Where Will MAP Pricing Lead Online Retail?

The US Supreme Court ruling in Leegin Creative Leather Products Inc. vs. PSKS Inc. (pdf) in June, 2007 made it legal for a manufacturer to set and enforce MAP (Minimum Advertised Price) for resellers of its product, and pull the line or sue retailers who violate.

Correction:The Supreme Court ruling found that minimum pricing policies are legal and do not represent a violation of U.S. antitrust statutes.

Why Manufacturers Enforce MAP

There are many reasons why manufacturers may impose such pricing policies:

  • Manufacturers want to protect brand image, which discounting can work against for premium brands and new, innovative products
  • High margin is an incentive for retailers (who are the manufacturer’s extended sales force) to promote these items more than others (although without the ability to offer price breaks, it’s harder to incentivize consumers to buy)
  • Maintaining MAP or MSRP maintains retail value so manufacturers can retain wholesale pricing
  • To prevent bargain basement retailers from underselling other resellers of the product (who may discontinue selling these brands or complain to the manufacturer)

MAP doesn’t necessarily apply forever, especially for seasonal products or categories like consumer electronics where new models are constantly hitting the market. But under a MAP policy, a product must be sold at a MSRP (Manufacturer’s Suggested Retail Price) until the manufacturer permits a markdown.

How MAP Affects Retailers

Some retailers will benefit from the level-playing field (smaller retailers, those with higher operational costs or lower efficiency and retailers with a reputation for excellent customer service), and enjoy extra margin to boot. Though certain industries will suffer, especially in this economy, as sales velocity doesn’t occur until the price moves South. For example, HomeCenter.com reports certain price-sensitive product lines sell $150,000 per month when discounted vs. $10,000 when sold at MAP.

Another downside is inventory costs. If in this economy, people are hanging on to their older model consumer electronics rather than buying the latest models, that inventory is going to back up. Without the ability to markdown, the retailer must deal with the stale stock. The manufacturer has received its money, but also loses as it won’t be refilling inventory for resellers.

And as with any rule, MAP is bound to be broken. Online retailers are already using “click to see price” in pop-up windows, “add to cart to see price” and “email for quote” tactics. Retailers who take the high road and adhere to MAP pricing often find themselves forced to lower prices to compete, or honoring price-matches once discounters run out of product.

Break MAP at Your Own Risk

Technically, concealing price from product pages is akin to a brick-and-mortar store showing one sticker price, and a salesperson verbally offering a price break to a customer in-store. It’s not an advertised price, nor a displayed price. But that raises the question — if it’s not advertised in email, PPC, shopping engine or other promotional material — is showing a sub-MAP price on a product page really “advertising”?

Retailers who walk this thin line must be careful not to let these prices slip through data feeds and into shopping engines, search engines or any other promotion. Even with diligence, it’s easy to get caught breaking MAP. Spy firms like NetEnforcers Inc charge upwards of $100,000 per month to mystery shop online retailers on behalf of manufacturers and have already caught many in the act. Offenders are notified by NetEnforcers to correct pricing which is typically restored within a few hours. If the seller is not a licensed dealer, the seller may be slapped with copyright infringement.

Alternative Incentives to Discounts

Most manufacturers don’t balk when retailers offer free shipping, gift with purchase, gift cards with purchase or a % off an additional, non-MAP protected item when promoting a MAP item. So long as the dollar value of the product is not reduced, everything’s cool. Offering coupon codes is another way to reduce the price without reducing the price, but be very careful that you don’t advertise the coupon to be applied to the MAP product (that would be advertising). To be safe, if you’re offering a coupon code, always mention which items are excluded from the promotion. For example, Austad’s has a special landing page that lists all the excluded brands and a brief explanation at the bottom:

Email offer:

Landing page also shows the same image as above (to re-assure customer is in the right place) and includes this at the bottom:

What About the Consumer?

Obviously consumers don’t like paying more for products, especially in this economy where people expect everything to be on sale. (On the flip-side, if consumers stop buying non-essentials, however discounted, they actually come out ahead).

Consumers skilled at online comparison shopping might be frustrated to find no price breaks (with the exceptions of retailers who break MAP or on factory refurbished products), or may hunt out free shipping offers and other incentives. Comparison engines that display the total cost including taxes and shipping will aid these customers, as will those that provide seller ratings to help them decide who to ultimately buy from.

