Dealing with manufacturers' Minimum Advertised Price (MAP) policies?

the rules aren't always clear

[dickbaker]

I had a manufacturer contact me last month about their newly-adopted minimum advertised price (MAP) policy. My prices were too low.

I saw other retailers of their product use a "mouse over HERE to see our unadvertised price" method. I did that on my site, and the sales manager said it was fine.

He then emailed today and said they decided that mouse-overs were not fine, and said I have to do something more, such as require customers to email for the price. That seems like a hassle that will cut down sales. Raising prices on this product will also reduce sales, as pricing is very cutthroat.

Has anyone here come up with an elegant solution to this problem?

I'd love to tell the company to shove it, but I sell a lot of their products.

[KenB]

KenB, I get your point about a 'free market system', but there's a difference between selling something that requires zero maintenance (and almost zero knowledge), and a higher end product that requires both.

The knowledge and maintenance claim doesn't hold water with me for online purchases.

In my observation of buying stuff over the years, most merchants who claim to provide extra knowledge, don't. I also don't see the maintenance aspect as a selling point for higher prices because if I'm buying online I'm expecting to get zero maintenance support from the merchant. Either the product gets delivered as promised or it doesn't. After that the rest is up to me.

As far as knowledge goes, typically if it is a major purchase, I've done my homework and I know as much or more about the product I'm buying as the merchant. There is after all something called Google and one can find out the good, the bad and the ugly about any product before making a purchase.

If I'm buying something that needs ongoing maintenance, like the new boiler I just installed in my house this past fall, I'm not going to buy it on-line. In the case of my new boiler, I purchased it through the contractor who installed it. I never even asked the contractor their price for the boiler itself, I only cared about the bottom line of how much everything would cost me when all was said and done.

Again, with the boiler, I had done my homework and I knew the ballpark of what the new boiler, plus installation should cost. I got several proposals from contractors and went with the best value (which wasn't the cheapest proposal).

[dickbaker]

A lot of venom in this thread, which suggests to me that it's hitting some nerves.

I've received the answers I was looking for (thanks to those folks), and have been fascinated by the desire by so many to fix prices. I'm also fascinated by the number of people who, after all this time, still don't understand the very basic points I've stated.

By the way, in my niche I am no way a "cut throat" business. 10-15% is the customary markup. B&M stores may get 20%. "Cut throat" would be 3-5%, and there are people doing that.

Time to put this horse out of its misery.

[jwhansen]

I deal with MAP everyday. We are in the aftermarket parts business. Almost every mfg has a MAP. I have no problems with it. I make more $$ when selling at MAP rather than trying to get the sale by lowering my price or trying to figure out a way around it.

The mfgs actually have people or businesses that scan the internet all day looking for violators. If the distributor doesn't correct the problem, then the mfg will cut them off...supposedly! Some mfgs have a specific email addresses you can report them to.

I am a small fish in a really BIG pond and even the big stores have to abide by them as well. It works great.

For some mfgs though, if you use you own pics and descriptions they let it slide. You not in violation of their intellectual(sp?) rights. I had one contact me over $.03!

There is a guy on eBay that states to call him to find out what's in the box! That is a joke, but it works I guess. I really dont like him though, but what can you do?

[PCInk]

Lateral thinking is needed.

You have to advertise at the MAP price? Find a way of giving the customer their 'extra' money back.

Instant cashback, Amazon vouchers, free gift when they order the product, vouchers off future purchases from you, discounts for multiple purchases, free shipping on that item, the list goes on.

[dickbaker]

One more time, just for clarity. I don't have to charge the MAP price, or show the MAP price. If my price is less than MAP, then I can't advertise my price. "Advertise" means showing the price in a catalog, print ad, on the radio or TV, or on a website page.

If I don't show the price on the page, it's okay. If I have the visitor click the "add to cart" button, that's okay, even though they'll see the price on the cart page. That's where it really makes no sense, as the visitor can see the price. Maybe they figure that customers will be reluctant to add to cart, and they may be right.

[KenB]

@dickbaker,

More than likely with websites the primary purpose for requiring prices below MAP to be "hidden" by a requirement like adding the product to a shopping cart is to keep the lower price out of search indexes and price grabbers. What it does is make it harder for consumers to find the retailer with the lowest price.

