October 30, 2013
BusinessWeek recently published a nice 90-second explanation of MAP, or Minimum Advertised Pricing. In short, many retailers choose to follow manufacturers’ MAP as a way to qualify for special terms and/or MDF (Market Development Funds). Apple, for example, is (in)famous for a strong MAP program.
MAP isn’t without controversy – from online communities to US FTC and Supreme Court rulings – but if you are a Consumer Products manufacturer, you know MAP is a critical piece of your pricing strategy.
Why? Perhaps most importantly in the long term, MAP sustains your products’ brand equity by avoiding unseemly discounting. It also sustains price levels that deter ‘showrooming’ and support a healthy channel of retailers who earn enough margin on resale to invest in adding value in the sales process. For example, when Nintendo first released the Wii, it was very new – to “get it,” consumers had to experience it first-hand at retailers. Without a strong MAP, Nintendo online dealers would have been susceptible to price wars that would have reduced incentive for brick-and-mortar retailers to carry the product at all. Without benefit of a retailer-provided hands-on experience, Wii could easily have ended up an electronic museum curiosity.
Less obviously, MAP also gives you a valuable yardstick for assessing your pocket price across retailers. Often times, list prices are set and quickly forgotten – but MAP is closely managed to be in tune with the market, retailer margin expectations, etc. So rather than relying solely on “discount off list” as a way to compare discounting by product, channel, or market segment, a “price yield” of pocket price expressed as a percentage of MAP is often a more meaningful “normalized” measure of price performance.
From the manufacturer perspective, there are plenty of good reasons to employ a MAP tactic. From the retailer or consumer perspective, it can at times seem heavy-handed. But for the many who would otherwise never have discovered the timeless joys of Wii Bowling or Wii Golf, perhaps MAP is a small price to pay.