Internet Retailer raised the question “will consumers continue to shop the Web if they can’t get better deals online than in store?” and cite research by Forrester, the e-tailing group and Carnegie-Mellon University:

  • 49% of counsumers shop online for convenience, 46% for selection and 43% for value (Forrester)
  • Price was important to 80% of online shoppers, but ranked fifth among benefits of shopping online (e-tailing group)
  • Online consumers are willing to pay $1.72 more on average to buy books from brand-name retailers than unfamiliar merchants (Carnegie-Mellon)

“I don’t see it leading to a mass exodus from the Internet, because lower price isn’t the dominant reason people get value from the Internet,” says Carnegie-Mellon professor Michael Smith. “But taking away the little guys’ pricing advantage will strengthen the hand of the large players.”

In this economy, manufacturers of premium brands and non-essential products (purchases which can be deferred without severe loss of standard of living) likely have to give a little, and remove restrictions earlier. So the whole MAP thing might not be as much of a headache for retailers after all.

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25 Responses to “Where Will MAP Pricing Lead Online Retail?”

  1. At our company we follow all of our manufacturers MAP pricing. I think it is the right thing to do to build strong and trustworthy relationships with these manufacturers. I think anyone being sneaky and trying to break map should be punished because its the same as web development field where people take on jobs for very little amount just to get the job and make some money but it undercuts the real value of other web developers/designers.

    Sure a lot of companies can go and do this because many of them have funding and as long as they are making sales right now that’s all that matters. We all know there are a lot of retailers out there right now making a ton of sales but aren’t profitable a bit and many of them are going out of business also. But a company that has made its way without taking money from investors and base’s its business model on high end products, customer service, and good relationships with manufacturers/vendors, MAP violations can really effect overall success.

    I am all for creative ways to sell your products but when you are breaking the rules set forth, that’s just shady to me. Where are your companies values at that point?

    • There is little comparison between a web developer who sets his/her own rate to get a job, and a manufacturer who enters a contract with another company to sell their products for a set rate. One is an individuals right to set whatever price on their own work and time, and one is a relationship between two companies who have a contract between each other. I rue the day when some regulating body tells people what they can and can not charge for their own labor all in the name of fairness.

      I do agree that a company that labors to create a product should be able to set a price for their products and have those selling them be accountable to hold to that price, but your comparison would make it so every company making vacuum cleaners has to sell their vacuum cleaner for a certain price.

      Congratulations! You just killed capitalism.

  2. Hi All,
    I’ve read a lot about MAP policies, but must confess I haven’t read one. Does anybody have a link to a real MAP policy? Thanks.

  3. Another problem to consider is the cost of implementing the “click to see price” schemes for small businesses, whether that’s developments costs on the website, or staffing costs to handle the “contact us for price” approach.

    I’ve implemented several MAP mechanisms for one of our Miva Merchant clients. Their vendor kept requiring them to change their authentication procedures, so we had to keep redesigning the solution. So there were obvious costs associated with just the action of jumping through the manufacturer hurdles.

    What do you think about manufacturers limiting WHERE you can see products? For instance, one manufacturer I’m aware of will not allow retailers to sell on Amazon, and even actively chases down retailers advertising on CSEs. As the manufacturer is not a drop-shipper, this seems outside the ethical boundaries of what a manufacturer can impose on a retailer. Curious about your thoughts.

  4. I should add a note about the manufacturer disallowing CSE advertising – the manufacturer sells retail as well as wholesale, so they compete directly with their retailers.

  5. Yeah, recently we had someone tell us we couldn’t submit to any affiliate sites. Not sure if that is a common thing or not but is similar to the CSE thing.

  6. I think the “Add to Cart for Price” or “Click for Price” are sketchy tactics for retailers to use. Amazon is famous for doing this.

  7. Hi All,
    I’ve read a lot thing about MAP, here i got much information but i think some more thing is remain to read MAP policy?

    Thanks to your contribution
    san

  8. I shop online alot and i think that online retailers should have the very say to the price they want to price the products, it shouldnt be a major issue at all

  9. lewis says:

    The Biggest problem with MAP is the case of selective enforcement on the part of the Manufacturer.
    Certain MFG’s close an eye to “favored” retailers
    The whole thing stinks to high heaven…..

  10. @Ecommerce Blog

    “the manufacturer sells retail as well as wholesale, so they compete directly with their retailers”

    Bingo. They don’t want competition in these channels. Perhaps they want to “own” the CSE and Amazon marketplace options.

    Another issue is they may not want third parties earning commissions off sales – Amazon, CSEs or affiliates.

