What is MSRP Pricing?
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 MSRP pricing and MAP pricing differ, how they’re similar, and how they can work together
The key difference between MSRP pricing and MAP pricing and 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.
Can You Stop MSRP Pricing Violations from Unauthorized Sellers on Amazon?
The frustrating reality is that Amazon’s policy is not to interfere in manufacturer-retailer disputes over MSRP pricing. Amazon’s position is that these are internal business issues that don’t negatively affect the marketplace or consumers. In fact, Amazon has stated it believes retailers competing on price for the same product will benefit customers, and therefore even if it upsets the manufacturer it is still a good thing for the marketplace.
This means if you find a retail partner violating your MSRP pricing on Amazon, you will need to address that issue directly and probably without help from Amazon’s Seller Teams.
Amazon might help your company, however, if you catch an unauthorized third-party seller listing your products on its marketplace—but only if you can demonstrate to Amazon that this company is violating your copyrights, trademarks, or other intellectual-property rights to do so. Amazon does not want its marketplace used to facilitate IP theft, so the company will often help brands who can make such a case.
Pro Tip: Find the Right Brand Protection Solution
As you can see, there are many complexities, nuances, and important strategic decisions to make just when trying to develop your MAP pricing policy. And those decisions only grow more complex as you try to monitor the retail landscape effectively, enforce your MAP guidelines, avoid legal pitfalls, and deal with unauthorized sellers on Amazon and elsewhere online.
For these reasons, your best bet is not to try to go it alone. Instead, find the right automated MSRP pricing and brand protection solution to help you with all of it.
