Minimum Advertised Pricing- MAP

Making the case for MAP enforcement

In concept, retail is pretty simple- a retailer buys something (inventory) from a supplier and sells it for a little more (gross profit).  That gross profit is used by the retailer to pay for operating expenses (labor, freight, rent, etc.) and the Cost Of Goods Sold (inventory) is reinvested in new inventory.

Not all retail businesses compete on an equal playing field.  (No kidding, right?)  There are two points in the sales continuum where a retailer has an opportunity to improve gross profits.  The first is when the retailer buys the inventory and the second is when the retailer sells the inventory.  The size and scale of the retail business has a meaningful impact on the ability to generate improved gross margins.

Not all retailers are concerned with generating higher gross margins.  Instead, they subscribe to the belief that increased volume predicated on actually lowering gross margins is a winning strategy.  This is often referred to as the “make it up in volume” approach to retail.  Just while writing this someone in our call center showed me a price match request where our competitor is selling the item for $10 under cost.  (Make that math work.)

The internet is the Ultimate Price Discovery Mechanism.  When we train new employees we give them a product to locate online and we ask them to add it to the cart.  Once done, we ask them to find it from a competitor for a lower price.  On average, it takes 17 seconds for them to find the same item for a lower price and add it to the cart.   Ask yourself this:  If you were a manufacturer building product and your brand, would you want to be considered to be a premium, well-made product or the commodity brand in your space?

Manufacturers generally set two prices for their products to establish the product’s price point, or place, in the market: Suggested Retail Price and Minimum Advertised Price.  The Suggested Retail Price is generally regarded as the highest price the market will pay for an item.  The Minimum Advertised Price is the lowest price a retailer can advertise the product online, in a print ad, billboard, etc.  It does not necessarily mean the retailer can’t sell it for less, but it does mean the retailer cannot advertise it for less.  The point of MAP pricing is to help level the playing field or establish a reasonable price for the product.

Why would a retailer comply with MAP pricing policies?  Because Might Makes Right.  First, the manufacturer now has a legal right to establish the lowest advertised price for their products.  Second, the manufacturer has the ability to put teeth into the enforcement of the policy by withholding marketing funds or, to really bite down, hold orders.