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Manufacturer Suggest Retail Price (MSRP) vs Minimum Advertised Price (MAP) - Explained

Manufacturer Suggest Retail Price (MSRP) vs Minimum Advertised Price (MAP) - Explained

Due to the fierce competition in the online shopping world, one of the common questions we’re asked by clients, is how they can keep control of product pricing. After all, when you sell to a distributor or to a retailer you’re selling at a discounted rate. The price resellers pay is determined mostly by your MSRP (Manufacturer Suggest Retail Price). But once they’ve paid, they can then sell at whatever price they deem profitable to them. So if your MSRP is $50.00 and you sell to a retailer at 50% discount, they have the potential to make $25.00 profit. But if they’re willing to make less they can undercut the competition.

When this happens, and the price war kicks in, your MSRP goes out the window and your phone starts to ring off the hook with complaints from resellers. Usually it’s the brick and mortar stores complaining about the cutthroat pricing the online players are offering. But it can be other online resellers complaining too.

The solution (or rather prevention) is MAP

When we’re working with new companies and we’re discussing pricing strategy and sales channels - we always bring up their reseller agreements. It can be a dicey conversation, since many eager entrepreneurs will take any order, and don’t want to potentially complicate sales with legal agreements. However, the smartest will listen and can understand how implementing reseller agreements from the start will circumvent problems (such as price wars and reseller disputes) later.

Reseller agreements can be complicated things and its definitely a document you’ll need legal counsel to do right. But virtually all of them should stipulate that the reseller agrees to a minimum advertised price.

So what exactly is MAP?

A minimum advertised price is just that - it’s the agreed price a reseller agrees to advertise a brand or product at. There may be some wiggle room, but generally, when a reseller accepts the agreement, they’re stuck. They can’t advertise a product for sale any less than the agreed price. This means in print, online, or any where. Of course, this doesn’t mean they can’t sell the product cheaper, they simply can’t display a cheaper price. And well, if the lower price isn’t shown, it’s hard to discover it.

MAP does not equal price fixing

While collusion to maintain a fixed price or profit margin is illegal in most circumstances MAP policies are legitimate and valid - if done correctly. First, and here’s the big differentiator - MAP pricing does not limit the actual selling price. It simply sets the minimum price a product can be advertised at - whether that’s in print or online.

Apple computer is a perfect example of this policy. It’s rare that you’ll see any sale or larger discounting on Apple products - regardless of the size of the reseller. Apple controls their displayed pricing in two ways. First, their reseller agreements certainly dictate MAP price points - and secondly, they offer slimmer than normal margins to their channels - the later reduces the incentive to discount heavily. They also strictly control the inventory levels dolled out to resellers - to prevent steep discounting or clearance pricing. In fact, one of the few times you’ll ever see bargain pricing on Apple products is when a retailer has decided to discontinue selling Apple. But because they’re usually not sitting on a large stock pile of inventory, this rarely happens.

Why would a reseller accept MAP?

Resellers are adverse to risk. They certainly don’t want to take on new brands and products that they’ll be undercut on by other resellers. They want to have some cost control and profit assurances. MAP affords them some protection. They know that if they buy your product to sell, they won’t necessarily see it online tomorrow advertised for way less. Likewise, generally, by accepting MAP the reseller will gain something in return. And this is the important motivator. It may be co-op advertising dollars. It may be exclusivity or specific territories. Or it could simply be better wholesale pricing.

What about eBay and Amazon?

Of course, the “right of first sale doctrine” and the abundance of steep discount offers means you’ll always find “deals” online. Steeply discounted products that don’t adhere to your MAP - and probably don’t have to. For instance, if you or a reseller, offer a promotional discount, perhaps buy one get one free (BOGO) - you’ll get savvy shoppers that scoop up these deals and then resell the products at a discount. And since they’re working with virtually no overhead, they may be willing to live on a few dollars of profit.

Our advice to clients in this area is usually two-fold. First, limit or at least monitor these types of sales and promotional offers. If you make such an offer and a customer suddenly orders dozens of them, there’s a good chance they’ll be on eBay in the morning selling for much lower than your agreed MAP. The end customer isn’t bound by any “reseller” agreement. So be careful when making BOGO offers. Secondly, if it’s possible, custom code products sold to resellers - so you can police products sold at steep discounts on eBay and Amazon stores. If the products all originate from a single reseller, they’re most likely running a dark retail site and are violating your reseller agreement. What’s a dark site? It’s simply a concealed retail footprint - usually on eBay or Amazon - where they sell their items under a different company.

So to recap - MSRP is what you’d like everyone to sell your product at - and you’re discounting levels are based on it. While MAP is the price resellers agree to advertise your product at - provided you’ve had them sign reseller agreements. So, make sure you have reseller agreements in place. Because after the price war is raging, it’s very, very hard to stop it - and resellers will be unlikely to either A) sign onto a reseller agreement or B) they’ll just stop selling altogether - since they don’t want to be undercut. Oh, and there’s a corollary too - if you plan on selling direct to consumers - you’ll want to sell at MSRP (so you don’t turn off existing or potential resellers) - and by having the MAP safeguard - you’ll protect your most profitable sales channel - direct sales. Just make sure you do MAP right, with the help of knowledgeable legal counsel, or you could run afoul of the law.

