Very helpful I'm going to implement MSRP & MAP in my retail pricing

Yet, nobody seems concerned when pricing goes the other way??? Explain how you're concerned about pricing minimums, yet nobody addresses pricing limits. When I can find the same Luminox watch with a selling price 300% higher than retail!!! Don't even get me started on the flux in repair pricing!

MAP, as its name implies, only effect advertisements. This means newspaper and TV ads (or any online ads like ad-banners and popups) can't state that the reseller is selling below MAP. However the price tag on the shelf at their store (talking about brick and mortar stores here) isn't an ad to entice buyers, but rather an actual factual statement of the price of the item. Therefore, the price tag on the shelf at the store will exactly match the price you are actually selling it at (which can be less than MAP).

The online equivalent to this is on the product's description page on the reseller's online store. To get to the product's description page for a particular product, you often go first to a product list page at the online store's website. Now this list can be seen as a form of ad itself, because they want you to click on a product to read more about it, so this product list page can't list any product below MAP. However, once you click on a product from the product list webpage, you will end up at that product's description webpage that provides more detailed info about a specific product. This is equivalent to stopping at a particular product while walking through a brick and mortar store, to read its price tag and description on the package. Therefore, at the product's description webpage for a particular product, you can show the actual price of the item, even if that price is below MAP. Contrary to what I read elsewhere on the internet, you don't actually need to wait to the customer clicks the "Buy" button to put the item in their online shopping cart. After all, a customer in a brick and mortar store doesn't need to put the item in their physical shopping cart before they can see the actual price of the item.

As it would be unfair to treat brick and mortar stores differently from online stores, the law treats brick and mortar stores the same as online stores. Whatever the law requires for a brick and mortar store, the online equivalent is required for online stores.

@Melissa

I'm sorry Melissa, but sales tax is subject to so many variables, state to state, and even within municipalities - that we're not qualified to answer this question. You're better inquiring with your accountant or your State for information.

Can you please explain the tax laws of an item at a register.
When using a coupon, and it says $10.00 dollars of purchase price of $20.00. Now is your tax rate based on $20 or $10?
Some coupons state clearly $ off of retail price and that is clear what I'm paying taxes on. Or I understand when an item is on sale I pay taxes on the sale price. I am confused however with the first example. At a particular store one manager said the taxes are based on the purchase price before the coupon is added and another manager stated the taxes are based at the purchase price which would be $10. After the coupon. I live in the state of California so or sales tax is 8%. Is my tax 8% based on $10 or $20? Big difference to me when you are on an extremely tight budget.
The coupon does not explain their (selling store) definition of a purchase price either.

@Jeannie

You’ve reached the morass that is the transition from direct only retailer to a distribution model. First, know you’re not alone, it happens to most. You sold direct, made a healthy margin, then as you gained popularity or as part of your strategy you started to connect with retailers and/or distributors. And while you might sell more items you’re earning less on each as you have to make room for their slices of the pie.

During the early stages of this transition it can become painful as your more profitable direct sales seep away to resellers (who offer better pricing or have existing customers). Which often leads folks to this blog post… once they start to research how to protect their direct sales and their profits. MAP offers protection against this dilemma but it’s difficult to grandfather into existing relationships unless you’re selling so well for the resellers that they’ll do anything to keep your line in their inventory.

The question you need to answer as quickly as possible is what type of company and sales channel do you want? You can either be focused on direct sales and higher margins but then must accept the higher cost of acquiring customers and marketing. Or you can choose to adopt a distribution model (which doesn’t preclude you from selling direct). Distribution offers benefits such as it’s easier to target resellers at industry trade shows and online. You can focus on marketing to resellers instead of the general public (though you shouldn’t stop advertising completely). The tradeoff is having to reduce your margins - often substantially.

You mention your profit is low… this can be an indicator that a reseller model isn’t workable for you. But then you also say the majority of your sales are derived from retailers now - so there is a mutual benefit to the relationship. You’re delivering a product their customers desire / need and they’re bringing customers to your brand (without you having to spend on marketing heavily).

