Owning a brand means making tough decisions about prices. You want your prices to be reasonable for customers but not so low that it hurts your business. It’s frustrating to see your products sold for less than they’re worth. This can cut into your earnings and make customers think your products aren’t as good as they really are.
Thankfully, you can easily avoid this issue by establishing a minimum advertised price policy. This strategic tool tells retailers the lowest price they can advertise for your products. It’s a way to protect your brand from problems caused by aggressive discounting. Ready to set this rule? Here’s what you need to know to make your own policy.
What is minimum advertised price (MAP)?
Have you ever wondered how some brands keep their product prices consistent across various retailers’ ads? They use something called minimum advertised price (MAP).
MAP determines the lowest price an ad can show for a brand’s products. It’s not about how much the product costs at the store but its price in advertisements online, in catalogs, or even on TV.
The rationale behind MAP is to make sure that people don’t see your product selling for a super low price in ads. This keeps your products from looking cheap and keeps pricing fair among different sellers. It’s a great way to protect the image and value of what you’re selling.
MAP vs. internet minimum advertised price (IMAP)
The internet minimum advertised price (IMAP) follows the same rule as MAP, but for online ads only. IMAP sets the lowest price retailers can display for a product on their websites, online marketplaces, digital ads, and social media platforms. Oftentimes, people use the terms MAP and IMAP interchangeably when talking about rules for online retailers.
Why is IMAP important? Well, a lot of shopping happens online these days. People can easily see and compare prices on different websites. So, if one website shows an incredibly low price, it can make people think that’s what the product should always cost. This can be a problem for your brand because it might make your products seem less valuable.
MAP pricing vs. manufacturer’s suggested retail price (MSRP)
The manufacturer’s suggested retail price (MSRP) is the price the product’s maker recommends as the ideal selling amount. Think of it as the price you might see on a label in the store—the sticker price. The important thing about the recommended retail price is that it’s a suggestion, not a strict rule. Stores can sell the product for more or less than the MSRP.
Now, this is not the same as MAP. While MAP focuses on preventing advertised prices from being too low, MSRP suggests a price that reflects the product’s value. In short, MSRP applies to the final retail price, while MAP only applies to advertised prices.
Where is MAP pricing legal and enforced?
MAP pricing is usually legal in the United States. These policies are typically lawful under antitrust law if you make the rules on your own as a brand and not in agreement with retailers or other companies. Otherwise, it could be seen as illegal price fixing.
In the US, you can enforce MAP pricing through contracts with your retailers. If a shop advertises under your preset competitive price, you can stop supplying them with your brand’s products. But you can’t actually control the final sale price retailers charge customers.
MAP pricing legality varies in other countries. In places like the European Union and the UK, strictly enforcing these policies might break competition laws. That’s because it could seem like your brand is trying to control sale prices too much.
When doing a MAP policy, you need to check the specific laws in the areas where you operate your business. Since laws are often quite complex, it’s best to seek legal advice to make sure your MAP pricing strategies comply with all local regulations.
Pros and cons of establishing MAP policies for your brand
When creating a pricing strategy for your brand, you’ll need to decide whether to implement a MAP policy. This decision shouldn’t be taken lightly. Without careful consideration, it can dramatically impact your business relationships and overall sales figures. To make an informed choice, take the time to weigh the following pros and cons.
Advantages of setting a pre-decided minimum price
Explore these MAP policy benefits to see how MAP pricing can safeguard your brand and profitability.
- Brand value protection: A MAP policy acts like a shield for your brand. It ensures that your products are not advertised at prices lower than what they’re worth, preventing price erosion. This way, you maintain a premium brand image and your customers continue to see your products as high quality and valuable.
- Profit margin stability: When everyone tries to outdo each other by lowering prices, nobody wins. With a MAP policy, you prevent such price wars among retailers, keeping your profit margins safe and steady. Both your brand and retailers can make a fair profit without constantly lowering prices.
- Equal playing field: When you enact a MAP policy, all retailers must play by the same advertising price rules. This often means they compete differently, like offering better customer service or knowing more about the products. It makes the competition fair and balanced, leading to a positive customer shopping experience.
- Customer trust: Consistency in pricing builds trust among customers. When people see the same product advertised at consistent prices, it reduces confusion and dissatisfaction. This can go a long way toward setting price expectations and boosting your brand image.
Drawbacks of limiting the advertised price
Examine the problems that can arise when you limit prices with a MAP policy to understand the challenges of this approach.
- Retailer resistance: MAP policies limit retailers’ ability to attract customers with super low prices. The resulting resistance can strain your relationship with retailers who prefer more pricing flexibility. It might even limit your brand’s presence in certain stores and online platforms.
- Enforcement challenges: Monitoring and enforcing a MAP policy can take a lot of resources. You have to monitor all the retailers you do business with to ensure they’re not breaking the rules. It can be time-consuming and costly, especially when dealing with retailers who consistently violate the policy.
