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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.
- Triguardian - https://www.triguardian.com/
- Trackstreet - http://www.trackstreet.com/
- Map Price Protection - http://www.mappriceprotection.com/
- Map Trackers - http://maptrackers.com/
Feb 24, 2013
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There are 31 comments for this entry. Leave a comment below »
i want to honor map to my end users, but can i go below for employees or partners?
Jul 06, 2014
That's an excellent question. I don't really know. I would suspect yes. But it's probably a question best answered by an attorney.
Jun 26, 2014
Are MAP agreements legal in all States in USA
Jun 26, 2014
You've encountered the unfortunate abyss in distributor relationships. It can be quite difficult to police their customers and even more challenging if not impossible to expect them to police their customers. In today's online world it can be very challenging. Since as you've encountered - a savvy ebay seller can find your product via a distributor - order it - and then under cut the market. Which leads to an eventual ugly downward spiral in pricing.
The unfortunate situation is once you're in this mess it's very tough to get out of it. However, there are a couple of tactics for dealing with this though none are perfect or full proof. Which will work or is viable depends on many factors. Does the distributor need your product more than you need them as a conduit to retailers? Did they sign a distribution agreement initially? and what were it's stipulations. But onto the tactics.
1. The direct approach - talk with the distributor about the problem and suggest/demand they regulate their customers - by having them sign a MAP agreement and in turn having their customers sign a similar agreement. Though this strong arm tactic seldom works unless you're either in high demand (in the market) or you're in a position to stop selling to that distributor all together.
2. You can start invisibly marking products to determine who the offenders are in order to track down the distributor and/or retailer. It's a cumbersome process that won't work if you're dealing in high volume. But you can order UV Fluorescent Marking Pens and mark your products as you ship them to distributors so you can identify products from each distributor. Then when you find a product online that's sold cheaper than you'd expect - order it - and see if the product is marked. Then confront the distributor... but of course this circles back to #1.
2a. If your manufacturing is automated and sophisticated - a lot of this tracking can be handled via Lot Numbers and tracking which lots ship to which distributors. Or the invisible marking can be done by machines too.
3. Decrease your discount or increase your minimum order requirements or both. This means the distributors will be paying more unless they order more. If they continue to order the same as before - their costs will increase which will generally be passed through as higher costs to their customers. Meaning less room to undercut the market.
4. Change your packaging (and/or formulas) and use it as the catalyst to to weed out bad resellers by presenting them with new reseller agreements that include MAP terms. Or if you'd done step #2 insist the distributor doesn't sell to the bad retailer.
5. You can eliminate distribution all together and sell only direct to consumers or direct to retailers. You'll have more control but it's a brutal change in sales that can go horribly wrong.
You'll generally find there's only a one or two bad players in the mix that are willing to undercut the market to make a profit in the short term. Most folks want to make money and will stay inline with comparable pricing. But when they see it dipping they naturally react to keep their sales flowing too. And the pricing war begins.
Jun 02, 2014
How does a manufacturer set a minimum advertised price when the largest problem isn’t who we sell to, but who our distributors sell to? We don’t have contact with said resellers, so can it be done through the distributor? We want to set an internet minimum advertised price because that affects us the most because we sell to consumers on our website. Internet prices are falling well below wholesale. Can we make an agreement with the distributor to pass on the agreement? If they do not comply, can we ask them not to sell to said reseller?
May 21, 2014
Is there a template for a MAP agreement? I need to implement MAP with my product line.
Apr 09, 2014
Yours is a very odd situation. However, to comment completely, there would be many, many more details required.
But I'd start with your reseller agreement? Does it stipulate terms that would preclude you from offering in-store discounts? That would be peculiar and probably not enforceable - though a lawyer would be required to verify that. However, even if their price policy were deemed illegal, you might simply be cut-off - that is, they'd no longer sell to you.
The steps I'd take, review your reseller agreement with your attorney. Then decide on a course of action. It's unlikely they can control what price you sell for in your store.
Sep 20, 2013
I am a retailer, the manufacturers reps told me I cant discount my faded, old sandals, dates are on the sandals 2007,2008,2009,2010 etc.. because they are in the main catalog, still current colors, my consumers don't buy them, they look old and I am forced by manufacturer young reps for the southeast that I cant discount them. plus the age of them 3 to 7 years old. I have been selling retail for 35 years and cant understand this.. the reps said I would loose my dealership, the manufacturer has new product, but I need turnover sell the old old old to circulate the money,
they wont let me discount them inside my store, they wont buy them back, I am stuck selling dead stock........................just got back from surf expo , nobody believes this.............. I have been with manufacturer 10 years.......... I have no problems with any other manufacturer in two different industrys, bicycles and sandals, the sandals I have a problem with, my purchases with manufacturer dropped 80% +/- within 1-2 years of this msrp . I am forced to hold onto old inventory, I am not allowed to drop a color in there product to give me more floor space , nobody agrees with this
brick and mortar
ma and pa store
Sep 19, 2013
First, let's clarify something. MAP is Minimum Advertised Price. It imposes a minimum price a product or service can be advertised at. It does NOT stipulate a minimum selling price - that's called price fixing and is generally illegal. So while you may be able to control what your products and services are advertised at - you can't directly control what price they're actually sold at.
So if it's a question of controlling the selling price that will require a different strategy that generally involves reducing the seller's margins so they won't want to sell it cheaply. Of course this has it's own perils.
In regard to MAP and selling a service it's basically the same. A reseller agreement will simply stipulate the MAP for the service or product. But from your question, you're in a more unique scenario. It sounds like you sell premium products which are used as part of a salon service - and you're trying to control what that service (that uses your products) costs. That's a tough bit to address without knowing a lot more detail - are your products sold directly? Are they sold else where (outside salons)? What is your true market position? etc. etc.
Now back to your question. Regressively applying a MAP obligation after you've established a working agreement with a retailer or distributor is difficult. Usually, MAP is part of the initial reseller agreement, that's agreed to at the start of the relationship.
At this point, you can try the blunt force approach and simply provide new reseller agreements and stop selling to them if they balk. Of course this doesn't usually go well unless they need your products more than you need their sales channel. It's likely you'll need to wait until you upgrade your product line, with either new products, new formulas, or new packaging - that is, something that will provide the opportunity to "renegotiate".
The other option is to offer co-op advertising dollars in exchange for their agreeing to your new MAP terms. This can be an effective strategy to coerce not only MAP compliance but can also help control the product or service's actual selling price. Since you'll retain editorial approval of advertising you're helping to pay for you can keep the ads properly aligned with your premium brand and messaging.
Regarding your question's second part, I don't really know who to contact regarding the legality of MAP and its implementation in the United Kingdom. You'll obviously want to talk to a lawyer. Or you can start by contacting an industry marketing organization...they may be able to direct you better or connect you with someone directly.
I did a quick google search and found these:
May 24, 2013
How does MAP work with services - for example. I work for a company that sell beauty products to salons. Beauty salons at present are charging whatever they like for a service. Our product is a quality brand - how do we protect our brand by setting a minimum service charge to salons ? Who can I contact with regards to the legality of this in the United Kingdom - thanks
May 24, 2013
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