    @lewis

    Definitely. Manufacturers can easily make different agreements with power players (and we know who those retailers are), even making unique model numbers which are identical products sold at lower prices, or under private label. Happens all the time.

  11. tom says:

    i have a manufacturer who limits actually selling on the web based on your yearly purchases. if you purchase over $250,000 per year you’re allowed to sell on the web, otherwise you’re breaking their “internet sales policy” and your account is frozen. average purchases in this industry are under $40,000 so availability on the web is limited to a few “select” retailers.

  12. Jerry says:

    Secrets of MAP Pricing

    Manufactures have come up with a MAP pricing or did they? We all have heard it explained that we just want to keep the playing field level so the little guy can have the same chance as the big Box store. Really!
    I want you to take the time to really look at this fix for the little guy. Who is he and why is a manufacture so interested in him. After all the manufacture could really make more money selling to the little guy because his budget is limited and can not buy in Quantity and can not get a price break. So the Manufactures would make more here for there product. It is sort of funny that this is called the Manufactures advertised price when I do not see how it helps the manufacture as he is still getting his set price for his goods. Right? Regardless of who is selling it at what ever price? Let’s take this senero.
    I have come out with a new widget and I really need to get tit to the public so I start contacting folks and go to a few trade shows and I find out that the public loves it. Man now I am trying to keep up with the orders and really need to grow but just do not have the capital to do it quick. So I am sending out these widgets as fast as I can.
    Then I receive a call from a big box store and they have heard about it and folks want them and they want to place a very large order. WOW we are on the way! But how can we produce any more with out the capital? Guess what the box store tells you that they thing so much of your product that they will help you out. We will go ahead and order and pay you for x amount of widget and you will have enough to make the changes you need to so you can meet the production. Wow WE really are on the way now! We can sell to out existing customers and also to our big account and we are making money hand over foot.
    After the first few deliveries and more additions to your plant. One of the big box stores calls and suggest that you need to have a MAP on your product so no one else can sell them at a lower price than they are. After all they are a good account and they are not asking that no one sells them cheaper just so they sell them at the same price and everyone is happy. That sounds good and after all it does not affect your bottom line so why should you care you even repeat that it just make sense. So you agree and as the box store rep is leaving he tells you might want to check out Joe’s Widgets they are really selling your widget cheap. What can I do about it I guess he is buying it from some supplier some where. I would call him and let him know he needs to come up to map price and if he does not you will not be able to sell to him any more because you have map pricing. So you give it a go and the guy tells you I will sell it at what ever price I want I do not buy direct from you and if I want to give them away why do you care you get what you ask for your product.
    Stunned you call the box store contact to let him know what was up and you can not do anything about it and to you surprise it is simply put you either quit selling to him or we can no longer buy your product! WOW!! That knocked the wind right out of your sale as the bank note on the expansion and you have already bought raw product for the next big order What can I do. Well if I were you I would call and find out what warehouse he is buying from and call them that if they do not make Joe’s Widgets sell at MAP pricing that you will no longer sell the poplar widget to them. So Mr. Warehouse man has no choice but to call Joe’s Widgets and tell them if you do not come up to MAP pricing we will no longer sell them to you. So old Joe has two choices either go up to map or drops your widget.
    So in order to stay in bed with the big box stores you have to play by there, no these rules are yours aren’t they. So they have you right where they want you doing the dirty work they can not do.
    Has anyone ever seen MAP pricing help any small or large shop?
    If they really were concerned about a level playing field then less start with profit margin after all the big boys sure do not pay what the regular guys pay.
    I have had man call me and ask if I would go up to MAP and I like to mess with them. I ask them do they have a good product and ofcore the answer is yes. I ask them if people really liked their product and they say yes I then ask them if they like to make money and that answer is yes. I ask them do you think if me or the box store quit selling it and you sold it to everyone else do you think the public would find it and buy it and again I get a yes. I then say then you and I can make money. Will you sell it to me what you are selling it to the box store? I will if you buy as many as they do. I tell him I can only buy them as I sell them but I still will be willing to pay the higher price and then I say that means you will make more from me than you did from the box store an I too think your product will sell with out the box store and there games!

  13. Well, it seems to me, from my little experience, that MAP is the best policy for a small retailer – and even more so for one trying to make a dent in the dropship world.

    Without that – there would be no chance of competition, since for sure the big guys get a better price. You can’t make any money when your cost is their selling price!

  14. Lori says:

    Well said Jerry!!!!!

