MAP (Minimum Advertised Price) vs MSRP (Manufacturer’s Suggested Retail Price)
A brand can’t exist without effective pricing strategies. A systematic improvement in businesses’ pricing capabilities leads to a lasting positive impact on profitability (and prevents rampant retailer discounting).
Pricing is a sum of several factors, such as competition, production costs, brand positioning, etc. So, what standard has been followed for years to develop a robust pricing strategy?
It’s MAP and MSRP! MAP (Minimum Advertised Price) and MSRP (Manufacturer’s Suggested Retail Price) are among the two commonly evolved pricing policies retailers have to follow to maintain brand equity (and also to safeguard themselves from legal actions!)
To know more, read our comprehensive guide on MAP vs MSRP below without further delay!
What is MAP (Minimum Advertised Price)?
The ‘minimum’ in MAP refers to a lower limit set by the brands below which retailers aren’t allowed to advertise their products. The flex? It’s an assertive legal pricing policy! Its violation by retailers can lead to severe legal action against the brands.
MAP’s legal document states a minimum price that online or brick-and-mortar retailers can advertise. It is a one-way policy where manufacturers set and communicate these prices with the retailers.
However, as long as they won’t advertise this pricing, MAP loopholes exist for sellers to sell at lower prices than MAP. A retailer’s MAP pricing determines how low they can promote a brand’s product, not the final sale price.
How MAP Policies Change Across Countries?
Rules and regulations for MAP policies differ by country or region. For instance, minimum advertised pricing policies are legal under federal antitrust laws in the United States. However, they are illegal in the United Kingdom as an infringement on competition laws.
MAP pricing is allowed in some regions, but there are strict rules about how it’s created and enforced. These policies may be legal in some European countries. Retailers are allowed to control both the advertised and in-store prices here.
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Why To Enforce MAP Policies?
Developing strict MAP policies has many benefits for product manufacturers and brands. Let’s learn how they can become a better safeguard!
- It protects the brand’s worth.
- It prevents price erosion.
- It prevents retailers’ rampant discounting.
- It prevents price wars between retailers.
- It encourages a fair and balanced price competition.
- It helps build trust and loyalty among customers.
- It helps eliminate bad sellers with no added value.
How To Formulate A Competitive MAP Policy Document?
You must devise a competitive MAP policy that helps you win among other brands with similar products. Consider a sticker price (aka minimum advertised price) that determines your brand’s worth in the market.
A genuine price is like a win-win situation for both retailers and customers. However, setting up this policy document might be the trickiest task. So, you can take help from the words written by Professor Ayelet and Eugene F. Zelek Jr. in Harvard Business Review. You can only formulate a reliable policy by knowing about the markets.
This review article suggested the significance of resellers’ margin needs, brand positioning, and competitive environment in setting a robust MAP policy. Considering this perspective, we have listed the six steps to create a sound MAP document below.
Step 1: Be very clear about your product’s MAP policy. (Check some MAP policy sample clauses here!)
Step 2: Determine the scope of the policy.
Step 3: Describe the process of monitoring MAP compliance.
Step 4: Explain your policy’s enforcement process clearly
Step 5: Describe how retailers can file a MAP violation claim.
Step 6: Develop a reward system.
The document should be motivating enough for authorized retailers as well as manufacturers.
Furthermore, the document should define how retailers can flag map violations made by other retailers and engage them in MAP enforcement.
Consult a legal advisor after drafting a MAP policy template to ensure everything is legal.
How To Set MAP Pricing Levels?
The next step is to set prices after finalizing the MAP policy. It should be created strategically, keeping all the factors in mind. While it’s impossible to state the exact rules for setting MAP pricing, here are some key factors to consider:
Prices shouldn’t encourage significant discounts:
Brands need to set the MAP prices at the minimum or lowest level that is comfortable for them. High MAP prices will give retailers the chance to offer significant discounts all the time since margins are too high.
Prices should safeguard retailers, too:
As we mentioned earlier, MAP policy should motivate both manufacturers and retailers/ resellers. However, retailers’ margin requirements must never be overlooked when setting these prices. A brand’s MAP price must provide a profitable margin to its best retailer.
Prices should maintain your brand’s worth:
A brand that is always on discount or too high to afford for its target customers might not maintain a genuine brand image in the market. Thus, MAP pricing should also align with the brand’s value and offer fair worth to its products.
Know About MAP Pricing Enforcement
Here are some general steps businesses take to enforce MAP policy.
