December 8th, 2021
11 min read
When it comes to branding and e-commerce, being able to communicate your values, purpose, and identity to consumers is often the key to sustained growth.
But all the hard work that a brand puts into creating an emotional connection with their customers can be undone by retailers advertising their products below the agreed Minimum Advertised Price (MAP).
That’s why Minimum Advertised Price monitoring is so important to maintaining the integrity of many brands – including mass-market, premium, and luxury brands.
The importance of branding in e-commerce cannot be understated, as it allows companies to shape their identity and build trust with consumers.
Winning a place in their target group’s hearts means that brands are also winning a place in their customers’ wallets, as well-known companies’ products are often perceived as being better than those from lesser-known companies.
This is called brand equity, and it’s the revenue that’s generated purely from brand recognition.
Research conducted by McKinsey in 2020 indicates that branding is most important in sectors where consumers have lots of choice – such as online shopping, with the top 40 brands performing considerably better than the benchmark.
Companies invest considerable time and resources into generating this all-important brand equity, and for lots of them, the price their products are advertised and sold for is a key component.
For luxury brands such as Rolex, Chanel, and Mercedes Benz, the price is used to convey exclusivity and superior quality, and is key to how they’re positioned in the minds of consumers.
But it’s not just luxury brands that use price as a way to communicate their value – it’s true of a wide array of companies. This is why they must ensure that retailers and resellers are not undermining their hard work by advertising or selling their products below the agreed MAP.
That’s why Minimum Advertised Price monitoring is the key to protecting the integrity of a brand – and it all started just over a century ago with an argument over toothpaste.
Minimum Advertised Price is often an umbrella term used to describe agreements between brands and retailers, but there are nuances based on the specifics of the contract signed between the two entities, and geographical differences.
The origins of MAP policies can be traced back to 1919. Just over 100 years ago, a case was brought to the US Supreme Court against the toothpaste manufacturer Colgate. The dispute centred on whether they could legally insist on the specific price that retailers sold their products for, and refuse to deal with downstream resellers who refused to honour it.
The court’s judgement deemed that Colgate did in fact have the right to do this, and so the core of modern-day MAP polices was born.
Whilst MAPs are legal in the US, there are some differences in particular states. Vast numbers of brands will insist on US retailers contractually agreeing to abide by pre-agreed prices that their products cannot be advertised below.
However, the opposite is true on the other side of the Atlantic where, in Europe, under EU antitrust laws, a company would have to prove that their actions in enforcing MAPs were beneficial to European consumers. This would be very difficult for them to do, as MAPs directly influence market competition.
It’s key to remember at this point that MAPs only control the minimum price that products can be advertised for, not the price that they’re actually sold for. However, from a legal standpoint, some brands may consider the website price as advertising, so it’s vital that retailers check the wording of their MAP agreements.
But just because MAPs are very difficult for brands to justify in the EU, this doesn’t mean that European retailers are free to do as they please when it comes to pricing – brands are far too savvy to allow that to happen.
And the reason? Well, it goes by a few names, such as the Manufacturer’s Suggested Retail Price (MSRP), the Suggested Retail Price (SRP) and the Recommended Retail Price (RRP), but essentially they are all the same thing – a price that brands suggest that their products are actually sold for, and not just advertised.
Whilst the Minimum Suggested Retail Price is not actually a binding agreement, and retailers can choose to sell the products at whatever price they decide, brands are still able to police the retailers that sell their products.
If a retailer consistently sells a brand’s products well below the MSRP, and ignores the gentle reminders from the brand to stop doing this, then they may want to stop the retailer from reselling their products.
On the other hand, Minimum Advertised Price enforcement is binding. In some cases, a brand may contribute towards the retailer’s advertising budget, and in these instances they can choose to withhold money if the policy is breached. Depending on the size of the marketing budget, this has the possibility of constituting a big financial hit to the retailer. Ultimately, they can also choose to simply stop the retailer selling their products.
The bottom line for retailers regarding both Minimum Suggested Retail Price and Minimum Advertised Price enforcement is that, if they breach the terms of their policy, it can result in them no longer being able to sell a particular brand’s products.
This could be catastrophic for a retailer if they sell either a wide selection of the brand’s products, or if the products account for a significant chunk of their revenue.
You may be thinking ‘how can a brand monitor all the prices that their products are sold for?’. Well, given that brands can have hundreds of resellers and thousands of products, this could mean tracking millions of individual product prices – which is an impossible job to carry out manually.
Even the biggest brands with huge resources don’t have the capability to manually search for all of their products online to check the price that they are being advertised and sold at.
But just as MAP and MSRP policies promote fair competition across all channels and allow smaller retailers to compete with larger ones, price monitoring software does the exact same thing.
Minimum Advertised Price monitoring software, such as PriceShape, is able to firstly find all of the retailers selling a brand’s products, and then display and track their prices, including the history of any price changes.
This enables a brand to not only ensure that MAP and MSRP are being followed, but also gives them the crucial ability to see exactly which retailers start price wars.
Our Domain Summary feature also shows the number of products that a retailer is selling and how many products are out of stock. This data is invaluable to a brand’s sales team, as it enables them to encourage retailers to replenish their stock and to sell more of their product range.
If you’d like to see all of your retailers’ prices, stock levels, overall price index, and more, then we’ll be happy to set up a free test account and show you all this data – empowering you to defend your brand positioning, prevent price wars, and identify up-selling opportunities.
As with any topic that strays into the legal world, brands and retailers should exercise caution with MAP and MSRP policies. For brands, the risk involves anti-competitive behaviour, and this is particularly relevant in the US where different states have varying interpretations of the law.
For retailers, the risks relate directly to being black-listed by a brand and no longer being able to sell specific products. Also, each brand will have their own specific policies, and these could vary significantly from company-to-company.
As such, brands and retailers should seek legal advice when drafting and signing MAPs or MSRPs.
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