In 2022, competing on price is going to be harder than ever for specialty toy retailers. But Minimum Advertised Pricing (MAP) policies, instituted by the companies that make the toys you carry, can help in a big way. By evening-out price variations they level the playing field and help ensure equal selling opportunities among all retailers. To find out how MAP pricing works, we reached out to Ronald Solomon, founder of price monitoring company MAPP Trap. Here, he reviews the questions toy manufacturers should consider when they determine the “correct” MAP pricing for their products.
What is a MAP policy?
A minimum advertised pricing policy is, in essence, a unilateral written statement by a brand owner that presents the price at which sellers may “advertise” their products. It does not dictate the price at which a product are sold.
Brands implement MAP policies to help establish value and protect margins by maintaining a level playing field for all of their resellers. MAP policies are nonnegotiable and are enforced equally among all customers.
To determine the MAP price, companies should start by considering the profit margin, whether it’s a dollar amount or a percentage. It should be a realistic price that gives retailers the ability to make some money.
There is no legal recourse for noncompliance. In other words, if a reseller refuses to abide by a MAP policy, the brand’s only option is to stop selling (or stop their reps and distributors from selling) to the merchant. Should the brand wish to pursue other remedies, there are different policy strategies that can be used.
Here are other questions brands should consider before setting a MAP pricing policy.
Should MAP be the same as MSRP?
Generally speaking, MAP is not MSRP. Most antitrust attorneys recommend that brands avoid making them the same. Many feel that MSRP itself is problematic. In Europe, any discussion of retail pricing is illegal.
When brand owners list a minimum suggested retail price, it helps retailers and consumers understand the brand’s vision of a product’s perceived value. It also shows retailers what the profit can be.
Some brands completely do away with the concept of MSRP and only use MAP. Others set MSRP very high knowing that most sellers will discount a bit from that.
As a “suggested” price, MSRP is not enforceable.
What about MAP for products already on the market?
In that case, determining a product’s current average online price is essential. We recommend that companies monitor their product prices for at least 60 days before locking in their MAP price. We also advise them to avoid choosing prices arbitrarily and base them on the data. If the average online price is 5 percent below where the brand wants it, they can set their pricing formula to either go down from MSRP or up from wholesale. Either works as long as the price reaches the 5-percent threshold.
Brands that suffer from hyper discounts require some finesse. It doesn’t usually work to fight the market, so it’s unrealistic to expect a product that’s averaging a 20-percent discount to immediately go to 5 percent. Instead, brands should take an incremental approach and set the minimum advertised price a bit higher than the low average. When market prices rise, increase the MAP. A MAP policy can be changed at any time as long as the brand informs its sellers of the new prices each time.
And if the product is brand new?
Pricing is really an art form. For a new product, it should be based on providing a desirable profit margin for a retailer and, at the same time, match or exceed the price of competitive products. If a higher perceived value is desired then a higher MAP price makes sense.
Should the formula be the same for all the products from the same company?
There is no hard-and-fast rule on this, but since a MAP policy should be easy to follow, it makes sense to be consistent. Not only does it help resellers to set MAP automatically, it’s easier on the brand.
Should all products be MAP priced?
Not all products need to be covered in a brand’s MAP policy. It’s perfectly legal to apply it only to a select group. In many cases, being selective actually helps them become more successful.
Not every SKU is a grand slam. Brands should only apply MAP pricing to the products that they would go out of business without. Like it or not, Amazon has conditioned consumers to expect discounts and that’s not going to change. Allowing online sellers to use discounts to attract customers shows that the brand understands their challenges. It also gives them the ability to sell through on slow-moving products while not risking the other, more profitable items.
MAPP Trap helps a company manage its enforcement, but the follow-through remains the company’s responsibility. In other words, whatever products the brand assigns MAP pricing to requires internal resources to enforce it. Backend management – sales, accounting, shipping, inventory management – becomes very complicated if every product is MAP priced.
A manufacturer’s advertised pricing policy is intended to defend brand equity and profit margins. The only way to enforce it is to stop shipping to noncompliant sellers. Brands should expect to experience some short-term revenue decreases as they bring things under control, but if MAP pricing covers just 20 percent of their products, the brand won’t feel the sting as much when violating sellers become unauthorized and margins stabilize.
We urge brands to be smart and be patient. Gather the facts, assess the realities and needs, and then the solution should work. If it doesn’t, you can always change it.
Ron Solomon launched MAPP Trap in 2012. Its price monitoring tool watches ecommerce sites to find minimum advertised price violations, unauthorized sellers and more. It “traps” the links to those violations, identifies the eMerchants and then gives users the ability to automatically enforce their MAP policies and other strategies. For more information, visit mapptrap.com.