More Reading:

  1. Triguardian - https://www.triguardian.com/
  2. Trackstreet - http://www.trackstreet.com/
  3. Map Price Protection -  http://www.mappriceprotection.com/
  4. Map Trackers - http://maptrackers.com/

Feb 24, 2013
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There are 31 comments for this entry. Leave a comment below »


More comments

I do not understand why, as the producer, I would want to sell at full price, MSRP, while letting my reseller's sell at a discount, MAP. The problem I am runnng in to is that for higher priced items, as in $300. MSRP, I have set this price because when I use a reseller I need to make atleast $150. to cover my costs and some profit and standard marke up is 50%. For both the reseller and myself, selling direct, the $300. is a little high for the product. We are both concerned that it will not move. If I offer lower MAP pricing, say 10% off the MSRP, so $288. in this example. As the producer, why would I need to keep my pricing at the full retail of $300? I do not need that margin myself. I don't understand why I would take myself out of the competition for sales. My understanding is this is what is expected of the maker/producer. Any advice?

Erin
Sep 17, 2015


An issue I'm running into is that my direct import customers buy HUGE amounts at a time, so their cost can be up to 25% less than others. They've been our customer for years. While my online dealers are asking for MAP pricing to be protected from being undercut, my larger ones won't be happy with a new MAP policy as they are the ones doing the undercutting. While I understand that they can still do coupons, or "view in cart" pricing, they like having the advantage that their buying power gets them. How do I get the bigger resellers to comply now after so many years?

Lynne
Jul 23, 2015


@steve

The challenge you'll likely face, now that you've described your selling channels more, is that distributors are generally not inclined nor capable of policing their buyers in relation to your MAP MSRP. Which leaves entrepreneurs such as yourself in the difficult position of trying to police the customers of your customers. That is, tracking down bad resellers to their source seller. Which then leads to strong arming your distributor to coerce their customer. MAP generally works best when the manufacturer sells direct to retailers.

Then there's your other dilemma - implementing MAP to existing reseller deals is always tricky. I think I cover some options in doing this in an earlier comment to this blog. It will be a challenge.

Good luck.

William Levins
Feb 20, 2015


Hello William,

Thanks for your comments/advise.

I am a small manufacture that makes a couple of popular products for a niche market. I need qualified stores and web site businesses to promote my products. I don’t mind if they compete on price because they are making my products popular and are smart enough not to run themselves out of business.

I see amazon.com and other third party platforms as basically one store with several vendors on the same shelf with very little overhead. The kind of vendors that are willing to deal with amazon and fight over pennies are not generally the vendors I want representing my products.

In order to make sure my products get attention from as many small stores and vendors I need to use distributors. I have 13 around the world that are sometimes supplying, and drop shipping, for vendors that I find harmful.

I deal in 5 different regions around the world and have the same issue with many different ‘amazons’. It would be great if I could unilaterally coerce all of these venues to advertise at my MSRP. Then all the, what I call real businesses, can compete all they want at a few percent below MSRP.

Best regards,
Steve

steve
Feb 20, 2015


@steve

Well, legal questions should really be directed to attorneys. Though in my interaction with lawyers you can never really get a simple nor straight answer. But I'll offer guidance based on our experience.

MAP agreements are generally contracts between manufacturers and resellers. And while it's true, most are generic and apply equally to all resellers. There's no reason an individual contract couldn't be altered to regulate only specific channels. In fact, the contract could be tailored to only you since it's a contract between you and the original party. So unless it's discriminatory against a protected class then a MAP agreement can have varying requirements for every reseller.

That being said, it's unusual for MAP agreements to not be applied equally to all resellers, since the entire point of them is to prohibit low-ball price advertising that inevitably sets off a discount price war. Though larger retailers can often negotiate better terms or exceptions.

So back to your question. Can an agreement only cover specific channels, such as Amazon. Sure. Again, it would be silly to enumerate specific channels or advertising outlets or media - but is it doable? I don't see why not.

William Levins
Feb 19, 2015


Hello,

Does anyone know if it is legal to require MARP pricing only on third-party platforms like amazon.com and ebay?

Thanks,

steve
Feb 19, 2015


They can’t advertise a product for sale any less than the agreed price. This means in print, online, or any where. Or course, this doesn’t mean they can’t sell the product cheaper, they simply can’t display a cheaper price. And well, if the lower price isn’t shown, it’s hard to discover it.
With this being said you can not Advertise a lower price in writing but what keeps you from putting agreed price in ad, but saying I will meet or beat anyone price

James Shepherd
Jan 10, 2015


@Aaron

Chances are your offer would be considered a violation of your MAP agreement. Even though your displayed "price" is the same, the offer of a discount can reasonably be inferred to be a discounted price. Honestly, most MAP agreements are so broad in scope and favor the manufacturer that almost anything can be construed a violation if it's "displayed" or "advertised". Now if you're describing an emailed offer, that can be safer. Since it's more of a one-on-one communication and isn't "advertised." But even here you need to be cautious and make the offer general, not specific to the MAP controlled item and avoid showing a discounted price. Though even here the interpretation of a MAP violation is discretionary and completely up to the manufacturer.

William Levins
Aug 27, 2014


So lets say the MAP is $499. Can I run an ad saying get $50 off your purchase if you enter promo code 'blahblahblah'. I ask because technically I am not advertising the price lower than 499....but there is a promo code to get a lower price. Thanks.

Aaron Mongrues
Aug 27, 2014


@Bob,

Without greater detail it's impossible to provide a complete answer. But since MAP covers "advertised" pricing - provided you don't advertise or promote the employee and partner discount - then you should be OK. Remember, MAP won't typically (and can't legally) control what you sell a product for - it simply stipulates what price is shown in advertisements, online, emails, displays, etc.

But for a complete and thorough answer - contact a legal professional

William Levins
Jul 07, 2014


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