Assortment Optimization

Brand Protection: The Effect of MAP Violations on Manufacturers

As the competition among retailers intensifies, manufacturers need to step up and fight for their prices.

Competition among retailers has reached new heights as more and more retailers enter the market. As a result, the level of manufacturers’ anxiety, in the US market, soars as well. They are concerned about how increased competition will affect prices and whether or not they will fall below MAP, the minimum advertised price. Although manufacturers collect their revenue before products are priced by retailers, MAP violations create an undesirable ripple effect.

What’s At Stake

It is not the immediate consequences, but what is at risk for the future that worries manufacturers. Here are a few factors that may be affected in the long run when retailers price below MAP:

Brand Value

When retailers sell products below the MSRP, manufacturer’s suggested retail price, it conveys a lower value to consumers than the manufacturer desired. This could degrade a

alternate text

 

brand’s image, preventing it from becoming a premium brand and making it more difficult to build a loyal customer base. This also inspires other retailers to set their prices below MAP in order to stay competitive, creating a downward spiral of prices and product value.  Moreover, when a manufacturer releases a new, innovative product, discounting the product would misrepresent its true worth.

Margin

The MSRP could be set according to the margin a product brings in. When the sale of a product produces more profit in comparison to others, retailers have a higher incentive to advertise these items. This in turn would help both retailers and manufacturers. Retailers, who function as a manufacturer’s extended sales force, would have a higher sales velocity, prompting them to order more products from the manufacturers.

Wholesale Pricing

If a product’s profit per unit falls, a retailer’s willingness to pay for that item falls as well. Therefore manufacturers must continually decrease their wholesale price as the market price gets lower. This would result in less revenue and profit for both players.

Protecting Partnerships

When prices are set under MAP policy, it presents bargain basement retailers with the ability to swoop into the market and compete for consumers. This would hurt authorized resellers of the product and potentially damage the manufacturer-retailer relationship. Manufacturers chose where they want their products sold as a way of positioning their products, often choosing retailers whose consumers would identify strongly with the product. However, if their products were to be sold anywhere, it would minimize product and brand value.

How Retailers Try to Get Away With It

So if manufacturers disagree with this, how do retailers do it? As mentioned above, with an increasing amount of pressure from a growing number of competitors, retailers do everything in their power to remain competitive and maintain sales velocity. Here are a few of the most popular tricks that retailers use:

    • “Proceed to checkout to see price.” Since prices are not listed until the consumer agrees to check out, retailers technically aren’t advertising a price and therefore are not violating MAP.
    • “Price upon request.” Retailers could request that consumers contact them for a price quote. Although their prices could be below the MSRP, retailers have not broken the MAP policy, since their prices have not been advertised.
    • BOGO. When retailers offer buy-one-get-one-free deals, they are selling items at a price that is significantly less than the MAP. Although their sales volume increases, retailers are losing more revenue per unit.

alternate text
Manufacturers could respond to these tactics by refusing to send them anymore products. In extreme cases, a manufacturer can file a claim against the retailer, stating that they are breaking the copyright law for having images of products that are sold illegally. However, it is almost impossible for a manufacturer to catch every MAP abuser, which leads to my last point on how to audit your MAP pricing.

Ways To Keep Your Eye On It

As the number of retailers grows, the number of potential violators increases with it. While there isn’t one set solution to the problem, here are some tips I believe would be the most effective:

  • Automate monitoring: It is incredibly time-consuming and unrealistic to manually process individual retailers. Use a program that will help you find violators efficiently.
  • Identify the worst offenders. Keep an eye on those who constantly price under the MSRP. From the Pareto Rule, 20% of retailers will price below the MAP 80% of the time.

    alternate text
  • Target top sellers. Since their items are the first to appear when a consumer conducts a product search, manufacturers risk losing the most from top sellers. Make sure to constantly check their prices in order to avoid losing brand equity.

Although there are many platforms that assist manufacturers in regulating MAP, not all of them are able to tackle these factors. Find a solution that will help monitor these top three issues easily.

The increase in mobile and online shopping has made it easier than ever for consumers to compare prices. As a result, it has never been more important for manufacturers to make sure that their products are above MAP–it is crucial to the stability of their business.

Contributing Editor: Amanda Lin

Arie Shpanya

Arie is the former COO, Executive Chairman, and Co-Founder of Wiser, a dynamic pricing and merchandising engine for online retailers and brands. He has extensive experience in business development with a focus on eCommerce (eBay and Amazon), and is a guest blogger on Econsultancy, VentureBeat, and more.

Need better data to inform your decisions?

Schedule a Consultation