Minimum advertised price (MAP) is an agreement between manufacturers, suppliers, brands, and retailers, designed to protect the manufacturer’s interests as much as to regulate the competition between retailers.
It’s a binding agreement for retailers, however, they have a tendency to violate it.
In this post, we’ll learn the reason behind this agreement, why retailers tend to violate it, and how can you prevent them from doing so.
What is MAP?
It refers to the minimum price a retailer can advertise a product. Although in-store prices are not under constraint of MAP, online store prices are.
United States Federal Trade Commission (FTC) states that a manufacturer has the right to set a MAP and cease the business relationship with the retailers that violate their MAP. Of course, each country or trade zone has different regulations, and you need to learn about the law in effect in your country.
MAP is legal under FTC’s antitrust laws. Why is there a consensus on the necessity of MAP?
The rationale behind it
Consumers have a tendency to associate lower prices to poor quality. If retailers lower a product’s price too much, it can seriously damage the manufacturer’s brand image and product value.
To preserve/improve their brand image, the manufacturer brands have the right to set a minimum advertised price.
Unlike the common perception, it actually benefits retailers too.
Retailers sometimes take competition too far and start racing to the bottom. They even sell at a loss to lure customers into their stores.
Unfortunately, they leave too much money on the table. And the businesses that don’t want to or can’t afford to race to the bottom lose their competitive strength.
For all these reasons, manufacturer brands have a right to enforce MAP. But here we face a problem.
How online retailers violate their commitment
Online retailers found ways to escape from their commitment to MAP.
Product bundling is a commonly used marketing tactic where retailers offer two or more products at a single price, often a discounted one. So, when a retailer bundles a MacBook Pro, a leather briefcase, and a headphone, it’s impossible for the headphone manufacturer to know whether MAP was followed or not.
40% off of everything with the code
You’ve seen a storewide discount a thousand times before. At times, the percentage of the discount is so high that the website violates hundreds of MAPs at the same time. You might ask, why do manufacturers allow that?
Because it’s legal. When the discount is added on the checkout page, it’s not a MAP violation. It doesn’t count as an advertised price.
Amazon’s pricing strategy has opened a new era for all retailers. The retail giant pursued a data-driven pricing policy that ensured the company’s long-lasting domination of the U.S. e-commerce market.
They developed the technology to offer shoppers personalized discounts in the shopping cart based on their previous shopping behavior.
Manufacturers can’t see a personalized discount that only becomes visible in a person’s shopping cart. This is another obstacle in front of manufacturers trying to detect MAP violators.
‘Buy one get x off for the second’
We all love free stuff. That’s why ‘two for the price of one’, or ‘buy one get one free’ (BOGO) promotions attract so many shoppers. In reality, a BOGO promotion is exactly the same as a 50% discount.
Online stores use this tactic to avoid possible repercussions from manufacturers.
This store nearly gives the second iPhone for free.
As you can see, MAP enforcement is not an easy task. Even if all the tactics we have mentioned above were illegal, it would take so much time to control all the retailer websites.
There is a solution to that.
How to detect the MAP violators
Manual monitoring takes too much time for sure. But it’s not the worst part. Even if you allocate so much of your time to MAP monitoring, it’s still prone to human error.
On top of that, online retailers change prices too often. The intensity of the competition creates a tendency among online retailers to make price changes daily, hourly, or even minutely.
So, you manually look for MAP violations, but before you control all of the retailers once, many of them would be changing the price again.
This is where the MAP Monitoring Software comes in. It automates the MAP monitoring process and leaves out the possibility of error. With the help of this tool, manufacturers allocate more of their time to executive decision making and make well-informed decisions.
What to do when you identify MAP violators
The first thing you need to do even before identifying violators is clearly defining your MAP policy. Retailers must know the consequences they will face if they violate the MAP.
After you warn a violator, determine a timeframe within which they can abolish their misdemeanor. If they don’t, put a hold on product delivery for a while.
If they continue their violations, you need to take further steps. Decide on the next rule depending on your business’ needs.
Say, 40% of all your products are purchased by a single retailer. Instead of ceasing the relationship immediately, you can push them to follow your MAP with additional warnings. If your business is not dependent on that particular retailer, you can stop doing business with them.
There are plenty of online retailers that won’t violate MAP. You don’t have an obligation to stick with a particular one.
Minimum advertised price violations can negatively impact a manufacturer’s brand image. That’s why you need to monitor retailers, detect violators and penalize them.
However, no matter the precautions you take, online retailers find loopholes that’ll make it impossible to monitor violations.
Even though you can’t detect all, with the help of MAP monitoring software, you can prevent violations to a great extent.