When it comes to pricing there are two very similar, yet exceedingly different, pricing policies that need to be considered. Deciding which policy is best for you and your business is a much tougher task, however. We’ve broken it down to give you a peek into the benefits and downfalls of each. We’ll be looking at how MSRP and MAP pricing policies compare and differ, the impression they leave on customers and give you an overall understanding of what each policy has to offer.
While the name itself sounds straightforward, the benefits and implications of MAP pricing could make a big difference in your profits and brand perception. The impact your pricing strategy has on you and your consumers are two very important characteristics that are often hard to find the perfect balance between. Knowing your options and what they mean for you and your customers (both retailers and consumers) will help you in selecting the best method for your brand.
Let’s start with the benefits:
- Cross-Channel Coordination: Pricing for your product is (or should be) an equal playing field on all platforms and at all retailers. This could eliminate the need for consumers to go to multiple stores to test the product and look for potential discounts before ultimately buying it online at a lower price. With a MAP policy, consumers shouldn’t have a need to buy online if prices are competitive across all channels. In this day and age, this benefit is more important than in the past because the number of available retailers has increased significantly. With websites/resources like “Google Shopping” that collect and display prices from various retailers in one place, knowing your prices all have the same minimum will make the purchase decision much easier for your consumers. If all products are priced fairly, then cross-channel competition decreases, and customer brand loyalty should increase as well.
- Profit Margins: With MAP pricing you have the ability to protect your profit margins by maintaining a minimum price among all retailers carrying your product. As long as MAP policy is maintained, a product will retain its value over time. Having a product that retains its value will benefit brands and retailers alike because profit margins will remain the same, while sales continue to grow, thus increasing retailers’ purchases from the manufacturer. For all parties, MAP pricing can be a win-win if it’s properly enforced.
- Monitor and Enforce: To truly benefit from MAP policy it has to be strictly enforced. What’s more? It must be enforced among all retailers equally. Why might this be a disadvantage? Large and powerful retailers may not cooperate with the policy and in this case, you have to decide whether or not to take action against those retailers, even (and especially) if they’re your best customer. That decision could damage your business plans with that retailer and potentially sales.
- Unauthorized Sellers: While some consumers tend to be cautious of the same products with a lower value in the marketplace due to the fear that the product may be “fake” or of lower quality. Although, sometimes the lower price is enough to draw them in. Manufacturers need to be aware of unauthorized sellers as they pop up in order to act when needed. Consumer perception can take a big hit when unauthorized sellers take advantage of MAP pricing under the nose of the manufacturers.
MSRP is the other big pricing policy that can be used and have a big impact on your sales depending on your pricing needs. The manufacturer’s suggested retail price, is, as it sounds, the price the manufacturer suggests a product be sold at. Similar to MAP pricing, this policy has benefits and drawbacks that need to be known and understood before deciding which strategy is the best fit.
- Consumer Benefits: Having the MSRP price listed while retailers are selling either just below or at that price gives customers a sense of satisfaction when making their purchase. They know they’re getting a fair (or better) price by comparing to the MSRP recommendation. Particularly prominent in car sales, this price is used by customers to help themselves get a fair price before making a purchase.
- Economic Benefits: If the economy is on a downfall, or is particularly “sluggish,” MSRP can be beneficial for retailers because they’ll have the ability to list the product below the suggested price to move inventory much faster than if the products were priced above MSRP. While this may benefit retailers in moving inventory, it could also be seen as a disadvantage for the manufacturer who will see lower profit margins as prices drop.
- Consumer Disadvantages: While MSRP can benefit consumers, as seen above, it also comes with certain disadvantages. Because MSRP is only a suggested price, retailers can set the price a lot higher than suggested. This can have the opposite effect on consumers and their wallets. Many retailers will only price a product below MSRP when the product is on sale.
- Product Perception: The price of a product to some can have a direct correlation to the quality and value of that product. Products priced below MSRP for any reason may lose value in the customer’s eyes. This is primarily true of products that are not necessities but are things people want. This will, in turn, decrease the value of the brand which could be detrimental to manufacturers’ future profit margins and brand perception.
Which Method is Most Beneficial?
The answer to this question primarily depends on your pricing needs, how your competitors are pricing their products, and most importantly, the impact each method will have on your business. Different industries will benefit more from each pricing method based on the laws and pricing strategies already in place. With this list, we’ve only just touched the surface. MAP and MSRP are complex pricing strategies, and the one you choose will transform how you do business.