What is MAP Pricing and how does it effect you?
What does MAP stand for?
MAP is an acronym for Minimum Advertised Price.
What is a MAP Pricing Policy?
A MAP pricing policy is literally what it says. The manufacturer sets the lowest price it will allow a product to be advertised for. Advertising is defined as a price being offered in print, on search engines or on e-retailers. In most cases a retailer can not hint that there will be a price reduction at any time.
Why have a MAP pricing policy?
The manufacturers do this for two main reasons.
- To maintain the integrity of the brand. The manufacturer wants the product to be known as a quality product. If a price war starts between retailers and the retail price of the products drops to far then the health of the company becomes at risk. Customers will assume that the lowest price set by the retailers is the "right" price for the product. If this continues for to long then the value of the product to customers becomes the lowest retail price and product has lost value. This leaves the manufacturer only one option to influence sales. The manufacturer will be forced to reduce it's wholesale pricing. In order to reduce the pricing the manufacturer will then have to purchase cheaper parts that are of lesser quality. This lessens the quality of their products and everybody suffers.
- The second reason is similar to the first. The manufacturer wants to have a healthy relationship with the retailers that sell their products. By setting a MAP price the manufacturer is guaranteeing the retailer a set profit percentage that will help keep the retailer healthy. Some retail companies concentrate to much on beating the competitions price and not on their bottom line. That is why you see "fly by night" stores. The stores price themselves out of business.
Isn't this price fixing? The answer is simply NO.
Price fixing is when more then one company get together and decide to sell a similar product from each manufacturer for a set price. This allows the group of manufacturers to control the market and drive pricing higher to make obscene profits. This gives consumers no alternatives and is unfair to the customers.
MAP pricing is a manufacturer setting an advertised price limit. This does not set a true selling price. Retailers can sell the products below that price in their stores. At the time of sale the price can be lower. However in most cases the retailer can not hint at this. It becomes a surprise price drop at time of sale. It has to be in the customers cart for online stores. Brick and mortar stores can have a reduced price on their shelves.