Lesson 2: Common Reseller Pricing Policies

One reason for the widespread confusion about reseller pricing policies is that many manufacturers and brands incorrectly use the term “MAP” (Minimum Advertised Price) to describe any program created to maintain product pricing levels across a brand’s resale channel. “We need to create a MAP program to control our products’ pricing in the retail market,” they’ll say.

But as we’ve already discussed in this course, there are actually a variety of reseller pricing policies, each with a unique set of objectives and used by manufacturers and brands for different circumstances.

In this lesson, we’ll introduce you to the most widely used types of reseller pricing policies, review their differences and similarities, and discuss how a manufacturer can determine which policy—or policies, because you can have more than one—will best serve their business’s needs.

MAP (Minimum Advertised Price) Policy

The most widely used policy to influence reseller pricing, MAP (Minimum Advertised Price), is designed to establish a brand’s minimum acceptable price levels for its products in resellers’ advertisements (also called “offers”). The key distinction between MAP and MRP (the policy we’ll discuss next) is that whereas an MRP policy covers both advertised and resale prices, MAP policies are limited to advertised prices only; they do not attempt to control the prices at which a retailer actually sells its products to customers.

What constitutes an advertised price in a MAP policy?

For retailers who operate physical stores, an “advertisement” is typically considered any price displayed or published outside the store itself. This includes product pricing displayed in mailers and catalogs, in online promotions, as well as in print, radio, or TV commercials.

When it comes to online retailers, or to the eCommerce component of a brick-and-mortar retailer’s sales, the brand has freedom in terms of where to draw the line between advertised and resale price.

When developing their MAP policies, some brands choose to limit the policy’s scope and give their retailers more room to communicate below-MAP prices to customers. For example, these manufacturers might specify in their policy’s language that MAP pricing refers to a product’s listing page, but not to prices displayed in the shopping cart. This way, the manufacturer can encourage similar public pricing across its online resale channel, but still allow a retailer to entice an individual customer with a lower price, by inviting the shopper to place the product in their cart.

Typically, a manufacturer will opt for a MAP policy (or an iMAP or eMAP variant, which we’ll discuss below) when the company’s main concern is establishing a uniform reference price for its products to avoid undermining its brand value and upsetting key reseller partners. In these cases, the manufacturer will be less worried about the prices at which its resellers are actually selling its products on an individual basis. As long as consumers see a consistent pricing level across the board when they’re shopping, the manufacturer will be satisfied.

But when a manufacturer seeks to control and standardize not only the advertised price but also the resale price, the company will opt for an MRP.

MRP (Minimum Resale Price) Policy

The MRP (Minimum Resale Price) policy, sometimes called a Unilateral Policy (UP) or Unilateral Price Policy (UPP), is also one of the most commonly used policies by manufacturers and brands to influence their products’ pricing across their resale channel.

Whereas the MAP policy establishes minimum prices only for how a manufacturer’s resale partners advertise their products, an MRP policy sets minimum pricing guidelines both for advertised and resale prices. In other words, an MRP policy attempts to limit the amount a retailer may actually sell products to its end-user customers.

Establishing minimum acceptable prices for every touchpoint between retailer and customer.

To view this another way, an MRP policy sets minimum prices for everything—not only advertisements but all way through the moment at the checkout (either online or in-store) where the customer hands over payment for the product. This includes, for example:

For brick-and-mortar sales:

• All advertisements: prices displayed outside the store (billboards, mailers, magazine ads, online ads, etc.)
• All resale prices: prices displayed inside the store, as well as final prices at the checkout counter

For online sales:

• All advertisements: prices on a product’s listing page, online ads, in-cart pricing, etc.
• All resale prices: prices on the online-checkout page, prices discussed with customers by email, text, or over the phone, etc.

UPP (Unilateral Price Policy)

As we noted above, the UPP (Unilateral Price Policy) is often used interchangeably with MRP. Generally speaking, this is okay. These policies are, in most respects, identical. But there is one possible distinction: Whereas an MRP (as well as a MAP policy) can be structured as two-way agreements between brand and reseller, the UPP is by definition always written and enforced as a one-way statement, which is why it’s called a unilateral policy.

