Pricing – MAP vs Open

MAP = Minimum Advertised Price.  This is a legal means for a vendor/manufacturer to help ensure that their products’ market price stays up at a reasonable level.  MAP programs have been in place for years and are generally recognized as a viable means to help control retail pricing levels.

Notice that I am hedging a little here?  MAP is not a guarantee that pricing levels won’t be broken, but they give you, the manufacturer, the ability to do something when a retailer decides to get down and dirty and offer your product as a doorbuster deal.

Some of our clients have MAP policies and some do not.  I would say more do not than do.  The advantage for those that do depends on how they manage their program.  Typically we support a carrot and stick type policy.

Example: In one successful MAP program the manufacturer has offered several components to the retailer for maintaining MAP.  These include:

  • Prominent display on the website as a retail partner
  • Quarterly rebate for maintaining map, and
  • Access to promotional opportunities

If a retailer breaks MAP without approval these are all at risk.  In extreme cases, the vendor can decide to punish the offender by putting the retailer on probation, effectively delaying shipping, or eventually cutting off the retailer altogether for repeat offenders.

The main point here is that you have the responsibility to help manage market pricing to the best of your abilities and within the limits of the law.  Fair pricing to all of your distribution channels is vital to maintain.  No one needs to break the Robinson-Pactman Act in order to manage their business effectively (http://en.wikipedia.org/wiki/Robinson–Patman_Act).

MAP can be especially tricky in the “marketplace” sites.  The biggest marketplace sites are:

  • Amazon
  • Sears.com
  • Buy.com
  • eBay.com
  • and to some extent Walmart.com is becoming a marketplace site

The distinguishing factor for a marketplace site is that any person/entity can place products on these sites.   It can be much harder for a manufacturer to manage MAP when their product is on a marketplace site.

Sometimes we find that distributors are placing products on these marketplace sites under ambiguous names.   These organizations have purchased product from the manufacturer under a 2-step pricing model; the manufacturer expects they are selling to other retailers and have thus given them a better price.  They often get price breaks or rebates back to dollar one for different purchase volumes.  In this model they place the product on the marketplace sites with the primary goal of driving volume in order to achieve better rebates.  To prevent this, make sure you have a distributor agreement in place and make sure it has language preventing the distributor from selling direct to end users.

These practices can create issues in the channel and it’s why most people blame Amazon for lowering prices.  Amazon isn’t a price leader – they are a price follower.   They survey their own site and key competitive sites every day automatically.  Their stance is to be competitive, not the lowest priced.  The trick to correcting this issue is to purchase the offending product from the seller and try to trace the origin through the shipping label.

Also, it is important to note that some departments for certain marketplace sites have recently changed policy and will not support MAP.  Their stance is that the marketplace will manage price.

We welcome your input and look forward to the conversation; click here to leave a comment. For an overview of the purpose of this blog take a look at the initial post here.

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1 comment to Pricing – MAP vs Open

  • Robb,

    I don’t know how many folks in retail know about this, but in my industry (IT services/custom software) it is not common thinking. We don’t often sell the “same” product many times, but the structure you have laid out offers new thinking on ways we might think about our pricing as it relates to relationships we have in the market.

    Thanks for the post.
    –k

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