Step 1: Set Minimum Advertised Price
Set your exact MAP pricing based on the factors we have discussed above. Determine the price your target customers will pay for your product. Conduct customer surveys, create an ideal customer profile, and study customer data.
Step 2: Hire A Legal Team To Draft MAP Policy
Hire a lawyer to draft your brand’s MAP policy document. They will suggest whether a single policy can apply to all your products or whether you must create different sets of MAP policies for other products.
Avoid using a cookie-cutter map policy, as MAP compliance involves a comprehensive understanding of antitrust laws. Make sure your MAP pricing policy uses clear language explaining the minimum advertising price and the consequences for violating it.
Step 3: Consider Adding Temporary Waivers
You can also set pricing exceptions as temporary waivers for specific seasons or holidays. For instance, you can exempt your MAP price on Black Friday to allow retailers to promote limited-time deals.
Step 4: Set A MAP Monitoring System
Now, you need to set up a robust MAP monitoring system. Leverage various MAP monitoring tools and software available online. Use a tool showing your retailers’ price histories to protect your brand. It also saves you time surfing the internet!
Step 5: Make Required Adjustments In MAP Policy
Keep your MAP pricing policy up-to-date and adjust it based on market conditions. Yet, you should communicate the changes made to your retailers. MAP policies might also need adjustments to align with dynamic consumer preferences or their fluctuating demands.
How To Manage MAP Prices & Stay Competitive As A Retailer?
You might be looking for strategies to stay ahead as a retailer in the era of MAP pricing. Take a look at some of these strategies below!
Discounted Carts: A discount at checkout can provide pricing flexibility without advertising prices below MAP.
In-Store Promotions: As MAP is primarily applied to advertised prices, in-store promotions are not subject to limitations.
Bundle Pricing: A bundle can hide individual product prices, allowing competitive pricing without violating MAP.
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What is MSRP (Manufacturer's Suggested Retail Price)?
The term ‘suggested‘ in MSRP refers to the manufacturer or brand’s proposed price to the retailers. Yet, unlike MAP, MSRP doesn’t create a strict line for the retailers to sell at. Retailers can either sell below MSRP or above MSRP (provided they’re not violating MAP!).
Brands generally set this price after determining several factors, such as distribution costs, manufacturing costs, product margins, and more. With this proposal to harmonize pricing across retail, consumers can expect a baseline price for products.
MSRP is also known as:
- List price
- Sticker price
- Suggested retail price (SRP)
- Recommended retail price (RRP)
The Story of MSRP
You might come across MSRP prices, especially when shopping for new cars at the dealership. It is a standard pricing mechanism followed mainly in the automotive industry.
Federal law requires MSRP or ‘sticker price‘ to be posted on every vehicle in the auto industry window. The sticker should also contain all the relevant details about the car. This pricing strategy is also commonly followed by electronic appliances.
This sticker price (sometimes called the Monroney sticker) is a consequence of the legislation of the Automobile Information Disclosure Act of 1958. The law offers customers protection from dealers taking unfair advantage besides setting a benchmark value for cars.
Although you may have seen sticker prices in most automobiles, they are not required to be displayed on used vehicles. It’s because the prices of used cars also vary significantly.
How do Brands Calculate MSRP?
Brands calculate MSRP considering all the manufacturing and sales process costs and the average markup sellers require. Demand also plays a crucial role in determining MSRP.
Sometimes, retailers may manipulate MSRP to state unreasonably high prices. Nonetheless, depicting high discounts over suggested prices and gathering more customers is wise.
It could be set higher for high-end brands and vice-versa! We mentioned brand positioning and image as necessary factors in determining MSRP.
Is MSRP Legal?
A manufacturer cannot take any legal action against the resellers who do not comply with MSRP prices. Yet, it’s upon manufacturers whether to include or not to include these resellers in their distribution chain.
How Is the Car's Base Price Related To MSRP?
MSRP is the foundation of a car’s base price. It sets the base price at the very beginning without any additions or trim level upgrades. Thus, MSRP denotes the lowest vehicle cost that automakers, from Toyota to Lamborghini, leverage.
You should also know about the following two prices automobile dealers charge their customers. However, these prices aren’t set by the automakers.
Invoice Price
It is calculated after considering the dealer’s cost. Dealers generally charge higher prices than customers’ invoice prices. But, they may also sell below the invoice prices.
