The relationship between retailers and manufacturers typically works this way: the manufacturers reach out to retailers to sell their products, and upon agreement, both can benefit from the sales. However, some sellers find this practice troublesome, especially since they have to compromise with certain terms and conditions set by the producer.
A particular example is when the products that the manufacturers aim to have the retailers sell are protected under the minimum advertised pricing (MAP) policy. This serves as protection to manufacturing companies, but do they benefit resellers as well?
If you are a retailer, you may be wondering the same thing. In this guide, we’ll tackle the advantages of MAP policy implementation for retailers. But, before that, let’s discuss how this policy supports manufacturers.
How Manufacturers Benefit from MAP Policy Enforcement
The MAP policy is a legal agreement that sets the lowest possible advertised price for a product. The MAP doesn't necessarily dictate what the lowest purchase price of the product is, but more specifically, it restricts the price that retailers can indicate in their advertisements.
When retailers advertise goods at a price below the manufacturer’s recommended amount, the consumers may start believing that they can buy the product for much less and decide on never purchasing it at its original suggested price again. As a consequence, the brand can be harmed.
To add to that, MAP agreements are mainly designed to strengthen a brand’s image and value through consistent pricing. Although it is now clear that the MAP is indeed advantageous to manufacturing companies, what’s in it for retailers?
How Retailers Benefit from MAP
The implementation of the MAP policy puts a stop to price wars and promotes fair competition among sellers. Retailers tend to sell products at a lower price than their competitors’ set amounts to garner more sale transactions. This practice is especially prevalent in online selling platforms. However, this can be straining for everyone and not a profitable move. The retailers can end up selling the products for less than what their quality is worth.
Having to compete also adds pressure and consumes way too much time and labor. When the prices are relatively similar, retailers can focus on other more important aspects to make their stores stand out. Furthermore, MAP helps small-time sellers compete with major distribution channels, thus safeguarding seller margins.
In addition, when you have a consistent pricing system, you can gain the loyalty of your customers. For instance, a consumer may buy a product that you’re underselling, but come a time when you need to follow the suggested price, possibly because you have been reprimanded by the manufacturer or you’re losing profits, the customer will notice the price increase and potentially not buy from your store again.
Lastly, when you follow the MAP policy, you can avoid damaging relationships with manufacturers. If you undersell products, the manufacturing company may decide to pull out those goods and even ban you from selling them again. However, you can build a mutually beneficial partnership by adhering to the MAP policy. In fact, this can also come with perks. Imagine this: If the manufacturer has just launched a new product, it’s possible that you’ll be among the first sellers to be asked to distribute it.
To surmise, in obeying the MAP policy, you are establishing their brand value while getting a continuous stream of business opportunities with the company.
MAP policy enforcement is a win-win situation, both for manufacturers and retailers. Thus, the next time you get tempted on making large price cuts, consider the consequences and weigh the advantages.