Understanding MAP Pricing: A Guide for Brands and Retailers

Introduction

It’s crucial for any brand or retailer to understand how different pricing strategies work. One key strategy which is used by many brands today is Minimum Advertised Price (MAP). Brands use MAP policy to maintain brand value by preventing resellers from selling their products at prices that are too low. For example, a luxury goods brand may set a MAP policy for a handbag to ensure that resellers don’t dilute the brand with excessive discounts. 

What is MAP Pricing?

A MAP policy is an agreement between a brand and a retailer that stipulates the lowest price at which a product can be advertised. MAP pricing is thus used by brands to preserve their image and prevent price wars that can devalue products.

Note that this doesn't restrict the actual selling price, but it does set a floor for advertised prices. So, a retailer could sell an item below its MAP specified price in store so long as it does not advertise that price.

Why Set a MAP Policy?

MAP Policies are an important element of any brand's pricing strategy. They provide a few key benefits:

1. They help preserve the brand’s image by ensuring its goods are not priced too low. This is particularly important at a time when Amazon competition is pushing resellers to lower their prices and inventory challenges incentivize retailers to lower prices to get rid of old inventory.
2. They improve the experience for customers by differentiating real products from their fraudulent counterparts.
3. They are good for retailers. This might seem counterintuitive - shouldn’t retailers want as much pricing flexibility as possible? In fact, having a MAP policy helps prevent damaging races to the bottom on price because all retailers must all keep their advertised price above the MAP price. Retailers will particularly appreciate this with high visibility items that are prone to price wars.

Can a retailer sell  below the MAP price?

If a retailer advertises a product below the price set by the MAP policy, brands can take action to penalize that retailer. For example, the brand might stop contributing to a shared advertising fund, or, in extreme cases, decide to altogether stop selling their products to this retailer. Thus, retailers should always aim to adhere to MAP policies to ensure a healthy relationship with the brands that they sell.

Is MAP Pricing Legal?

In the US, MAP policies are legal because they only restrict the price at which a good can be advertised and not the actual sale price. Globally, MAP policies vary. In some countries, like Canada, they are legal but heavily regulated. In the European Union, MAP policies are generally considered illegal because they infringe upon the EU’s competition laws, but there are exceptions. Brands operating internationally must be aware of these limitations to avoid legal pitfalls.

What is MSRP Pricing?

A common question we get is what is the difference between Manufacturer's Suggested Retail Price (MSRP) and MAP? MSRP is the price at which a manufacturer recommends retailers sell a product. Unlike MAP, MSRP is meant to help with pricing strategy rather than enforcing a specific constraint on pricing. It's commonly used as the list price with discounts and sales tacked on top. Ultimately, unlike with MAP, retailers do not have to conform to the MSRP price as it is only a recommendation.

As a Brand: How to Set an Effective MAP Policy

1. Do not consult with the retailer: MAP policies must be created independently of any retailer to avoid engaging in price-fixing which violates antitrust law.
2. Set out clear penalties for retailers who don’t comply with the MAP Policy: This might include preventing the retailer from selling a brand’s products altogether. You should consider issuing warnings before ending the relationships with any seller completely. Too strict a penalty can result in losing quality sellers and the violation might not have been malicious - sellers can make mistakes.
3. Reward compliant retailers: For example, create a shared advertising fund to which both the brand and retailer contribute. Compliant retailers will appreciate the extra advertising dollars to offset any financial loss from complying with the MAP Policy
4. Communicate clearly: Be sure to clearly communicate the MAP policy in language that retailers can understand. If the policy contains too much legal jargon, consider appending a simpler explanation for easy reference.
5. Keep your MAP Policies up-to-date: It is important not to surprise retailers with changes to MAP policies, but it is equally important not to leave a MAP Policy untouched for months and years at a time. Consider allowing for some seasonal exemptions to the policy and be sure to update MAP policies as costs and the competitive landscape change over time.
6. Invest in MAP Pricing Monitoring: Your MAP Policy is only effective when it is enforced. It’s important to monitor retailers and resellers for violations of your policy and take action when necessary.

As a Retailer: How to Stay Competitive and Manage MAP Policies

Maybe you’ve already read our blog post on how to do price optimization in retail, but now you’re wondering - how do I manage prices when I have to account for MAP policies? Here are some strategies to stay competitive while respecting MAP policies:

1. Cart Discounts: Discounting select products at checkout can provide flexibility in pricing without advertising prices below the price set in the MAP policy.
2. Bundling Products: Offering bundles can obscure individual product prices, allowing for competitive pricing without violating MAP.
3. In-Store Promotions: Since MAP primarily applies to advertised prices, in-store promotions can offer discounts without breaching MAP agreements.
4. Diversify Inventory: Balancing products with and without MAP policies can provide flexibility in pricing strategies. Optimize the products without MAP policies and use the above strategies to stay competitive on products with MAP policies.

Are you a brand trying to set effective MAP Policies or a retailer trying to set pricing strategy while managing MAP Policies? At Luca, we offer price optimization services that help brands and retailers stay competitive while also staying compliant with pricing policies. Let’s chat if you’d like to discuss.