- Sales impact: While MAP policies protect your brand’s image, they can also impact your sales. If advertised prices are higher, it might discourage customers looking for a deal from buying your products. This can potentially decrease your sales and market share unless you adopt other strategies, like providing more value to justify the higher prices.
- Legal and compliance issues: Navigating the legal side of MAP policies can be tricky. You have to ensure your policy doesn’t break any laws, especially antitrust laws that prevent unfair market competition. This often means paying for legal advice to stay on the right side of the law.
Steps to creating a minimum advertised pricing policy
With careful planning and consideration, it’s possible to create a MAP pricing policy that works for your brand. The key is to follow a step-by-step approach that covers all your bases. Here’s how to move through this process with ease.
Step #1: Conduct thorough legal and market research
Creating effective MAP pricing policies begins with a focus on 2 areas: legal and market research. Here’s what you need to do.
On the legal side, talk with an attorney to clearly understand the rules for pricing within your industry. This includes federal antitrust laws that apply nationwide and state-level antitrust laws that differ by state. For example, in California, there’s the Cartwright Act, a state law that adds extra rules about pricing and competition.
As for marketing, study how your competitors handle pricing. Look into competitive pricing trends, consumer behavior, and the overall market. Take note of competitors with their own MAP policies in place. This research will help you lay a solid foundation for crafting a successful approach that suits your brand’s needs.
Step #2: Define some clear goals and a broad scope for your MAP policy
After your initial research, the next step is to decide what you want your pricing policy to do and what products it will cover. Start by thinking about what’s important for your brand, then shape your MAP policy accordingly.
Do you want to make sure that all stores sell your products at a similar price? Your policy might focus on close price monitoring and enforcing uniform pricing.
Or maybe your main goal is to keep your brand’s image strong by not letting stores sell your products too cheaply. In that case, you may want to create guidelines on advertising your product’s value to justify its strict advertised pricing rules.
Once you know your goals, decide which products the policy will apply to. You might include all your products or just a few special ones. Also, think about where this policy will apply. Will it be the same for products sold both online and at physical locations?
Step #3: Carefully set and justify your minimum advertised prices
Now, it’s time to decide the lowest price retailers can advertise for your products. The prices should be reasonable and make sense to your customers. They shouldn’t be too high that customers feel it’s unfair, but also not so low that it hurts the value of your brand.
How is MAP pricing calculated? Set the prices by considering various factors such as the cost of making and selling your products, competitor pricing, or market trends.
You also need to explain why you chose these prices. Giving a good reason for your prices helps stores understand your policy and makes it easier for them to follow it.
Step #4: Define penalties for noncompliance with your MAP pricing policy
You must establish clear consequences for retailers that violate your MAP policy. This ensures retailers understand that there are penalties if they don’t stick to the agreed-upon advertised prices.
When defining these penalties, consider a balanced approach. You want to be firm enough to protect your brand but not so harsh that it harms your business relationships.
Begin with a warning system. A simple reminder about the policy might be enough for a first-time offense. Stronger actions might be necessary if the same retailer keeps breaking the rules.
Possible penalties could include:
- Temporary suspension from selling your products
- Permanent removal from your list of authorized sellers
- Financial penalties, if legally allowed in your region
With the proper penalties, you can rest assured that your MAP policy will be taken seriously. Retailers will know what to expect if they don’t comply, preventing misunderstandings and encouraging them to follow your rules.
Step #5: Draft a detailed MAP policy document with help from a lawyer
Once you have all the details, write down your MAP pricing policy in a formal document. This is where you clearly state all the rules about your pricing.
It’s a good idea to work with your lawyer on this. A lawyer can help ensure that your policy follows all the legal rules and is clear and fair.
In your policy document, include all the key details, like your minimum advertised price limits, the reasons behind these prices, and how you want your products advertised. Also, describe what will happen if a store doesn’t follow your policy.
Step #6: Develop a robust MAP monitoring and enforcement strategy
The final step in establishing your MAP pricing policy is creating a strong monitoring and enforcing plan. To begin, decide how you will monitor retail prices, whether it be manual website checks or using specialized price tracking software.
For pricing enforcement, establish a clear process for what happens upon detecting MAP violations. Align the process with the penalties defined in your policy. For example, you might first send a warning, giving the offending party time to correct the issue. If the problem continues, work through the additional penalties in your contract.
At the end of each year, review and update your brand’s MAP policy as needed to protect your brand. Communicate the changes to your retailers while sharing how the policy helps your brand and their business.
Embrace MAP pricing for increased sales and customer loyalty
In conclusion, MAP policies ensure the price of your products stays the same across different online and brick-and-mortar stores. It’s how to keep your brand’s value high in customers’ eyes and preserve your bottom line. So, unless you want to leave your branding and profits to chance, a MAP pricing strategy is the way to go. Take the leap today and watch your brand thrive with consistent pricing and a loyal customer following.