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How MAP can affect your pricing strategy

Written by Spencer Durrant on March 29, 2016 in

pricing strategy featured imageMAP - or minimum advertised price - is an important component of the retail world that new sellers may not be aware of, but is something that should be on their radar.

MAP can have a massive effect on your pricing strategy and supplier relationships. This post will explain exactly what MAP is, why it's important, and how to use it in your online store. 

What is MAP and why does it exist?

MAP is the minimum price at which retailers are allowed to advertise certain products. Manufacturers put this lower limit in place in order to protect themselves against retailers who try to undercut them by selling products at drastically reduced prices.  

According to the US Small Business Administration

"Minimum advertised pricing (MAP) policies are particularly critical to manufacturers who sell their products for online resale, given the ease at which consumers can now conduct online and mobile price comparisons. MAP policies are also established to help small businesses compete and sell on service and value, rather than entering into a price war with cost-cutting big box stores."

At a first glance it may seem that MAP was only created to protect manufacturer profits, but it is also beneficial for SMB owners. In fact, MAP plays a large role in why so many independent online retailers can have success selling the same, or similar, products that are also sold by big-name retailers.

An article from CPCStrategy further explains the benefits of MAP: 

"MAP agreements:
Promote fair competition across all distribution channels
Maintain brand identity and value
Allow smaller sellers to compete with larger retailers
Prevent underpricing
Protect seller margins

"Although MAP agreements protect seller margins, price isn’t the only concern. Brand identity is also a valued factor to retailers.

"For example, if a pair of sneakers are always sold for $200 both online and in store, they may appear more valuable to shoppers than a different brand of shoes that can be found at varied cheaper prices. Consistent and controlled pricing sends a message to buyers: If you want this brand of sneakers you’re not going to find it anywhere else cheaper, which ultimately gives the product value."

Now that we understand what MAP is, how does it affect your pricing strategy? 

You can sell below MAP

The thing that a lot of newer retailers don't understand about MAP is that you're free to sell below that price. You just can't advertise that you're doing so.

Again, going back to the above linked Small Business Administration post: 

"The difference between an advertised price and an actual price that you may be charged has come under scrutiny by U.S. Circuit Courts and FTC rulings, which tend to agree that an actual price displayed in a secure/encrypted shopping cart isn’t subject to MAP – because it’s technically not advertising space, but represents an actual storefront. So in an online world, an actual price may legally end up being a lot lower than the MAP-required advertised price."

Say you're selling a lamp, and have it listed on your site at the MAP. In addition, let's say you're running a sale on home furnishings and have provided a coupon code for customers to use during the checkout process.

When a customer enters that code, they'll be buying the product at a price below the MAP set by the manufacturer.

That strategy is 100% legal.

Even Amazon is in on this game. How often have you been shopping on Amazon, only to come across an item with a hidden price and a message saying, "Add to cart to see price?" That's Amazon's way of getting around MAP and selling products for pennies on the dollar. Since the laws currently don't consider a shopping cart a storefront, Amazon can direct people to see prices of certain items in shopping carts and reward them with lower-than-advertised pricing.

However, there are a few things to consider if you try to circumvent MAP (again, these points come from the above SBA article. I highly recommend you read It.).

When advertising a coupon code or a discount on MAP items, it's best practice to not directly advertise that the MAP item is getting discounted. While it's legal to do so, blatantly advertising the fact that you're selling below MAP might ruffle the feathers of some of your suppliers - and healthy supplier relationships are absolutely integral to success in the ecommerce world.  

A final excerpt from the SBA post explains this well: 

"It’s safer to advertise the coupon—not the product that it can be applied against—so as not to imply that you are advertising the MAP item at a reduced price. Instead, be clear about what items are excluded from any coupon code promotion."

The bottom line is this - make sure you abide by MAP best practices, and you'll keep your suppliers happy. Nevertheless, remember that there are perfectly legal, acceptable ways to sell below MAP and offer more value to your customers.

What happens if I advertise below the MAP?

This is another question frequently asked by newer ecommerce storeowners as they wade into the world of MAP selling.

Violations of MAP agreements are easy grounds for termination of a contract/relationship with a supplier.

Here at Doba, where we work with roughly 200 suppliers on a daily basis, retailers advertising below MAP has resulted in suppliers choosing to no longer source their products through our platform. Not only does the company loose a valuable supplier, but many responsible, MAP abiding retailers are penalized for the bad pricing decisions made by fellow sellers.

While on the surface MAP may seem like a way for manufacturers to squeeze as much profit as they can out of a given product, it's actually a beneficial arrangement for manufacturers and retailers alike. MAP will have a direct effect on your pricing strategy. As you are made aware of specific products to sell online, you’ll have to take the MAP price into consideration. Also, if you want to put those items on sale, you'll have to do so in a way where the sale price is only shown within the confines of a shopping cart, and isn’t advertised.

Also, remember, it is not illegal to sell below MAP – you just can't make those prices public., and you probably won’t make as high of a margin upfront. However, as long as you play by MAP rules, you'll find online success, and will likely enjoy great relationships with your suppliers.

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