Price is a fickle beast
Price a product too high and you alienate customers. Price a product too low and your brand starts hurting.
Enter Minimum Advertised Price
Minimum Advertised Price (MAP) is the lowest price at which a retailer can advertise a product for sale both online or in their store. It provides a way for manufactures to ensure compliance of the prices they’ve decided and prevent harmful price wars.
What’s a manufacturer to do?
Manufacturers hate being the bad guy. They hate going after retailers who underprice their products just to move more inventory. It hurts everyone. Minimum Advertised Pricing policies help manufacturers of high value goods maintain a balance between saleability and brand integrity. Having a well-managed MAP policy helps manufacturers ensure that customers who purchase their products receive the appropriate level of service and experience from the retailer who’s making sufficient margins on the product.
MAP compliance is a 2-way street; in exchange for agreeing to minimum pricing, the manufacturer shares the cost of advertising or gives preferential treatment to retailers for new product releases (looking at you, Apple).
As a retailer/manufacturer/consumer (basically all of us), you only need to know one thing this week.
MAP is the glue that holds brand value and saleability together
MAP agreements are signed between manufacturers and retailers that stipulate retailers only advertise their items for sale at or above a predefined price for the particular product.
MAP does not restrict the actual price a retailer decides to sell a product for eventually, but it will prevent retailers from advertising a product below the predefined price by the manufacturer.
Depending on the terms of MAP agreement signed, different MAP agreements have different clauses. But generally, a retailer is free to advertise on generic phrases, such as, “Lowest Prices Guaranteed!”. This holds true as long as a lower price (e.g. Only $19.99!) is not explicitly mentioned in advertised prices.
MAP violation is a lot more widespread than you think
Take any electronic gadget you love, and chances are it’s being sold for less than MAP.
This problem is a lot more widespread than you think, and manufacturers have scant resources on hand to tackle unauthorized sales.
Research by Kellogg indicates that MAP violations are more likely committed by unauthorized resellers than authorized ones. This has a two-fold effect: Firstly, authorized resellers are forced into a price war against their will, often sacrificing margins, and secondly, consumers receive a less than stellar buying experience.
Imagine your granddad walking out of the store with a smartphone that he doesn’t have the faintest clue how to operate.
To help illustrate an instance of MAP violation, let’s use GoPro’s MAP policy (https://gopro.com/authorized-reseller-program/us/minimum-advertised-price-policy/) as an example. The data we’re using is last updated on March 1, 2016.
We took the first item on the list, as shown here:
Using the Semantics3 “Playground” (a test interface for the Semantics3 API), we ran a query for the UPC (Universal Product Code) “8181279012767”, which is the UPC for the GoPro Hero4 Black Adventure. And ta-da — look at line 10 of the results!
The GoPro Black is listed for $429 by a merchant, which is $70 below the MAP. Of course, I had to go to the website listing the item in question. Here it is:
This begs the next question
Why have MAP at all?
Retailers have the incentive to lower their profit margin in order to make the money back in volume. As consumers get savvier, and our e-marketplaces get more cluttered with millions of products, the only way to effectively distinguish products is either through quality or price.
Now, for a consumer to determine the quality of a product, branding and reputation matters. Unfortunately for retailers, building a brand is not as simple as an overnight task. There’s a reason why people trust Seiko, Rolex and Patek Phillipe watches or Viberg, Red Wing and Alden boots over cheaper brands.
It took years for these brands to stand out and build a reputation for themselves.
For most of the retailers out there, especially new ones on the scene, the easiest way to stand out from all that noise is by competing on price. As a consumer, you’ve probably experienced this. If product A and product B are both of similar quality, product A costs $9 while product B costs $10. You’d end up settling for product A.
Pricing matters for retailers wanting to generate more revenue. For the aggressive retailer, losing 90% of their profit margin to generate sales isn’t a big deal.
However, this aggressive pricing strategy puts everyone else out of business. Why spend $499 on a GoPro with my local retailer when I can get it for $429 from a retailer 3,000 miles away? With free shipping.
This brings us back to why we MAP is necessary.
MAP is great for retailers.
For retailers, MAP creates a healthy and sustainable profit margin, allowing them to focus on other things, like elevating customer experience, or improving logistical needs. It creates a fair playing ground.
MAP is the lifeblood of quality brand manufacturers
A manufacturer’s brand prestige declines with pricing inconsistencies.
Why should I pay $10,000 for a Rolex when I’ve seen Store X selling it for $5,000?)
By maintaining brand prestige, it incentivizes new retailers to come on-board to sell your products.
Surprise surprise, MAP is good for consumers too
The consumer gains short-term benefits of cost savings — but in the long run, as the product’s ecosystem declines, the product quality declines along with it.
MAP prevents that from happening, by creating a sustainable product ecosystem. This gives manufacturers/retailers the incentive to create better, higher quality products for the consumer.
How to enforce MAP
If you’ve read up to this point in the article, you’re probably wondering, how is it possible to monitor all my retailers, to ensure that a stipulated MAP is being enforced? As a manufacturer, are you going to pore through thousands of retailers everyday? Are you going to rely on a rewards system where you reward people for finding MAP violators?
Why not automate the entire process?
To do so, you’ll need the up-to-date advertised pricing of all your retailers. Develop a software or script such that when your retailer advertises a price below your predefined MAP, send a warning to the retailer, or take further actions. Now that’s just the easy part.
The harder part is extracting data for advertised pricing. Do you dedicate an entire team to scour the entire internet for the said data? That costs manpower, and manpower is expensive.
At Semantics3, we can provide you with the data you need to power your MAP monitoring system, and we’re committed to providing you with the freshest, most up-to-date data you’ll ever find.
TL;DR, MAP (Minimum Advertised Pricing) agreements create a healthy retail ecosystem that protects the well-being of retailers, manufacturers, and consumers alike.