[rise2it]

By the way, DB, I'm not attacking you personally - you were the OP and I keep using your points as an example...your view is that you want to increase business (and there is nothing wrong with that), and my view is that in the long run this approach will NOT increase business, but will in fact HURT your business AND your profit.

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Some have chimed in offering suggestions to 'beat the system'.....'make the customer add it to the cart before showing the price', etc.

Let me ask, do you really think your competitors aren't going to figure that out pretty quickly, just copy what you're doing, and undercut you there, too?

You see, THIS is EXACTLY why there is map pricing to begin with.... Joe tries to get ahead, then Jack tries to get ahead of Joe, then Stan tries to get ahead of both of them.

The REALITY is pretty soon Joe, Jack, and Stan are NOT selling any more product than they were before, they are simply all making less money on each unit - at which point they either bail out, or end up very unhappy.

I've watched that scenario play out repeatedly in several industries, year after year, since the internet boom of the late 90's.

Unfortunately, every few months there is another 'Joe' that comes along thinking he's smarter than everyone else that starts the insane cycle all over again.

=============================

We've had some real opinion differences here: (Ken leaning more toward being a customer than a merchant, DickBaker trying to increase his business, and myself wanting to make as much profit as possible per sale).

This is what makes Webmasterworld so valuable ;-)

[edited by: rise2it at 5:56 am (utc) on Feb 17, 2010]

[dickbaker]

Y'know, you're right. I'm going to raise my prices to MAP so I can make more money. And, since I'd make more money selling at MAP, I'm going to double the MAP prices so I can make twice as much!

And when Joe and Jack and Stan see how much money I'm making, they'll double their prices, too!

And then I'm going to reward myself with a brand new Edsel. Or maybe a Rambler.

[rise2it]

Now you're getting it ;-)

Seriously DB, the truth is that the pie is only so large, and is going to get divided between the top 5 or 10 guys online in your niche.

Cutting the price will not magically bring in more customers - so the pie will stay the same size for all of you.

Your competitors will drop to whatever level you drop to in order to maintain their share, so YOUR share of the pie (and theirs) will stay about the same.

The end result is each of you will make less money for doing the same amount of work, and selling the same amount of merchandise.

You'll no longer be sharing pie....you'll be sharing crumbs.

KenB's point is that at this point the customer wins, which is true at the time of purchase, but not when the customer needs help or service, and no one wants to service that customer because the sale of that item is no longer profitable to any of the merchants.

Any of you in Ecommerce (or B&M) already know there are product lines like that...which is why you wanted to go with the MORE profitable product lines to begin with, RIGHT?

[KenB]

KenB's point is that at this point the customer wins, which is true at the time of purchase, but not when the customer needs help or service, and no one wants to service that customer because the sale of that item is no longer profitable to any of the merchants.

What I find very often that beyond sales related service (e.g. defective or wrong merchandise) much of the time any service needed gets passed off to the manufacturer so service from the seller is a mute point. Most of the time, seller service doesn't even weigh in as a factor when buying stuff unless it is big like a car or major appliance that can't just be shipped back to the manufacturer.

For some products the size of the pie might not be determined by price, however, with many products price does affect the total pie size. Think of large LCD TVs, the lower the prices become, the larger the market for them becomes. For years I have put off buying one because I was waiting for prices to come down. I also don't own a game console because I don't want to spend as much as they cost. In both cases I would buy if the price matched the perceived value I would get out of the product.

There are countless products that are not true necessities where the total size of the pie is determined by how consumers compare the price against perceived value.

The trick for business is to find that magical price point with the optimal balance between pie size and profit margin such that maximum returns are realized. For some luxury goods it might be a high margin with a small pie, while other goods might do better with a lower margin but bigger pie.

[stu2000]

Interesting reading through this thread, the problem is known to me also, and you have to play both games if you can, undercut(slightly to get the sale) but also complain about everybody else that trashes the price. Somebody said "that's business" and another said "life isn't fair". You have to play the cards that you have.

We have many products and play the games from both sides depending on the situation, marketplace, competitors, manufacturers, customers, price point, margins, turnover and most importantly actual profit.

