There are many reasons we at TrackStreet believe manufacturers and brands should have a MAP pricing policy. For example, MAP pricing protects your all-important brick-and-mortar retailers from being repeatedly undersold by their pure-eCommerce competitors. And if you know what you’re doing, you can even use your MAP policy as a powerful marketing tool.
We also mention that establishing and rigorously enforcing a MAP pricing policy is important for preventing online price erosion, which can undermine your brand value over time. But what exactly do we mean by that?
Studies Show Consumers Equate Lower Prices with Lower Quality, and Higher Prices with Higher Quality
When brands allow their retail partners to advertise their products for lower and lower prices—which is what often happens when a brand doesn’t have a MAP pricing policy (or fails to enforce it)—the public might begin to view that brand’s products as inferior.
Let’s look at the evidence.
High-end Retailers Lose Business When They Lower Their Prices
Research by Bain & Company found that upscale retailers offering lower prices lost sales to higher-priced competitors, because consumers perceived the upscale stores to have higher quality products (directly related to their expensive premium-pricing).
If your brand earns a reputation for quality, high-end products, then retailers offering them for lower prices can create misalignment in consumers’ minds and send them looking for alternatives.
Brands can spend years and substantial amounts of money establishing trust with consumers, creating brand equity in the market. A simple misstep like this, allowing a retailer to slash prices on your products without correcting the problem, can undo much of the investment your company poured into building your strong brand. As Warren Buffett famously put it: “It takes 20 years to build a reputation and five minutes to ruin it.”
Expensive Wine Tastes Better (Even When it’s Actually Cheap Wine)
A study from Stanford Graduate School of Business and the California Institute of Technology found that during wine tastings, the reward centers of people’s brains became more active when they believed they were drinking more expensive wine (even if they weren’t).
In these studies, people were allowed to sample “two different wines,” one from a $5 bottle, the other from a $45 bottle. Although the pleasure centers of the subjects’ brains lit up far more when drinking what they believed was the $45 wine, in reality both samples were the same wine.
People View Low Prices as an Indicator of Both Good Value… and Low Quality
According to research from Vanderbilt University’s Owen Graduate School of Management, most consumers simultaneously hold two conflicting views about low prices: they signal good value, and they also indicate low quality.
This can present a long-term threat to your brand. Even if consumers place more weight on the “good value” cue than on “low quality,” and they purchase your product from your price-dropping retailer, over time they will come to equate your brand with lower-quality goods. If a competitor comes along offering similar products at even lower prices, you won’t have your brand’s perceived high quality to act as a counterweight against the lower-priced alternative.
Reason Enough to Roll Out a MAP Pricing Policy
Your brand’s reputation in the market is one of your company’s most valuable assets, and many consumer-psychology studies suggest that shoppers will associate a low-priced product with a lesser quality brand.
One way to safeguard your brand’s perceived value is to establish a floor on the prices your retailers are allowed to advertise your products. And you simply can’t do this without a MAP policy.
This is why we believe that, even setting aside all of the other benefits of establishing and enforcing MAP, protecting your brand’s reputation for quality should be reason enough to roll out a MAP pricing policy.