The price a retailer charges for a product depends on many factors. Two of these are the MSRP and the MAP. In the current scenario of increasing competition, dynamic pricing, and the challenge of multichannel sales, which of these two is more relevant?
MSRP and MAP – Which Should Retailers Follow?
Manufacturers or suppliers sell their products through a network of retail merchants. The supplier (who may or may not be the manufacturer) provides a guideline for setting the price. This can be in the form of a MAP or MSRP or both.
The Manufacturer Suggested Retail Price(MSRP)
The manufacturer sets a price on their product, based on their idea of how much it is worth. The manufacturer then adds a margin to this price to arrive at the MSRP. This ensures that the retailer can get a profit. This is just a suggestion. The MSRP is also referred to as the list price.
The Minimum Advertised Price (MAP)
MAP defines the lowest price which you can advertise for a product. Retailers cannot advertise the product for a lower price than the MAP. Manufacturers and brands may use MAP Monitoring solutions to keep a watch on retailers and their MAP compliance.
Which of These Two is More Important?
The MSRP is a suggestion for setting a price on a product that also takes into account the retailer margin. However, each retailer will have their own pricing strategies, and the suggested price or list price is seldom the actual price at which the product is offered. Discounts are the name of the game in today’s competitive environment, and retailers often provide discount to quickly sell products, stay relevant in the minds of shoppers, and as a means to upsell other products in their inventory.
The Minimum Advertised Price therefore, is more relevant to retailers.
Why is MAP Important?
The MAP of a product is important because of two major factors:
- It assures a level playing field for all retailers
- It ensures that no retailer can sell the product cheap and thus undermine the brand’s value
How Can Retailers Comply with MAP and Still Stay Competitive?
The MAP for each product is defined when the sellers get the stock from the supplier. While it is not part of a signed contract, it is considered as an unsigned agreement.
The MAP defines the minimum Advertised price, not the price at which the retailer actually sells the product. This means that you cannot advertise a lower than MAP price on your promotions, campaigns, your product listing, or product page. These are all considered advertising, for customers can see this price even before they commit to buying the product.
A checkout page is not considered an advertisement, because the customer has already decided to buy the product and is on the way to make payment. So, any special discounts you are giving on the product that brings the price below MAP can be applied on checkout.
Some strategies that can work with MAP and yet provide discounts:
- Display the MAP on a product page but mention that customers can see the actual price when they checkout
- Provide coupon codes that can be applied on checkout
- When customers add items to cart then leave without making a purchase, a discount code can be offered to convince them to come back and buy the products
- Free shipping can be offered for a purchase over a certain amount
- Retailers can offer a cash back gift card for certain purchases
Make sure that these strategies are not product specific unless offered by the brand itself.
When retailers sell across many channels, pricing can be a challenge. If online prices are on the higher side to match prices in physical stores, then the retailer might lose out to online competitors who offer lower prices. If retailers lower prices in the physical stores to match online prices, they may cut into their profits deeply as the overheads incurred in running a physical store is more.
Many customers understand that there is a premium to shopping in brick & mortar store where they can pick up and feel the products, use the product immediately and therefore are willing to pay the higher price. It is like expecting to pay more at a full-service gas station than a self-service one.
When some customers specifically ask for a physical store to match online prices on checkout, the store might consider giving it to them, as long as such cases are kept down to a minimum percentage and does not cut deeply into the store’s profit.
There are ways for retailers to offer discounts to stay competitive and still comply with MAP policies. Staying compliant with MAP ensures a good relationship with the retailer and better support from them.
Retailers can also use MAP Monitoring software to avoid accidental MAP violations, and to see if suppliers respond quickly to any persistent MAP violation by other retailers. The retailer can decide to put pressure on those suppliers who ignore MAP violations by other retailers by raising a red flag.