For all practical purposes, however, almost all MRP policies are also structured as unilateral statements and not agreements. We’ll discuss the reasons for this in the MRP Policy module. For now, just keep in mind that the terms UPP or UP (for Unilateral Policy) mean essentially the same thing as MRP.

iMAP (Internet Minimum Advertised Price) Policy

An iMAP (internet minimum advertised price) policy covers internet-based offers only, meaning this policy sets the guidelines only for the prices your retailers may advertise your products (they are free to sell them for any amount they choose)and only for online ads and sales pages.

This type of policy does not cover direct electronic communications with customers, such as emails and SMS text messages. Those pricing communications are addressed in a separate policy, the eMAP, which we’ll discuss next.

Note: A manufacturer or brand can choose to have more than one of these policies, so publishing an iMAP does not preclude you from also dictating offline advertised pricing minimums (with a standard MAP policy) for your retail partners.

eMAP (Electronic Minimum Advertised Price) Policy

An electronic minimum advertised price (eMAP) policy is similar to iMAP, but more comprehensive. In addition to covering internet-based advertised prices, as the iMAP, does, the eMAP covers all electronic channels a reseller might use to advertise a manufacturer’s products, including emails and text messages.

Note: As we pointed out earlier, you can have both an eMAP and a standard MAP policy. This might be a smart strategy if, for example, you have resellers that do not sell your products online or using any electronic means, and  don’t want to clutter your standard MAP policy for them with guidelines about marketing channels they don’t use.

MSRP (Manufacturer’s Suggested Retail Price)

MSRP is a somewhat different reseller pricing policy in that it represents only a “suggested” price level for retailers to sell a manufacturer’s products. Indeed, manufacturers expect that retailers will sell—and even advertise—their products at below this price.

MSRP is typically used for large-ticket products (cars, refrigerators) and is designed to create some room for retailers to negotiate with customers. Manufacturers expect retailers will often sell their products below the MSRP.

The most widely recognized use of MSRP is in the automobile industry. Most people are familiar with the MSRP in the car business as the “sticker price,” the price taped to a new car’s window. Few cars are actually sold for that amount.

In fact, part of the reason for establishing an MSRP and making it public, as with a car’s sticker price, is to allow their retail partners to negotiate with buyers while still maintaining their profit margins and to give customers a sense of control in knocking down the “retail” price to an amount they’re more comfortable with.

In fact, manufacturers allow and sometimes even encourage their retail partners to advertise the company’s products below the MSRP. Both brands and retailers have found this is a powerful strategy to bring customers in the doors (or to the retailer’s website). This is why you’ll often see, in print or TV commercials, a car dealer’s limited time offer for “$5,000 off MSRP.” This is unique among reseller pricing policies: By definition, a retailer cannot advertise its products at prices below the manufacturer’s MAP-approved amount.

Actually, establishing an MSRP helps a manufacturer accomplish several other goals as well. For example:

• It allows the manufacturer to standardize a product’s retail price across the company’s entire resale channel. This allows the manufacturer to protect the interests of all its retailers, particularly the brick-and-mortar store chains carrying the company’s products, from being unfairly undersold by competitors.
• It helps the manufacturer establish a price that takes into account all costs required to sell the product. In other words, with an MSRP the manufacturer can mark up the retail price to a level that allows it to ensure every partner in the distribution chain (distributors, wholesalers, retailers) can earn a profit.
• An MRSP helps the manufacturer safeguard its brand over time. Just as manufacturers establish MAP policies in part to protect their brand’s perceived value, an MSRP helps a manufacturer protect its brand over time, keeping its retail prices at levels that signify a quality brand.

ADP (Authorized Dealer Program)

Of all the policies we’ve discussed in this module, an ADP (Authorized Dealer Program) is the outlier—different from the other reseller policies in a number of ways.

First, unlike the policies we’ve reviewed so far, an Authorized Dealer Program is not primarily designed to control how resellers price your products, but rather to establish which resellers you allow to represent your brand and carry your inventory in the first place.

Second, unlike both an MRP and MAP policy (as well as each of the MAP variants), an Authorized Dealer Program must be structured as a two-way agreement, which a reseller needs to sign and submit to the manufacturer in order to join the manufacturer’s resale network.