    I own a small business. We are able to keep our overhead low because I worked my butt off building a website and spent thousands of hours working on search engine optimization (so my site is ranked high on search engines). Then I found out that most of our manufacturers “selectively enforce” their MAP policy. The manufacturers turn a blind eye to MAP violations for “some” stores (I’m sure you can guess which ones) but strictly enforce their MAP policies on other stores.

    I tried an interesting experiment a few years ago. I copied “word for word” (no word of lie, literally word for word) the MAP violations on a competitor’s website. I received a MAP violation letter within a few weeks from the manufacturer. Can you believe that the website I copied (still to this day) is worded exactly the same, with their MAP violation?!?

    I must be blind because I certainly don’t see any “help for the little guy” in that scenario. If a business can find a way to lower their overhead and operating costs, which in turn enables them to sell a product for less, than let them. It is good for both competition and consumers. I say let free enterprise work the way it is supposed to!

  15. [...] are a great way to increase average order size, deliver a value proposition and even creatively sweeten the deal when MAP (minimum advertised price) regulations apply to a product (offering free or discounted bundled [...]

  16. [...] discounts also devalue the product somewhat, which is why many manufacturers favor MAP (minimum advertised price) [...]

  17. [...] Friction in the Sales Process Where Will MAP Pricing Lead Online Retail? Are Cash Discounts the Worst [...]

  18. T. Quam says:

    Another ongoing observation we have made that I would like to contribute is that we source our products from multiple distributors; and we have seen that one distributor will put a product under MAP while another will not on the same product. Therefore, at times, we wonder if MAP is really coming from the product’s manufacturer or it is a creation of of the distributor who therefore imposes it because it is competing directly with its customers&mdashthe e-tailers.

  19. Dan says:

    MAP is great.

    1) It helps a product keep its value.
    2) It keeps the playing field even for everyone.
    3) Instead of worrying about what price your competitors are selling at, you can actually focus more on customer service.

  20. Max says:

    MAP is BAD

    1. It kills innovation and sales.
    – 35 % gross margin requirement built in by retailers is a rip-off of the customer. And it hides operational errors and inefficiencies.
    – Manufacturers who have MAP subsidize competition (through retailers` PPC strategy to bring customers to categories pages displaying MAP and non-MAPped products alongside) and forgo significant business growth opportunities.

    2. It DOES NOT create an even field for everyone.
    – ask your manufacturers – 95 % of manufacturers give the same wholesale cost to a 100m retailer as well as to an upstarter. They just can`t manage multiple pricelists.
    – MAP favors significantly big guys who get enough free/paid traffic to subsidize ads for the MAP products to get them kick-started.

    3. If you don`t worry about competitors` prices – pal, you are in a wrong business.
    – 95 % of the customers never deal with customer service. Focus on automation and you`ll get excellent customer service with 1/10 of the resources.

  21. The reason manufacturers put a MAP policy in place is to protect their Brand AND the Dealers. This is all part of Resale Price Maintenance (RPM). This revolves around the concept that the manufacturer manage dealers from unrestricted discounting by instituting a minimum advertised price policy. Lately, with many more manufacturers implementing policies and agreements to better enforce pricing, the problem is more around efficiently monitoring them given the amount of retailers on the web.

    Manufacturers I’ve spoken to always say that biggest problem isn’t creating a policy, its monitoring and enforcement. Manufacturers need a MAP monitoring solution to track pricing online in order to enforce it. There is a solution that a lot of top manufacturers and retailers are using to monitor CSE’s, Amazon, eBay, and Websites directly (including add to cart). The company that developed it is Channel IQ. If this is an indication of a growing market for monitoring, then it looks like MAP is here to stay and growing in the manufacturing community.

    • Russ says:

      It is growing but as it grows so does the disdain for it by consumer advocacy groups, retailers, and the courts. In many sates such policies are illegal, 12 I think. California and New York courts have consistently ruled against them. There days are numbered and should be.

  22. Sara says:

    So does Walmart practice the MAP pricing with their venders?
    NO!
    They have the “match that program”

    they break the rules.

    NO wait, they probably negotiate with the vender with a contract that says that they are the exception to MAP priciing

  23. Mike says:

    The retailers that break MAP are doing so because they see others doing it and feel they need to in order to be competetive. If ALL retailers followed MAP then there would be no problem as they would have to use their advertising and marketing machines to compete instead of de-valuing a brand to get a sale. MAP is not going away and contrary to what you may believe, the courts are siding with the brands and not the retailers in the majority of the cases thanks to online monitoring.

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