In today’s retail landscape, where online shopping surpasses traditional brick-and-mortar stores, it has become crucial to implement pricing strategies that effectively address the challenges posed by online distribution channels. Online resellers, with their low overhead and enticing price discounts on flagship and value items, have significantly impacted the market by driving volume to their online stores. This has resulted in lower average retail prices and a decline in in-store purchases. However, with the legally enforceable agreements of Minimum Advertised Price (MAP) and Minimum Resale Price (MRP) in Canada and the United States, manufacturers now have the means to maintain a mutually agreed upon minimum price across all channels. These agreements foster fair competition and provide businesses with greater control over their product pricing.
Understanding Minimum Advertised Price (MAP)
MAP policies define the minimum price at which resellers can advertise a product and establish incentives and consequences to ensure compliance. It is important to note that adhering to MAP does not restrict retailers from selling products below the agreed price; rather, it restricts the advertising of the product outside their physical stores at a price lower than the predetermined amount.
Prominent companies like Apple and GoPro serve as examples of firms with strict MAP policies. Apple enforces signed MAP agreements with resellers, specifying minimum advertised price points. Additionally, Apple offers lower margins to its channel distributors to discourage resellers from pricing their products below the agreed-upon MAP. Similarly, GoPro closely monitors retail partners and inventory levels to ensure adherence to MAP guidelines. Both companies explicitly state that contracts with resellers promoting products below MAP will be terminated.
Overcoming MAP Challenges
Despite the signing of MAP agreements, retailers have found ways to circumvent the minimum advertised price. Since MAP primarily governs the advertised sales price rather than the final selling price, retailers often employ tactics such as e-store-wide offers, promotions, hiding online product prices until checkout, or directing customers to check in-store for pricing details. These measures enable retailers to avoid violating their MAP agreements and potentially reduce prices within their physical stores.
Exploring Minimum Resale Price (MRP)
Minimum Resale Price (MRP) is another policy that manufacturers can legally enforce to ensure resellers sell products at or above the desired minimum price at checkout. In Canada and the US, suppliers have the right to refuse sales and discriminate against resellers who fail to adhere to the MRP. Manufacturers argue that MRP helps prevent loss leader selling and offers similar benefits to MAP, such as safeguarding a product’s value by preventing excessive discounting and enabling brick-and-mortar retailers to maintain sufficient margins for proper customer service and training.
In 2012, leading TV manufacturers Sony and Samsung started enforcing MRP policies on their television sets to support brick-and-mortar retailers facing a 15% decline in margins. While Sony had previously implemented strict MRP guidelines for PlayStation products and camcorders, this marked a new approach in the TV category. However, implementing MRP on a category without universal adoption by manufacturers can be risky, potentially resulting in loss of market share to competitors who continue to leverage discounts and grow sales through online platforms like Amazon.
Mutual Benefits and Implementation
To ensure resellers and distributors comply with MAP and MRP policies, manufacturers often offer incentives such as co-op advertising dollars, territorial exclusivity, favorable wholesale prices, or priority treatment for new product releases.
Implementing and enforcing MAP and MRP policies have presented challenges for manufacturers. While these agreements ensure price compliance, they may lead to severed ties with key retailers. However, manufacturers can protect themselves by explicitly stating their authority in determining policy violations and specifying appropriate punishments, which may include warnings, cancellation of pending orders, restriction of future orders, or suspension of distributor accounts.
Unmasking Unauthorized Resellers
Manufacturers face a significant threat from unauthorized retailers who purchase authentic products and sell them below agreed-upon prices on platforms like eBay and Amazon. Although manufacturers can track and report unauthorized resellers, they often bear the responsibility independently. Marketplaces like Amazon, which receive a percentage of third-party sales, are often reluctant to enforce seller pricing agreements. This poses challenges for manufacturers as unauthorized resellers cannibalize sales and diminish the perceived value of products through lower prices and advertising.
To combat unauthorized resellers effectively, William Levins, a Nuvonium blogger, suggests two strategies. Firstly, monitoring sales and promotional offers can help identify unauthorized resellers who purchase unusually large quantities of discounted products. Secondly, employing custom codes for products sold to resellers can enable manufacturers to identify concealed retail sites operated under different names, thereby flagging violations of the reseller agreement.
Protecting Your Brand Value
In conclusion, price maintenance policies like MAP and MRP serve as valuable tools to protect your brand and ensure adherence to your pricing strategy. However, it is essential to consider the implications and be prepared to enforce these policies consistently across all resellers. Although enforcing such policies may result in the loss of key business relationships, the benefits of MAP and MRP, such as fair competition, safeguarded margins for sellers, enhanced training, and the preservation of brand value, outweigh the associated risks. By leveraging these agreements, manufacturers can actively combat unauthorized resellers, uphold pricing standards, and strengthen their market position.