One thing that hasn't been spoken about is how damaging it can be to a manufacturer to have the price trashed, it has been mentioned in terms of brand image, BUT, the other side of it is this, we class ourselves as a sales team for the manufacturer, what happens if we don't make enough money on a manufacturers products?
We stop promoting it and promote a competing product that we can make a living from. And this is true of all resellers apart from those that have almost no overheads and are willing to sell at 2 to 3% margin. In the end the manufacturers are left with those resellers, but those resellers will move on to the next product as soon as they feel like it as they have no reason to be loyal.
We have seen this so often and we have even advised manufacturers to be wary of selling large quantities of products to resellers they haven't built up trust with.
What happens? They sell a lorry load of product to a fleabay reseller, who whacks them out at 3% margin, all the other established resellers stop buying stock because they can't/won't compete at such low margins, then the manufacturer is left with a product that the main resellers won't promote or even say is no good compared to something they do sell. The product gets a bad name in the market place as being 'cheap' and not as good as other items that the established resellers do stock, now it gets into brand image.

This has happened many times in the product sectors that we sell in and it takes a couple of years for a manufacturer and the product to recover(if it ever does). Very often the manufacturer has to bring out a 'new' product to recover. Sometimes the manufacturer will now only put the new product through the already trusted resellers.
We often get phone calls from manufacturers saying "will you stock and promote the new product", our first question is who else is getting it?
We are happily now lucky enough to be in a position where we can choose which manufacturers products we sell and which of their products we stock.

[dickbaker]

Seriously DB, the truth is that the pie is only so large, and is going to get divided between the top 5 or 10 guys online in your niche.

I believe I may be one of the top 5 or 10 online retailers for this line of products. The retailers who are more expensive than me are huge sites that have been online for perhaps 10 years. Then there's the retailers who are selling at prices that are within a couple of dollars of my cost (I suspect one may be a distributor and buying direct from the company, then selling retail).

We can argue about what we believe is right or wrong, but in the end here's what I've observed over the years: people have increasingly gone to buying by price. If that were not the case, we'd still have plenty of small electronics stores instead of the impersonal Best Buy, and WalMart wouldn't be the dominant retailer.

I can't get inside the operations of the larger retailers who charge more than I do, but I'm certain their operating costs are much higher than mine. So I have an advantage. I also have a distributor whose prices are much less than the big established distributors, so I just might be getting this product for less than the big guys.

So, I'm able to beat them on price. On other product lines I can't, or I have to lower prices more than I like. They're getting volume pricing, buying the manufacturer's rep a new car every year, or whatever they do.

It's just the way things are. Use your weaknesses to your advantage where possible.

[lgn1]

We try to stay out of highly competitive areas, so MAP is ussually not an issue.

Once, an American supplier (who drops ships for us), complained about our prices being below MAP. We informed them, that we are bound by Canadian Laws, and price fixing is illegal, and they said, Oh, sorry, no problem with your prices.

[rise2it]

One thing that may be hindering the discussion here (although I understand why, for obvious reasons) is that we can't name the products we are talking about, or the prices involved.

For all we know, DB, you and I may be in the same business :-)

With higher priced products, there is a higher chance you the customers call instead of ordering online. Has that been your experience?

DB said, "I believe I may be one of the top 5 or 10 online retailers for this line of products. "

------------------

I have no doubt about that, or you would not be in this (WebmasterWorld) forum and worrying with this issue.

I'm going to leave you again with the final thought from my previous post:

"Any of you in Ecommerce (or B&M) already know there are product lines which have become unprofitable...which is why you wanted to go with the MORE profitable product lines to begin with, RIGHT? "

In fact, I'm betting the only reason that product line IS profitable to you is BECAUSE IT DOES have map pricing.

Now, you have two options:

(1) You can think in the short term, and kill the goose laying your golden profit eggs, because that is what will happen if you and the others get into a map price war with that product line.

(2) You can think long term (about adding value to what you are selling at MAP price - in other words, what benefit does a customer get buying from YOU?

That last question is the key to getting more profit per sale, and not having to compete on price on these items.

[dickbaker]

rise2it, I don't think you and I are in the same niche. If we were, I don't think you'd be arguing in favor of MAP. Mine is an extremely price-competitive niche. All things being equal, the customer will go for price. What's not equal in this situation is that I'm new and small, and my main competitors are established and have larger operations.

Let me offer you a glimpse of the mindset of the typical widget buyer in my niche.

