Why Retailers Should Monitor MAP Violations
MAP stands for Minimum Advertised Price. For retailers, it’s the smallest price displayed. While for manufacturers, it’s is the bottom that they’ve set for their product. Most resellers are not supposed to go under that given price, but some do, and that’s where the MAP policy violation happens.
Take for example, GoPro’s HERO Session. It has a MAP price of $199.99 USD, so B&M stores, Amazon resellers, as well as any other resellers must advertise this camera at no less than $199.99. Should a reseller advertise the HERO Session at a discounted price of $150.00, then they would be in violation of GoPro’s MAP agreement.
MAP agreements are created for a number of reasons: to encourage fair competition between every distribution channel, to protect both the identity and the value of a brand, to give smaller sellers a chance to go up against larger retailers, and to minimize the chance of underpricing.
Set prices are as easily decided as they are forgotten. However, MAP is carefully regulated to be in sync with both the market and the retailer’s intention for allowance. Thus, it’s crucial for retailers to track and monitor MAP violations.
Firstly, online purveyors will refrain from getting into price wars with each other with the help of MAP. That will also help keep the product valuable. If not from the example above, B&M retailers could be discouraged from having the product in stock at all along with an invaluable product. Additionally, it would negatively impact future sales as well as the value of the brand.
Secondly, with the help of MAP monitoring, retailers can look after the prices of their competitor’s and thus, adapt their own prices to correspond. In addition, they can use their research to report the violations to warn the respective manufacturer that something needs to be done. As a result, you get a better association with that particular manufacturer, and should that reseller fail to adhere to the MAP policy, those that did follow it would get the option of more flexible pricing.
On the other hand, monitoring MAP is advantageous to manufacturer’s since they can reassure themselves that they will have more sales since the more that the retailer sells, the more likely they will continue buying from the supplier. However, if the retailer ends up with leftover inventory due to the fact that someone had undersold to them, they are most likely not going to order from that supplier again. Additionally, the greater the margin, the larger the incentive for retailers to advertise certain products. By monitoring and tracking MAP violations, you will be able to confirm that retailers are not trying to sell any of your items for lower or discounted prices. Although this will increase sales volume and remove extra inventory, it will lower both the brand and the product’s value in the eyes of consumers.
The graph below visually gives you a better understanding of how the product is viewed by consumers. For example, if a retailer begins to sell it lower or higher than the MAP price created by the manufacturer, then it will be less desirable, since it will seem as it is not a genuine quality product because of its either excessively low or high price. However, if the retailer sells it within the margins, then it costs slightly less than the premium product, but it is still just as desirable, because the price justifies the product.
The Kellogg School of Management at Northwestern University conducted a study on the effect of abiding by the MAP agreement. They analyzed a set of data from a big manufacturer. They sold 226 of their own products through over 900 both authorized and unauthorized resellers. Only 20% always abided, whereas almost 40% never did. The retailers that violated the most were unauthorized with a 53% rate. Only 15% of authorized retailers did not comply.
Those who do choose to violate the agreement do so because they understand that manufacturers often have little authority to enforce the prices that they have laid out. They get their products from exposure in the supply chain. Despite this, after the study, they came to the conclusion that the MAP agreement is beneficial to retailers since it is a great way to help protect them from price violation. However, retailers can help each other by alerting manufacturers when they notice from their tracking and monitoring, the resellers who are not respecting the MAP agreement.
In the end, there are more advantages to following the MAP agreement than not to.