One unexpected issue that new retail business owners run into is the practice of Minimum Advertised Price or MAP. Business owners who wish to resell branded goods must adhere to manufacturer MAPs or risk losing their accounts.
What is Minimum Advertised Price (MAP)?
MAP pricing is an agreement between the manufacturer and the reseller about the lowest price the reseller can advertise for the product. MAP pricing is why products like console gaming systems are advertised for the same price across retailers.
Even though retailers are bound to not advertise below the MAP, they can sell the product for as much as they want. The key is the advertised price, which must not be lower than what the manufacturer sets. Ecommerce merchants have found a way around MAP requirements by requiring that customers add the item to their shopping carts to see the price. The image below from Newegg illustrates this common practice.
Other merchants have used similar strategies, advertising a sale below MAP by offering a coupon or a special discount to take effect during checkout. So long as those merchants don’t publish the lower price, they can continue to sell below the MAP.
What is Unilateral Pricing Policy (UPP)?
Increasingly more common are manufacturers with unilateral pricing policies (UPP). These policies prohibit resellers from selling below the minimum established price. Dealers who ignore such UPP may have their purchasing accounts terminated by the manufacturer. Unilateral policies evolved out of the workarounds that resellers used to subvert MAP policies.
Why do manufacturers have MAP?
Two reasons exist for MAP pricing. First, MAPs provide an equal playing field for all authorized resellers. MAPs allow small businesses to compete with larger retailers regardless of the actual purchase price. Amongst other reasons, this allows smaller merchants the opportunity to showcase and to provide customer service that may not necessarily exist in larger department stores. Better customer service and more pervasive stock benefit customers.
Secondly, MAP protects the brand identity and value. Specific luxury brands are very strict about enforcing MAP agreements with their authorized resellers since a low price will hurt the perception of the company. Many customers believe that an expensive item is of higher quality than a less expensive item. Brands without MAP policies may find their products advertised at bargain bin prices, creating the impression that the product is of cheap quality as well.
Does Amazon enforce MAP?
Many Amazon sellers have received notice regarding their pricing of products with wording that threatens legal action or consequences. Sellers who are not aware of MAP laws may be intimidated into increasing their prices or removing their product to avoid legal action.
Amazon does honor MAP agreements it has with its vendors. And many product categories and listings now have been restricted to authorized resellers. At least one result is that such restrictions have resulted in lower competition and higher prices due, in part, to MAP and UPP policies.
One problem for manufacturers and vendors on Amazon is the use of automatic repricing tools. Many customers just click on the Buy Box, and this box promotes the merchant with the lowest price. To get that Buy Box, many merchants use repricing tools to automatically maintain the buy box and sales volume. When two or more merchants utilize repricing tools, they are in a race to the lowest price possible. Merchants who use such services do not often consider the MAP. As a result, they may set their repricing tool to go to a target price below the MAP. Since the Buy Box prominently displays the amount to the customer, manufacturers claim that the Buy Box advertises a price that violates MAP agreements.
What about marketplace arbitrage sellers?
Another source of confusion comes from Amazon 3rd party (3P) sellers. 3P arbitrage sellers are particularly vulnerable to MAP, IP, and counterfeit claims. Some 3P sellers aren’t subject to the same MAP agreements. For instance, a 3P arbitrage seller can purchase ten cables on clearance and sell those on Amazon below the MAP price.
Even when 3P sellers receive MAP violations, there’s a lot of uncertainty about what actions Amazon will take. On the one hand, 3P sellers account for a significant portion of Amazon marketplace sales, and Amazon earns a nice fee for each of those transactions. The sheer number of sellers and items that Amazon would have to validate and enforce makes this practice unfeasible. Enforcement would require a lot of resources, and it would mean fewer sellers and higher prices for customers. On the other hand, Amazon cannot ignore all such requests since they may not want a hostile reputation with manufacturers.
There are some instances of Amazon suspending product listings because of MAP violations, but without more details, there’s no way for anyone to determine Amazon’s policy. There’s just no consistent response from Amazon. Sellers who have had their products removed may have been selling counterfeit or stolen goods. Amazon’s investigation into the MAP complaint may have revealed as much.
One solution many 3P sellers can use is to sell their products as Used – Like New on Amazon. MAP agreements only apply to new items. But that means sellers will not receive as much for their used products. 3P sellers should also know that items sold as new may not carry the same warranty. In many cases, warranties are only valid when bought through authorized resale channels. Still, listing as like new may be the best option for sellers who don’t want to deal with the wrath of the manufacturers.