Retailers in my niche often attend weekend shows to sell their products. One retailer likes to goof around with people, so one weekend he hung a length of clothes line across a table. To the line he clipped brand new $1 bills, with a price tag of 90 cents on each. Customers would come up and ask him what was wrong with them. He'd say, "nothing. They're brand new $1 bills." The customers would then try to chew him down to 80 or 85 cents.

If I were not making what I consider to be a comfortable profit, I'd raise my prices. I want to expand my online store far beyond where it is now, and get into the main widgets in my niche. That's where my competitors have the advantage of buying in quantity at prices I can't get. It will take time before I'll be able to get the wholesale prices they get.

By the way, I put the "click the Add to Cart button to see our price" blurb on the site yesterday, and I haven't sold a single one of those products yet. The customers can't see the price, and I think the add to cart process makes them suspicious. I can tell from my stats and from Google Analytics that they're clicking on the button, but they're not buying.

[trinorthlighting]

Do not buy from an American manufacturer then, find something similar from China, get it in and sell well below the map and make more money.

OR

Better yet, find a completly new product to sell in your store from a manufacturer who will work with you on moving a lot of product. I have manufacturer's hitting me up left and right in my niche to push products.

[rise2it]

DB, I think I figured out your niche, so we aren't competitors.

The weekend shows are going to attract a different breed of people. I have the same results with people locally, and I've made the comment that I could offer a $20 bill for ten dollars, and these people would then try to get it even lower - it's some type of ego trip for them.

Those people are NOT going to be where you make your money. They have ZERO loyalty, and tend to be (in my experience) time wasters who always develop problems after the sale.

Now, if YOU are doing the weekend shows, and can deal with those people face to face and make it profitable, then more power to you.

However, do NOT let your experiences with those people translate into your assumptions about your ONLINE customers.

Not everyone shops at Walmart. Not everyone shops on eBay and Amazon. Not everyone expects a discount. Some people want the best (product, service, and trust), and are willing to pay for it. THOSE are the customers you want.

Yes, that group may be the minority. The problem, however, is that the majority will (if you let them) easily chew up all of your time and energy, and cause you to miss sales to those in the profitable minority group.

Go back over your sales records - which customers made you $$$? Which customers caused you headaches? Which customers consumed the most of your time?

I'm willing to be if you do that, you'll see the headache/time waster group consisted of smaller sized orders and much smaller profits.

As far as online, we have (in this horrible economy): (1)raised our shipping (for orders that don't hit free shipping points), and show it on every webpage.
(2)For the first time, displayed a giant logo stating a MINIMUM SIZE for telephone orders
(3) Put value added services on our high end products.
(4) We've made it much plainer there are some products we do not stock.

The result: daily orders are down, total sales volume is up, average order size is up...average size for telephone orders is WAY up, net profit per sale has almost doubled, and silly calls/emails are going down.

I realize my attitude may sound harsh when I make comments about customers (and trust me, I woo and baby some of them hard , and give them more than they expect), but I accepted a long time ago that not everyone is going to be MY customer.

Running a B&M or ecommerce site is hard, and there is only so much time in a workday. Spend that time dealing with the customers that put the most profit in your pocket, and let the others buy elsewhere.

What does all of this have to do with map pricing?

Everything - if you are offering the higher tier products which usually have map pricing. Because those other vendors you referred to as bigger and with deeper pockets will NEVER be able to do what YOU can do with the 'right' customers.

...IF you don't get caught up in the price war game.

[KenB]

As far as online, we have (in this horrible economy): (1)raised our shipping (for orders that don't hit free shipping points), and show it on every webpage.
(2)For the first time, displayed a giant logo stating a MINIMUM SIZE for telephone orders
(3) Put value added services on our high end products.
(4) We've made it much plainer there are some products we do not stock.

The result: daily orders are down, total sales volume is up, average order size is up...average size for telephone orders is WAY up, net profit per sale has almost doubled, and silly calls/emails are going down.

This totally makes sense and seems like a logical approach to dealing with extreme bargain hunters.

[dickbaker]

rise2it, I'm guessing that your online business is not new. If I were more established, I just might take that tack.

However, I'm relatively new (2 years) to online sales from my site. We all know that trust is a big factor in getting people to complete their sales. The big online stores have the name recognition and the trust.

For now, I don't have the name recognition. I've had customers tell me they were nervous buying from a website they'd never heard of, but took the chance because the price was better.