A program designed to complement your reseller pricing policy

Finally, and most important, an ADP should be a part of any manufacturer’s resale infrastructure, regardless of which of the pricing policies the company decides to implement. Unlike the other policies discussed in this module, this one applies to every business that sells its products through a network of retail partners. An Authorized Dealer Program should be a complementary program that supports the enforcement of the company’s reseller pricing policy.

When you create an ADP, you are telling your distributors and wholesalers which retail companies they may sell your products to (and perhaps which channels they can be sold in), and that they may not sell to anyone not on that list. This gives you more control over (and more visibility into) which companies are able to buy your products for resale and it can also help you limit rogue resellers and pricing policy violations.

The Risks of Implementing the Wrong Pricing Policy for Your Company

 

Each manufacturer or brand has its own needs and goals when it comes to implementing a reseller pricing program. This is why it is a mistake to think of all such programs simply as “MAP,” when there are in fact several reseller pricing policies available with each designed for different circumstances.

Here are a few examples of the risks to a manufacturer or brand that selects or drafts the wrong type of policy.

1. The policy goes too far. Let’s say your retail network includes a lot of brick-and-mortar stores: Mom-and-Pop shops as well as regional and even national retail chains. If you draft and enforce an MRP policy, you might be undermining those brick-and-mortar retailers, which could represent some of your best partners. By not allowing these businesses to offer in-store discounts or negotiate final prices with customers, you are depriving these retailers from earning sales—especially if these customers can simply browse the products in the store and then buy them online from a competitor. In this case, you might have been better served by a MAP policy, which protected your products’ advertised prices across your resale channel but still allowed your storeowner partners enough room to negotiate and offer deals in-store that helped them capture their share of sales.
2. The policy doesn’t go far enough. Now let’s say you choose to draft a MAP policy, but your policy stops short of enforcing in- cart pricing for online sellers. Perhaps you don’t want to scare away potential retailers from selling your products, or maybe you’re worried that setting price minimums for the online shopping cart would constitute illegal price-fixing. (It doesn’t.) One potential risk here is that you’ll find many retailers are indeed signaling to customers to “add to cart for best price,” or using similar—very public messages online—to let shoppers know they can buy your products for less than the advertised price. This might not be a problem for your company. But if it could be—and you publish your MAP policy without this guideline simply because you hadn’t thought through the risks—you could find your brand’s perceived value in the marketplace suffering over the long run.
3. The policy fails to protect your brand. If you have a luxury brand and roll out a MAP policy, leaving your retail partners to actually sell your products at below-MAP levels, you could be undermining your brand’s perceived value in the marketplace over time. Imagine what would happen to a high-end-watch brand—say, Rolex—if consumers discovered they could buy the company’s products for steep discounts from a number of respected retailers. Even if Rolex insisted these sellers continued advertising its watches at MAP levels, the fact that the public learned those products were available at retail stores for far less would, over time, undermine the brand’s value.

 

A business will need to weigh many factors when choosing its reseller pricing policy. But here is a guide to some common circumstances under which a manufacturer or brand might choose one policy over the others.

When MAP makes sense:

• My company is worried only about controlling publicly available prices customers might see for our products.
• We want to control advertised prices, but we also want to give our resellers the freedom to privately negotiate with a customer over the actual selling price.
• We’ve identified the real problem as a price war over our products in online advertising.

When MRP makes sense:

• We need to protect our margins and those of our resellers, so we don’t want either advertised or resale prices dropping below a certain amount.
• We’re worried about price erosion and making sure our key retail partners aren’t being unfairly undersold.
• We have a luxury brand, and we don’t want our retailers to offer our products below a certain price even in one-on-one negotiations with customers.

When iMAP makes sense:

• We do not have trouble with our supply chain serving our bricks-and-mortar retailers, but we are seeing a lot of steep discounting from our online-only retailers.

When eMAP makes sense:

• We’re having trouble with some retailers texting their customers highly discounted offers for our products.

When MSRP makes sense:

• We sell expensive products (household appliances, cars), and we want our retailers/dealers to have some wiggle room to negotiate with customers and still protect their margins.

When ADP makes sense:

• An Authorized Dealer Program makes sense for every manufacturer and brand that sells its products through retailers. This program does not conflict with any of the other reseller pricing policies and should be developed in coordination with them.

 Quiz time! Let’s see how well you understand the differences among the various reseller pricing policies.