The rise of e-commerce has intensified competition and pricing pressure for manufacturers and retailers. This environment has led many brands to adopt pricing strategies to control their product’s market position and value. One such tool is the Minimum Advertised Price (MAP) policy, a frequent yet often misunderstood part of the relationship between brands and the businesses that sell their goods.
Defining Minimum Advertised Price
A Minimum Advertised Price (MAP) is a policy established by a manufacturer that specifies the lowest price at which a retailer is permitted to advertise a product for sale. This policy applies to all forms of advertising, including online listings, print catalogs, and television commercials. It is a unilateral policy, not a mutual agreement, that resellers must adhere to if they wish to carry the manufacturer’s products.
The core of a MAP policy centers on the advertised price, not the final selling price. A retailer might advertise a product at the MAP price but could offer a lower price once the item is in a customer’s shopping cart. This distinction separates it from direct price-setting, focusing instead on how the product’s value is publicly perceived.
The Purpose of a MAP Policy
A primary goal of a MAP policy is to protect brand integrity and prevent price erosion. When products are consistently advertised at deep discounts, it can devalue the brand in the eyes of consumers. By setting an advertising floor, brands ensure their products are presented consistently across different retail channels, which reinforces their value.
For retailers, these policies create a more level playing field. Small, independent shops can compete with large chain stores without being forced into unsustainable price wars. This stability allows retailers to maintain healthier profit margins, enabling them to invest in knowledgeable staff and enhanced customer service.
The policy also fosters stronger partnerships between brands and their retail partners. It ensures that retailers who invest in promoting a brand are not undercut by others who simply compete on having the lowest price, preventing a “race to the bottom.”
MAP vs. MSRP
MAP is often confused with the Manufacturer’s Suggested Retail Price (MSRP), but they serve different functions. MSRP is a suggestion from the manufacturer about what the final selling price to the consumer should be. It is the price you might see on a product’s tag, but it is not a binding requirement.
The difference lies in their application and enforceability. MAP is an enforceable policy focused on the lowest advertised price. Conversely, MSRP pertains to the final sale price and is merely a recommendation; retailers are free to sell for more or less than the MSRP without penalty.
Consequences of MAP Violations
When a retailer advertises a product below the established MAP, the manufacturer has several options for recourse. Consequences for violations follow a pattern of escalating severity. The process often begins with a formal warning notifying the retailer of the violation and requesting they correct the advertised price.
Should the retailer fail to comply, the manufacturer may escalate its response. A common next step is a temporary suspension of product shipments, which directly impacts the retailer’s ability to sell the product. For retailers who continuously disregard the policy, the most severe consequence is the permanent termination of their reseller agreement, meaning the manufacturer will no longer supply them with products.
The Legality of MAP Policies
A common question is whether MAP policies are legal. In the United States, MAP policies are generally considered legal due to a concept from the 1919 Supreme Court case United States v. Colgate & Co. This precedent, the “Colgate Doctrine,” allows a manufacturer to unilaterally announce the terms under which it is willing to sell its products.
Under this doctrine, a company can state its policy and then choose to refuse to do business with any retailer that does not voluntarily comply. The arrangement must be unilateral, meaning the manufacturer sets the policy without negotiating or entering into a price-fixing agreement with its resellers. If a policy becomes a two-way agreement on price, it could cross into illegal price-fixing territory.
Implementing a MAP Policy
Successfully implementing a MAP policy involves a clear, structured approach. The first step is to draft a formal policy document that is clear and specific. This document should define what constitutes “advertising” and list the products and their corresponding minimum advertised prices.
Once drafted, the policy must be distributed to all resellers. The manufacturer should ensure every retail partner receives a copy of the policy and acknowledges its terms.
The final step is consistent monitoring and enforcement. The manufacturer must watch the market for violations and enforce the consequences outlined in its policy consistently and without favoritism to maintain its integrity and legality.