My website is also a little confusing, because it's a mix of information, ecommerce, and advertising. Once I make the switch to 100% ecommerce, that will likely ease customer concerns.

I know that I can raise prices, but I don't believe I can do it now and maintain the same amount of profit.

As I mentioned earlier, when I was a photographer I was one of the highest priced in my market, and was always getting low-balled on price. I stuck to my principles, but I'm the one who's still working while the low-ballers are retired. I will not make the mistake of sacrificing profit for the sake of feeling superior about my principles again.

[stu2000]

I will not make the mistake of sacrificing profit for the sake of feeling superior about my principles again.

sorry DB, that seems to be a contradiction, probably just me, do you mean that you will or won't compete with price cutters next time(Like I said probably just me)

[dickbaker]

sorry DB, that seems to be a contradiction, probably just me, do you mean that you will or won't compete with price cutters next time(Like I said probably just me)

I'll be realistic. It's no fun watching a business you built and nurtured for 13 years go under because you're standing firm on one price while the market says the price should be something else.

If the market says that XYZ widget should sell for $100, I'm not going to insist on charging $200 and sell nothing.

[stu2000]

If the market says that XYZ widget should sell for $100, I'm not going to insist on charging $200 and sell nothing.

the only constant is change.........

we've always been having to change how we work, deal with customers, deal with suppliers, changing prices, changing to new products, it never ends, you just end up having to find the best way through it. Very frustrating I know, you simply want to earn an honest living and put money aside for the future/retirement, but in some places profit is a dirty word.
But if we only just made a small profit(unless you are stacking high and selling cheap at a high rate of knots) then you can't plan for the future. No confidence in the future and people stop buying houses, people stop buying houses and the property market collapses, then where would we be if that happened - OH.

[rise2it]

DB, how much of your (higher price products, let's say $150 and up orders) are telephone orders, compared with customers who actually place their orders on your site for those items?

THAT is going to have a lot to do with different strategies you could use vs your competitors.

[dickbaker]

There's only one item I sell that's under $150, and I don't really push it, as the profit is too small.

I'd say 90% of my orders come from the website, and maybe 10% by phone.

[rise2it]

That's really interesting, because my numbers are virtually the opposite of yours with the high dollar stuff....90% phone calls and 10% web purchases.

It also explains some of our philosophy differences, as I can do a lot more to build trust and such (and put them into the right product, even if it's a lower priced option, which ALWAYS impresses them) if I can get them on the phone.

Do you think those numbers apply to your niche (in other words, do you think your competitors are getting the same 90/10 split?) If so, THIS may be where you can get the advantage you are trying to gain.

Maybe you could tag a few pages of your hottest ones (as a test) next to the price with something like, "Is this the right one for you? Talk to our <product> expert to be sure. Call <phone number> now."

[MrHard]

If I were not making what I consider to be a comfortable profit, I'd raise my prices

Not if you had to sell a quota of a certain amount regularly from the distributor in order to pay the lowest cost on the products. You would be forced to lower your prices to sell (or complain) even if it meant break even. You could not sit still and just say the competitor was making nothing, so just keep prices high and don't worry about it. Competitor just keeps getting lower prices from distributor based on volume, eventually puts you out of business. Or, you sell so little it makes it not worth while for the distributor at all. Maybe they choose only so many accounts next year and you are at the end of the volume list.

[stu2000]

You could not sit still and just say the competitor was making nothing, so just keep prices high and don't worry about it.

Absolutely agree, a recent case for us was a competitor sold an item at 18% discount when we know our margin on tha product is 20%, so either he is already getting a higher margin than us or he is prepared to make very little in order to keep his turnover up with the manufacturer so that his margin increases next year, or worse, we lose our 'authorised reseller' status because of low turnover. This is when you need input from the manufacturer as to how they want it played, do they mind having resellers that discount heavily or will they stand by those that want to retain the brand image.
A bit like the supermarket scenario, in the end if they only think about those that have high volume they will then end up with a few resellers that trash the price and then because of their volume orders can even begin to influence the price that they buy the product at.

[dickbaker]

I have distributors who do tiered pricing based upon the dollar amount a retailer spends with them. It's a vicious circle, as I don't order from them often enough to get the lowest prices because their prices are too high.

My primary distributor for the product line in question is a small distributor, but has much lower prices than any other, even lower than the prices some of the major distributors charge their top-tier retailers.