When building or scaling a multichannel business, there are several ways brands can find qualified suppliers to help support their growing needs. However, when sourcing goods from new partners, resellers may often be unaware of certain pricing restrictions set out by the manufacturers and distributors they choose to partner with. These restrictions often come in the form of MAP (Minimum Advertised Pricing) agreements.
Below we'll discuss exactly what MAP agreements are as well as seven things every reseller should know when establishing relationships with new partners.
What is MAP?
When purchasing products from a supplier, they may often provide all of their resellers with a MAP agreement. MAP, or Minimum Advertising Pricing, is a specific requirement from a supplier that dictates the lowest price the purchased goods are allowed to be advertised for during resale. An important thing to note with these agreements is that while they are designed to restrict advertising items too low in online stores and marketplaces, they don't prohibit sellers from selling goods below the price in-store or offline.
Below we'll address seven things resellers should consider about these agreements:
1. Laws and Regulations
Online retailers often ridicule MAP policies as they feel that they directly interfere with rights to sell products wherever and however they see fit. However, it's important to note that a MAP policy is a perfectly legal practice for manufacturers under the U.S. antitrust statutes so long as the reseller policy only relates to the "advertised" pricing of goods sold.
While every country has different laws regarding the use or enforcement of MAP policies, most offer certain levels of protection for product suppliers who want to protect the value of their goods when sold in online marketplaces.
2. Marketplace Compliance
When sourcing goods through a supplier with a MAP policy, resellers should be cautious about which marketplaces they sell their goods to and ensure those platforms give them complete control over how their products are priced.
Many online marketplaces look to streamline product pricing by using dynamic pricing algorithms to higher or lower list prices automatically, maximizing conversions and increasing revenues. However, to stay in line with MAP policies, you'll want to ensure that whatever platform you sell on gives you the ability to set static pricing to remain compliant with reseller agreements.
3. Supplier Enforcement Policies
Suppliers draft MAP policies for a reason. If and when their retailers breach the agreed-upon terms, there can be consequences. Because of this, it's essential to carefully read the steps your suppliers take when they come across a retailer who is non-compliant.
Most suppliers understand that pricing mistakes happen. They will simply ask resellers to adjust their pricing back. However, depending on the supplier and their tolerance for MAP violators, they may stop selling you their goods or remove promotional funding as a penalty for repeat offenses.
4. Promotional Agreements and Allowances
While a supplier may prohibit the advertising of goods to a specific price point, it's essential to know that there may be particular circumstances where resellers can advertise their products for a lower amount during certain times throughout the year.
Often, suppliers will incentivize their partners to purchase more of a particular good by offering special rebates during pre approved promotional periods. During these time frames, suppliers will typically provide a promotional MAP agreement, which is a limited-time amendment to a traditional MAP agreement and gives resellers more flexibility to sell their goods.
5. Revenue and Margin Expectations
When working under the restrictions of a MAP policy, you should be very conscious of your revenue and margin expectations. On the one hand, if you have particular goals for topline revenue, a MAP agreement could hinder you from selling more of your products. But, on the other hand, a well-defined and enforced MAP policy could help you maintain sustainable margins when selling products as you will no longer have to play a pricing war with your supplier's other resellers.
6. Advertising vs. Selling
There is some confusion regarding how a MAP policy should be defined and to what level it is enforceable among resellers. To narrow this down, it's important to remember what the acronym of MAP stands for - minimum "advertised" pricing.
A MAP policy is merely designed to inform resellers what they can "advertise" their goods for online. There may be several reasons why a supplier may choose to do this, but primarily to maximize the value and the lifespan of the product being sold while also protecting the brand from erosion over time. Regardless, advertising your goods for sale and selling them all together are two very different things. Therefore, MAP policies do not restrict you from selling your supplier's products for whatever price you want, so long as the listed price online is within the determined price point.
7. Choosing the Right Suppliers
While MAP policies may seem restrictive, the truth is they are designed to sustain revenue and margin potential for all parties involved.
Not all MAP policies are created equal, and neither are the suppliers that draft them. It's important that you choose a supplier that understands your needs as a reseller and works with you to find the right balance of pricing discipline and freedom. Choose a supplier that gives you the tools to make more products. If there are restrictions to how much you can sell the product for, ask if they can support you with other resources, assets, or promotional funding that help you sell more products to customers, ultimately allowing them to sell more products to you. An excellent supplier/reseller relationship should be a win-win situation, and it's essential to find one you can scale with.
Final Thoughts
MAP policies are pretty standard when sourcing products from online suppliers. While they may seem restrictive, in most cases, they are designed to maximize margin potential for the supplier and the reseller. However, by considering these seven points, you'll be better equipped to look for and analyze supplier MAP policies and ensure the partnership is right for you.