As a consumer, you’ve probably heard of manufacturer’s suggested retail price (MSRP or just SRP), however, but rarely about minimum advertised price (MAP) policy. However, between manufacturers and resellers, these are standard policies that serve specific functions and purposes apart from merely setting a price when reselling the products. But, whether you’re a reseller or a manufacturer, you should know the distinctions between the two; so if you’re a manufacturer, you should understand why you need to implement them, and if you’re a reseller, you should know why you have to follow or at least be aware of their purpose.
Before MSRP and MAP: Break Even Price
Before discussing MSRP and MAP, it’s vital that manufacturers and sellers know the break-even price. The break-even price is the amount that covers all costs that go into the making (and even transporting and acquiring) the product wherein the manufacturer or reseller would not profit nor incur a loss. It’s essential to know your break-even price and never to price lower than that to avoid losses.
As a manufacturer, the break-even price takes into account labor, utilities, raw materials, taxes, logistical costs, warehousing. And resellers’ break-even price of the product includes the cost of acquiring and keeping the product such as the cost of the product itself plus other expenses such as transportation, storage and utilities (i.e. when refrigerating frozen food, or storing boxes of products in a storage unit), as well as taxes.
Manufacturer’s suggested retail price (MSRP or just SRP) is the “sticker” price that the manufacturer recommends that the product should be sold for. The manufacturer usually determines MSRP by factoring in all costs put into the product, the projected cost of the reseller when acquiring the product, as well as the competition’s pricing, and the target profit margin. Bigger companies also factor in results from extensive market research, such as knowing how much consumers are willing to pay for the product.
Manufacturers often encourage their products’ resellers to follow the MSRP to avoid price war between them while also keeping a good profit margin.
The MSRP is ultimately a “suggestion” and isn’t required to be the price to be used when selling the products. So, depending on the market conditions and trends, retailers could sell at a higher or lower price.
MSRP is always higher than the manufacturer’s break-even price, and manufacturers usually take into account the resellers’ break-even price as well. So even if the reseller sells lower than the MSRP, they won’t be losing profit.
MAP and MAP Policy
The Minimum Advertised Price (MAP) is the price suggested by the manufacturer when the reseller “advertises” the product. The MAP Policy is the agreement between the manufacturer and the reseller wherein the reseller agrees to advertise the product with the price not lower than the MAP.
However, it’s still possible that the reseller can advertise the product price in accordance with the MAP, but would sell it at a lower price. But often, the MAP is equal to or closely around the MSRP. So, as a reseller, it’s best to follow the MAP as it ensures profitability.
And, on the side of the manufacturer, the MAP and MAP Policy is set and implemented to avoid pricing war between their resellers. The MAP also somehow helps in preserving the image of the product or brand; the MAP somehow shows the product’s quality (or rarity) through its price, and somehow reflects the cost and quality of the materials and/or amount of work that go into making it.
MAP Policy is enforceable for legitimate resale partners, and if a reseller violates it, manufacturers can stop doing business with them and/or take legal action. But with the advent of online retailing and e-commerce, it’s often hard to track down pricing violations and reinforce MAP Policy.
MAP and MSRP are two different concepts but, ideally, should work with each other. In most cases, MAP and MSRP are even equal in amount. Whether you’re a manufacturer or a reseller, it’s important that you know the distinction. MAP is an agreement between the manufacturer and the reseller to determine the minimum price to advertise to the consumers, while MSRP is simply the suggested price for optimized profitability.