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Answers to your Biggest MSRP and MAP Pricing Questions
Driving sales and maximizing profitability requires an environment where an authorized retailer doesn’t feel pressure to sell a product for the lowest price possible. Instead, taking steps that maintain the item’s profit margins and convey the brand’s value is a much more effective approach to support those goals.
Fortunately, brands have several tools at their disposal to attract resellers and give prospective buyers confidence in their products. Two of the most common are MSRP pricing and a MAP agreement. Still, there’s plenty of confusion about their differences and how to integrate them into a broader pricing strategy. Find some much-needed clarity with answers to the most persistent questions below.
What is MSRP?
MSRP is shorthand for the manufacturer’s suggested retail price. It is the price that a brand sets and recommends that retailers charge customers for a particular product. While a retailer, whether brick-and-mortar or online, can sell the item for less, the MSRP indicates the value that the manufacturer believes an item has.
A company will set its product’s MSRP by considering all of the costs required to manufacture and distribute the product, along with factoring in a margin that allows resellers to make a profit when selling at that price. Premium brands may feature a significant margin to indicate the added value or quality that the product offers over its competitors.
As the name makes clear, MSRP is not the price that a reseller must use to sell an item, and it’s not necessary to use the suggested retail price in promotions or advertising of the product. In fact, most customers will consider MSRP the upper limit of what they would pay for a product and will look for advertised prices that provide a discount off of the recommended retail price. Many retailers will use the MSRP to showcase the markdown they are offering to potential customers.
What is MAP Pricing?
Minimum Advertised Price or MAP differs from MSRP in that it is designed to exert more control over the actions of resellers. True to the name, MAP is the minimum price a retailer can advertise for a product they sell. It is set by the brand and should include a margin allowing retailers to profit reasonably. It applies to any retailer who carries the item and is intended to level the competition among sellers and avoid a price war. It can also protect against devaluation in the process.
It should be noted that a MAP pricing policy does not dictate the final sales price of a product. It only addresses the advertised pricing used by a retailer. In the case of brick-and-mortar stores, a lower price can be offered once the customer visits. Similarly, an online retailer can comply with MAP agreements by requiring additional clicks, such as adding a product to the shopping cart to see a final price that includes discounts.
Implementing MAP pricing is a more in-depth process than setting an MSRP. Brands need to produce a written MAP policy to provide to retailers and often benefit from legal expertise to help draft the document. In any event, the MAP policy must be consistently enforced across all of a manufacturer’s sales channels and should include specific consequences for any violations.
Does my brand need a pricing policy?
Absolutely. Regardless of the details, a brand should take a deliberate approach to price. As e-commerce continues its rapid growth, pricing policies will become more important for both retailers and manufacturers. Online sales are likely to continue their growth trend while also consolidating among the largest online retailers, including Amazon. As this happens, the desire of smaller resellers to compete with industry leaders is more likely to lead to destructive price wars for products that aren’t backed by effective pricing strategies.
Instead, implementing effective pricing policies can help companies create mutually-beneficial relationships with retailers and shoppers. Resellers will appreciate the support from the brand that protects their margins. At the same time, consumers will enjoy more confidence in the value of a product and a less frustrating shopping experience due to the consistency across both e-commerce and brick-and-mortar stores.
How will a pricing strategy impact my brand?
In addition to the positive impacts that a successful pricing strategy can have on a company’s retailers and customers, there are also substantial benefits for the brand. Prioritizing margins and protecting retailers from price wars increases a brand’s value in several ways.
First and foremost, an effective pricing policy can enhance profits by avoiding short-term price wars and making the company a more attractive partner for retailers. The market awareness required to implement and monitor pricing policies can also result in less competition from businesses that will likely seek out more vulnerable targets. Relatedly, well-executed pricing policies will likely lead to greater market share as brand image improves and accessibility increases.
Do I have to choose just one?
Fortunately, no. A company is typically best served by utilizing both an MSRP and a MAP policy since they address pricing in different areas of the manufacturer-reseller relationship.
An MSRP showcases the value of a product and demonstrates a brand’s commitment to the profit margin of its resellers. It provides the foundation of a pricing strategy but does little to discourage tactics that most manufacturers, and their distributors, would like to avoid. Combining a suggested retail price with a well-defined minimum advertised pricing policy is a much better way to avoid pricing volatility.
Instead of focusing on just one type of pricing policy, brands should pursue a comprehensive strategy that will be continually evaluated and adjusted as necessary. Together, an MSRP and MAP policy has a stronger potential to create the advantages a manufacturer should be seeking from their pricing strategy. This includes a fairer environment for competition, discouragement of unauthorized sellers, support for more sustainable growth, and an increase in profitability.
How do I enforce a pricing strategy?
The most effective pricing policy is an enforced pricing policy. Crafting an appropriate MSRP and a solid MAP policy also demands a commitment to monitor multiple marketplaces. Sometimes, a brand opts for a dedicated person or team to take on this responsibility. Others may turn to software options designed to check for violations and respond to them automatically.
Regardless of how a violation is discovered, there needs to be a plan to deal with them once they are identified. If the problem is an unauthorized reseller, there will likely be a way to report them to the host platform and have them removed from the site. As mentioned, it’s critical that pricing policies include specific consequences for violations when it comes to an authorized seller. And it’s even more crucial that those provisions are followed as laid out in the policy whenever an issue is identified. Uneven MSRP or MAP enforcement can lead to legal consequences for the manufacturer and result in unenforceable pricing strategies.
Keep in mind that Amazon is unlikely to intervene in pricing disputes with an authorized reseller. Amazon’s position is that these are internal business issues that don’t negatively affect the marketplace or consumers. In fact, the company has stated it believes an Amazon seller competing on price will benefit customers. In their view, even if it upsets the manufacturer, it is still good for the marketplace.
How can Amify help?
Amify has a team of more than 60 experts waiting to help lead your company to success on the platform. Trust our 11-plus years of Amazon experience and decades of work in e-commerce to provide the brand protection and growth strategies that get results. Don’t wait. Start a conversation about your brand’s future on Amazon today.