It’s tough to advise whether you should abandon the reseller approach or embrace it with so little information. But MAP can offer you some relief, but as mentioned, it’s difficult to implement after you’re in a reseller relationship. I’ll assume you’ve already explored reducing your cost of goods and tried to increase or renegotiate reseller pricing (price increases do happen).

If you’d like to discuss this further we’d be happy to offer our consulting and marketing services.

Lots of information here! Still trying to understand it all - we sell direct from our website; we are the manufacturer. We also sell to brick and mortar stores, where we offered a wholesale price. Now, many of those stores have taken to Amazon, etc, and they sell way more, at much less than our Website pricing. There are also some strictly on-line stores that we sell too. We do have a MSRP in place, but not a MAP. Should we have? We have lost more and more of our sales from our own website, because it seems everyone is purchasing from Amazon. Consequently, our profit margin has dipped. Do we continue to sell to the on-line retailers, at wholesale price, but create a MAP so our own website is not undercut? Or do we create enough of a profit margin that it won't matter if we are undersold? Currently, our profit margin on each product is very low. We started out in business selling direct to the consumer. This worked great. But it all seemed to change without us understanding, and now most of our sales are to retailers. Help!

@scott,

I’ll keep your latest info in mind. I’ll admit, my post is over two years old and the interaction with Apple pricing relies on much earlier experiences than that.

Apple long ago did have “MAP like” policies when it had many more smaller resellers. I knew and worked with many of them. But it’s been probably a decade or so since Apple reorganized its distribution and then started opening its own retail storefronts. And many of these former small Apple guys have transitioned or closed down. So perhaps Apple doesn’t have MAP policies in place currently but then again as a leader in several markets - they have the advantage already.

FYI- Apple does not have MAP agreements with anyone. Their policy is that they sell for cost to authorized resellers and they believe that if the reseller wants to sell for more or less than that price its their prerogative That includes advertising it at a lower cost- Here is an example: This Best Buy Flyer is full of deals and they have even gone below their own cost in the past on iPads and Appel does not care. Of course that is why Best buy is closing stores left and right.

http://deals.bestbuy.com/?category=featured+deals

The reason I am also certain on this is because I am an Apple Specialist and our channel believes Apple should institute MAP for all partners to help level the playing field for us small guys.

Thanks!

@Erin

You’re facing the dilemma many businesses face - the choice between direct sales and supporting a reseller and/or distribution network. Direct sales are always the most attractive since they provide more profit and near instant feedback. But in the long-run, building a network of retail, resellers, and distribution can lower overall marketing costs and provide more stable income (if managed well).

But to answer your question directly - if you start to sell (or more accurately advertise lower pricing) below your MSRP - your resellers will likely become unhappy you’re competing against them directly. They’ve paid you, you’ve made profit, and now you’re directly competing agains them - when they’re trying to build business on your behalf and for themselves. It generally doesn’t end well - the resellers simply drop out of competing with you - it’s not worth their time to spend money to try to advertise your products only to have the sale go to you (if someone searches and finds your site selling at or lower than they are).

Our advice to clients who are trying to sell direct AND build a reseller business - you have to sell at MSRP or you’ll find it much, much harder to attract and/or keep resellers. Some retailers and/or distributors won’t even bring on manufacturers who sell direct - though that’s more rare today - but it still does exist. So it’ll come down to making a choice - do you want to build your business by selling larger volumes to retailers and distributors - or do you want to sell direct and trade volume for higher profit margins? Both strategies can work and each has pros and cons.

Also remember - it’s the advertised price you need to stick to. That is, your website should always display the MSRP, but that doesn’t preclude you from offering email discounts to existing customers - provided you don’t undercut your resellers. So you could advertise at MSRP and then offer a 10% savings via email or via pop-up or such. You simply shouldn’t advertise a lower price.

Then there’s also the slight gray-approach of selling through either Amazon or eBay or similar online entity that you create and/or control. Where you’re selling your own products as a “reseller” and therefore sell at the lowest MAP pricing allowed. Though this can be tricky to do without aggravating resellers if you do it in the open. So many folks do it “secretly” by setting up another business entity with no connections to themselves and sell via this new business. It incurs a little bit more overhead but it does provide higher margins.

Hope that helps.