Transaction Price
It is the final price a customer agrees to pay for an automobile. So, it is a sum of factors like dealer costs, rebates, taxes, and more.
Is MSRP The Best Price Or Just An Illusion?
Yes, it could be an illusionary best price if dealers manipulate higher MSRPs. MSRP is rarely the lowest upon which a customer can purchase a vehicle or any electronic appliance.
This means auto dealers can still make a profit even after selling you a vehicle at a price below the MSRP, as the difference between the MSRP and invoice price can be several thousand dollars.
As a customer, you can start your offer below the invoice price. Go your way up from there! The counteroffer generally comes between the invoice price and MSRP. Customers can also explore multiple dealers to get the best price possible.
What Are The Challenges Of MSRP?
MSRP faces several challenges in today’s dynamic market, as described below.
- The rise of online marketplaces may significantly cross the prices below MSRP, leading to price erosion.
- The dynamic pricing algorithms make it further challenging for retailers to adhere to MSRP.
- MSRP may be inconsistent in different countries and regions due to varying sets of taxes, import duties, and market conditions.
- Manufacturers aiming to position their products as premium might set a high MSRP, which could lead to manipulation for unfair advantage or poor sales.
- Retailers may find the MSRP too high to attract customers or too low to maintain a healthy profit margin.
- Frequent sales, promotions, and discount events have conditioned consumers to expect lower prices than the MSRP.
- Unauthorized sellers in grey markets can sell products below the MSRP. They also need to offer proper warranties or customer support.
MAP vs MSRP : The Differences Explained
Basis of Difference | MAP | MSRP |
Definition | The lowest price at which a retailer can advertise a product. | The price at which the manufacturer recommends the product be sold. |
Purpose | To prevent price erosion in the market and protect brand value. | To provide a benchmark for pricing consistency across different retailers. |
Flexibility | It maintains a minimum advertised price, and thus, is less flexible. | It is highly flexible as MSRP acts as more of a guideline than a strict rule. |
Enforcement | Manufacturers can take legal action for non-compliance | Manufacturers can’t take legal action for non-compliance |
Objective | To control advertised prices and support a consistent market image. | To suggest a reasonable retail price that balances value and profitability. |
Consumer Perception | Helps maintain perceived value and brand prestige. | Indicates the expected retail price, but can vary significantly in practice. |
Retailer Impact | Limits how low retailers can advertise prices, impacting promotions. | Serves as a starting point for pricing, but retailers can adjust as needed. |
Penalties for Violation | Manufacturers may impose penalties or stop supplying violating retailers. | No penalties as retailers can price differently. |
Market Influence | Affects advertised prices but not necessarily the final sale price. | Influences both the perceived value and the actual sale price of the product. |
Implementation | A legal MAP policy document is prepared and communicated to retailers. | It is often displayed as sticker price on automobiles with other relevant information about the vehicle. |
MAP vs MSRP: How They Are Similar & Can Work Together?
The implementation and legal consequences are what make the MAP and MSRP pricing different from each other. Whereas MAP is a strict lowest price set by the manufacturers, MSRP isn’t necessarily the best lowest price, as also mentioned earlier.
So, how do MAP and MSRP work together? There may be something familiar about them. And, yes, there is! The common feature is their setup. They are set up as one-way policies rather than as a trade agreement between the manufacturer and resellers/retailers.
If bonded together, it may not be profitable or desirable for retailers. But this practice of making these two prices work together seems profitable for brand manufacturers. If they make it a legal agreement that states the legal consequences of non-compliance with MAP and MSRP, then retailers have to legally follow MSRP and MAP.
This practice will also help standardize the resellers’ prices across the entire distribution/resale channel. Retailers may also feel more comfortable setting the resale prices this way if they aren’t bothering with competitor prices or promotions, etc. (which seems impossible in dynamic markets!)
Yet, MSRP is also beneficial to retailers in some aspects, as defined below:
- They can prevent aggressive discounting to protect their profit margins.
- It encourages price uniformity and reduces confusion among different retailers.
- Consistent pricing also enhances customers’ trust and perception regarding fairness when following this pricing structure.
Conclusion
So, it’s a wrap to our comprehensive discussion on MAP vs. MSRP! We’ve touched on various aspects of both these pricing strategies, their regulation as per different regions, benefits for both retailers and manufacturers, legal consequences, and a handy table to guide you through the differences.
Although MSRP has no legal consequences, the case could become different if enforced legally and communicated well to the retailers.
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