturer standpoint, they make the same amount of money regardless of whether or not the seller is making high margins, or pennies on the dollar…they are still buying the product for the same price from you. So it’s easy for them to not care as long as somebody is buying the product. They should consider the different factors up-front and if they want to set a MAP policy, be sure to adhere to it going forward.
Your Thoughts & Opinions
I’d like to openly ask both store owners as well as manufacturers to respond in the comments (feel free to do so anonymously) about what your thoughts and experiences are. Am I out of line here? I can see that this may be less concern in a brick-n-mortar outlet, but online I believe it’s extremely crucial. Are there other advantages and disadvantages I haven’t thought of?