Do you know the difference between MAP and MSRP? Do you often get confused between them? Don’t worry. Because you are not alone.
Business is all about selling products and services to make profits. But to do that, you should know how to price your products. Many sellers, retailers, and resellers often get confused between the various pricing strategies and policies and are not sure which one to follow.
Even if you have figured out how to price your products, the competition drives you to bring down the prices, especially in eCommerce. And if you reduce your prices without a proper strategy, you will end up incurring losses that negatively impact your business.
So, in this article, we will help you to understand the different terminologies in product pricing – MSRP and MAP.
What is MSRP?
Let’s first understand what is MSRP stands for. MSRP means Manufacturer’s Suggested Retail Price. It is the price that the manufacturer recommends the retailer, reseller, or the store to sell their products. It is also known as “list price”, SRP – Suggested Retail Price, and RRP – Recommended Retail Price.
Even though almost every product has an MSRP, they are frequently used for higher-priced goods like automobiles, electronics, and appliances. It was designed to have a uniform pricing strategy across all stores of a company – including online stores.
Of course, this changes due to the competition where retailers often sell at lower prices. This not only attracts new customers but helps to reduce their inventory.
How does MSRP work?
The first thing you need to understand is that the MSRP is not an agreed-upon price between the retailer and the manufacturer. As the name says, it is the suggested price – a policy or a recommendation. It takes into account all distribution and manufacturing costs as well as the profit margin for the retailers.
When consumers bargain for very low prices, it might cause harm to the brand’s reputation. But MSRP is not a minimum price, rather a benchmark. The retailers can sell for more if they provide any additional services with the product. For example, selling a laptop includes free services until the warranty holds – say a year.
MSRP helps both the consumers and the retailers. It directs the retailers to include the profit, provides the consumers with the goods at reasonable prices while not compromising on the return on investment for the manufacturer. It helps all the parties – manufacturer, wholesaler, retailer, and reseller earn profits.
Retailers sometimes sell a little lower than the MSRP. It may be as discounts, offers, or bulk buying. Many times, it is used as the upper limit to start negotiations between the customer and the retailer. This is quite common in the automobile industry.
What is MAP?
Now, let’s understand what is MAP pricing means? MAP stands for Minimum Advertised Price. It is the minimum price that the retailers can advertise the products at. But that doesn’t mean that they have to sell at the same price. They can increase the prices too. Like MSRP, even MAP includes the profit margin for the retailers.
As MAP is limited to advertisements and listings, the retailers can sell the products for a lower value. This depends upon the legalities of your MAP agreement and the policies of the country you are conducting the business. But in some cases, MAP is not considered for online listings in eCommerce sites because they are considered as only selling and not advertisements.
How does MAP work?
MAP is designed to ensure that the brand’s product is not devalued by retailers when they sell it for too low prices in the competitive environment. Many times online retailers reduce the prices to attract customers and clear out the stock. Sometimes they even sell at a loss and this diminishes the brand’s reputation among the consumers.
How many times have you opened multiple tabs to check the price of the same product from different eCommerce stores? MAP helps to establish fair competition across different distribution channels. But most important – it lets the small sellers compete with the larger stores.
Another use of MAP is that it helps the manufacturer and the brands to analyze their product performance. For example, if the products are not being sold even after heavy discounts and offer – that means the pricing is not the issue. It might be with the product, targeting the wrong audience, market down, or any other issue.
What is the difference between MSRP and MAP?
Now that you have a clear understanding of both the pricing policies, let’s dive into the difference between MSRP and MAP.
The main difference is that MSRP provides just guidance on the product pricing for the retailers. They have the choice to follow it or not. While MAP is more like an agreement and the retailers have to follow the minimum pricing. If they don’t, then the manufacturer can take legal action against them.
If a retailer continuously violates MSRP, the manufacturer may stop selling through them and the retailers incur a loss in sales. There is no legal action. But it’s not the same case in MAP. There might be legal repercussions.
Having said that, in some countries, MAP is not considered a legal agreement. Also, it is the advertising price and not for selling – the retailers may sell for lower prices while they maintain the MAP while listing online. Thus the manufacturer’s right to take legal action depends on the MAP policy and the location of the business being conducted.
When it comes to automobiles, most of the dealers are mandated to display MSRP. They do this by pasting a sticker with the suggested price in their showroom on the vehicle. But the invoice containing the final price is usually less than MSRP – one way of attracting the customers.
Overall, you can consider the MSRP as the upper limit for pricing and MAP as the lower limit for product pricing.
How can MSRP and MAP work together?
As you know MSRP and MAP are two different uniform pricing strategies. Of course, there are some similarities. Because of this, they can work together and are quite useful. Let’s see how.
Both MSRP and MAPs are used in different scenarios. MSRP indicates to the retailers that as a manufacturer, you take your brand value very seriously. This prevents them from unnecessarily overpricing your product. It also helps you to sell your products to the customers at reasonable prices and allows profit margins for the retailers.
MAPs are useful in highly competitive markets. If unchecked, the sellers might sell your product at very lower prices that may devalue your product. This is more common in the eCommerce world especially during heavy discounts, offers, and sales.
When used together, MSRP and MAP not only help the manufacturers to protect their brand’s image but maintain uniform pricing too. They both help you to set boundaries against unauthorized sellers that cause harm to your brand’s reputation.
It’s not just the manufacturers who are benefited. It’s the retailers and customers too. Because both MSRP and MAP take into account the profits for retailers. Also, your customers buy the products at reasonable prices without being overcharged.
Which should you choose – MSRP or MAP?
Both! This is not only useful for the manufacturer but the retailer too.
For a manufacturer, both MSRP and MAP help to set upper and lower limits. The retailers cannot overprice or underprice your brand. If overpriced, you will lose customers as your brand comes across as an unnecessarily priced product. If underpriced, your brand value diminishes, hurting its reputation.
The policies help retailers to stay within the profit margin. It becomes quite useful for beginners where the retailer may not have a proper idea to price products. Also, they are not forced to sell at a loss due to the competition – as other sellers are bound by the policies too.
Another person who is greatly benefited is the customer. They get the product at affordable and reasonable prices. Also, the MSRP sticker on a car allows them to bargain and encourages them to purchase because the seller price is usually lesser.
Even though both MSRP and MAP have their advantages, sometimes manufacturers set them at unreasonably high. They might not give the retailers enough freedom to conduct their business.
If you are a manufacturer, make sure that your policies are reasonable where both your brand image is protected as well as the retailers have enough freedom with the pricing.
If you are a retailer, make sure to read the entire policy and get the manufacturers to make some changes if the policies are not being reasonable.
We hope this has cleared all the confusion you had regarding both MSRP and MAP. What are your views on these policies?