Online Retail Today

MAP VS MSRP: What Pricing Strategy Works Best for eCommerce Success?

MAP vs MSRP
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Merchants know that price is an obsession with customers. Meeting expectations for discounts while juggling in-store versus online promotions and avoiding channel conflict is a challenge that sellers have tackled using pricing tools such as the MSRP and MAP. But increasingly, just one of those methods retains relevance in the world of omnichannel retail.

By multiple measures, price continues to reign supreme with consumers. Kibo’s 2017 Consumer Trends report found that price is the top reason 70% of shoppers choose to purchase from a particular Web site — dwarfing the next highest factor, brand name, by a factor of four. And  60% of shoppers say attractive prices prompt them to shop with favorite retailers, according to consulting firm PwC — close to double the percentage who chose brand trust and item availability, which were the next most important factors.

The quest for discounts has led online mass merchants to strategically offer deep discounts, making up in volume what they erode in margin. In this race to the bottom, small- to mid-sized merchants have struggled to keep up, using dynamic pricing tools to track competitors’ product price fluctuations and offering price-drop alerts and other discount-focused features for shoppers.

The situation is further complicated by increasingly sophisticated personalization tools, which enable merchants to send individualized offers to consumers based on past purchasing behavior, and apps such as RetailMeNot that act as discount clearinghouses, enabling shoppers to harvest promo reward codes without building relationships with individual brands.

And then there are the unique challenges faced by brand manufacturers and their retail partners. Fully 48% of brand manufacturers now sell products directly to consumers online, creating potential for channel conflict when it comes to price. And retailers selling manufacturers’ goods find themselves competing not only with mass merchants, but with cut-rate sellers whose products are featured on third-party marketplaces on sites such as Amazon, Walmart, and eBay. Those with physical store outlets must additionally have strategies in place for shoppers using their phones to comparison shop and requesting price-match discounts.

Given all of these competing demands, the promise of establishing pricing consistency is alluring. Merchants have long turned to tools such as the Manufacturer’s Suggested Retail Price (MSRP) and the Minimum Advertised Price (MAP) to attempt to establish pricing parity and level the playing field against deep discounters. But do these strategies, which have been around for decades, still apply in the age of omnichannel retail?

 

The MSRP: Almost a Dinosaur?

In theory, the MSRP is the price that represents what manufacturers believe products are worth in the marketplace, and the price they believe retailers should set. But as anyone who’s haggled for a car knows, the MSRP more typically is just a starting point from which retailers deduct discounts to spur purchases.

In fact, the tendency never or rarely to charge the displayed MSRP has gotten eCommerce merchants into trouble, with complaints being filed in the courts on behalf of consumers who claim the list price is nothing more than false advertising designed to make discounts seem bigger.

Legal challenges aside, the MSRP is less relevant in an age of personalized offers and dynamic pricing, when product prices vary depending on availability, seasonality, and the shoppers’ own purchasing history, location, and situation. Perhaps for those reasons, online behemoth Amazon.com has been experimenting with eliminating list price displays.

Setting an MSRP can still be a useful exercise for manufacturers; by calculating the cost of production and assessing the market forces that might drive demand, manufacturers can use the MSRP to derive wholesale pricing and sales programs.

 

MAP: Work it to make it work

Using MAP agreements, manufacturers can standardize among its resellers the lowest price at which products can be advertised. In practice, resellers still retain pricing flexibility: online, they can typically apply discounts in checkout, or send personalized promotional offers, without violating MAP agreements, which apply only to broadly-advertised pricing available to everyone in paid search ads or shopping search engines.

MAP pricing strategies can be helpful both to manufacturers and retailers. By standardizing advertised price, MAP pricing strategies enable retailers to put the promotional spotlight on differentiators such as service, product support, customer communities, in-depth content such as buying guides, and flexible fulfillment policies — all of which can help small- to mid-sized retailers compete against bargain-basement mass merchants.

For manufacturers, using MAP policies as a baseline enables collaboration with resellers that can help brands meet consumers’ expectations for service and product availability. For example, manufacturers can route direct Web site orders to retailer for fulfillment and share proceeds of the sale — potentially speeding delivery and giving shoppers the additional option of in-store pickup. Kibo merchant Mizuno USA uses just such a fulfillment program, sending online orders to nearby retailers for swift fulfillment.

But MAP policies require an investment in resources to execute successfully, as manufacturers must both communicate the policies to retailers and follow up with monitoring and enforcement. At a minimum, manufacturers who set MAP prices should:

  • Reconsider marketplaces. Undercutting prices is rampant on third-party marketplaces,  where merchants offering the lowest price often win the coveted “buy box” prompting shoppers to add items to the cart. Manufacturers may decide to limit participation on marketplaces for authorized retailers and resellers as a way to keep their products out of the fray.

 

  • Monitor paid search ads, and own branded terms. Locking down brand names and product titles — using trademark enforcement if necessary — ensures that bargain-basement resellers won’t steal the limelight from manufacturers and their partners in Google Shopping ads and other high-visibility placements.

 

  • Build in flexibility to accommodate retailers’ needs. MAP violations jump by 15-20% during peak holiday sales as retailers vie to offer gift buyers the bargains they seek — so manufacturers should cut resellers some slack during such highly competitive periods. In addition, manufacturers should consider whether to partner with authorized resellers to offer sought-after free shipping promotions or free gift cards with purchase as a way to sweeten sales without sacrificing pricing.

 

What pricing strategies are you employing to establish consistency across touchpoints?

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