“What’s more important for us to develop for our products - MAP pricing or MSRP?”
“Aren’t MAP pricing and MSRP more or less the same thing?”
“Can we have both MSRP and MAP pricing for our products?”
We at TrackStreet hear a lot of questions like these from manufacturers interested in deploying our MAP monitoring and enforcement platform. In fact, there seems to be such widespread confusion about what these pricing strategies are and how they work together - even among experienced manufacturers and brands - that we thought it was worth devoting a page to explaining them.
Before we jump into our overview of MAP pricing and MSRP, here are a few of the most important points we want you to take away from this page.
KEY TAKEAWAYS ABOUT MAP PRICING AND MSRP
- These pricing policies are not the same; they address different goals for a manufacturer
- Ideally, your MAP pricing and MSRP should work to support each other
- If crafted and enforced properly, neither pricing policy will constitute price fixing
WHAT IS MAP PRICING?
A minimum advertised price (“MAP”) is the dollar amount, set by the manufacturer, that represents the lowest price the business will allow its resellers to advertise one of its products.
There are two key things to understand about MAP pricing. First, it addresses only how products are advertised or otherwise publicly displayed by resellers. A MAP pricing policy does not attempt to control the actual selling prices of those products. In private negotiations with customers, resellers are free to sell a product below the manufacturer’s MAP-approved price, as long as its publicly displayed pricing is at or above the MAP level.
Second, MAP pricing is a one-way policy established by the manufacturer. In fact, it must be structured this way to avoid violating antitrust law as a “price fixing” scheme. Yes, a manufacturer can and should actively enforce its MAP pricing policy - warning and even penalizing resellers who advertise products below MAP levels to undercut competitors. But a MAP pricing policy cannot be structured as a two-way agreement by a manufacturer and a reseller.
WHAT IS MSRP?
A manufacturer’s suggested retail price (MSRP) represents the actual price that a manufacturer recommends its retail partners sell its products.
When a manufacturer establishes an MSRP for its product, the company is typically attempting to accomplish a few key goals. First, the manufacturer is attempting to standardize a product’s retail price across the company’s resale channel. This way, the manufacturer can protect the interests of all of its retailers - particularly the brick-and-mortar store chains carrying its product line - from being unfairly undersold by competitors.
A second goal of an MSRP is to establish a price that takes into account all of the costs required for selling the product - from all costs incurred in the manufacturing and distribution processes, to the typical markups for wholesalers and retailers. This way, the manufacturer helps ensure that all businesses involved in the sale can earn a profit from it.
Finally, just as manufacturers establish MAP pricing in part to protect their brand’s perceived value - because a product constantly advertised at bargain prices can eventually harm the brand’s reputation - an MSRP also helps manufacturers protect their brand over time, keeping its retail prices at levels that suggest a quality brand.
HOW MAP PRICING AND MSRP DIFFER, HOW THEY’RE SIMILAR, AND HOW THEY CAN WORK TOGETHER
The key difference between MAP pricing and MSRP is how the two pricing policies are meant to be applied. Whereas MAP pricing addresses only how a reseller advertises a product, MSRP represents the amount a manufacturer recommends its retailers actually sell the product.
But these pricing policies also have one major element in common: They must both be set up as one-way policies and not as agreements between manufacturer and reseller. Indeed, this is how both an MSRP and a MAP pricing policy can be used by a manufacturer without being deemed illegal price-fixing schemes.
According to antitrust law, if a manufacturer’s decision to establish a retail price for its product - whether the advertised price or the actual selling price - is deemed an independent, unilateral decision, and the retailer’s decision to adhere to that pricing guideline is also deemed independent, then such an arrangement will typically be considered entirely legal.
Manufacturers can legally enforce both their MAP pricing policy and their MSRP - by punishing a retailer who repeatedly violates either of these policies, including refusing to continue doing business with that company. But the key to staying on the right side of the law for both policies will be to make sure that neither is officially set up as a contract that a reseller must agree to in order to be allowed to sell the manufacturer’s products.
Ideally, a manufacturer will be able to use both of these pricing policies together to support its resale channel, protect its own margins and those of its retailers, and preserve and even strengthen its brand over time.
With an MSRP, a manufacturer lets its retail partners know how much it wants them selling its products for. At the same time, the MSRP sends a signal to all of these retailers that their competitors who are also selling these products will face penalties from the manufacturer for violating its suggested retail pricing. That means each retail partner will feel more confident in setting its retail price at the MSRP level.
Working in conjunction with the MSRP, the manufacturer’s MAP pricing lets retailers know the lowest amount they’ll be allowed to advertise those products. This will further standardize the products’ prices across the entire resale channel, giving every retailer a fair chance to compete for sales, and lowering the chances of a free-riding retailer undercutting everyone else.
These strategies will work, of course, only to the extent that the manufacturer not only establishes and publicizes its MAP pricing and MSRP policies, but also that the company actively monitors its products’ pricing across its entire channel and that it aggressively enforces its pricing policies as well.
To learn how to deploy an automated MAP pricing enforcement platform, schedule your free demo.