What Does Minimum Advertised Price Mean?
Stay out of trouble and don't advertise below MAP
In its simplest form, Minimum Advertised Pricing (or MAP, as it is more commonly referred) is the lowest price a retailer can advertise the product for sale. Not the lowest price they can sell it in their store, but the lowest they can show online or in an advertisement.
For example, Bose may have a MAP price of $999 on one of their speaker systems. If you put it in an ad, you may not show a price for sale lower than $999. It doesn't matter if that ad is online or in print, the rules are the same.
Is MAP Legal?
Before you ask, yes, this is perfectly legal under U.S. antitrust statutes. Since minimum advertised pricing only relates to “advertised” pricing and does not tell a retailer what they can sell it for in their store, this practice time is legal. It is a protection for the manufacturers. IF customers begin to see they can buy your product for $699 versus the $999 MSRP, they quickly surmise that they MSRP is inflated or too high. And when that happens, no one will ever pay $999 again. Thus making the value of your product (as a manufacturer) much less which then leads to brand erosion.
Essentially, you are limited when advertising MAP-protected products, but you can sell these products at any price you choose. Meaning that when the customer comes in your store, you can sell them that Bose speaker system for less than $999 if you desire.
What Is an MSRP?
Another common term is Manufacturer’s Suggested Retail Price or MSRP. This refers to what the manufacturer of the product believes the item should sell for.
As stated before, a manufacturer has a vested interest in how much its products are sold for at retail. For example, if they are trying to build a premium brand (Lexus or Tiffany's, for example) they do not want their merchandise sold at deep discounts. It sends the message to the consumer base that the products are not actually worth the MSRP.
True, few retailers sell at MSRP, in fact, most do not. Many use the price they are selling it at or IMU price compared to MSRP. So it looks like customers are getting a great deal, even without a sale.
MAP and Online Sales
Do online retailers have to follow MAP as well? Absolutely. However, online retailers have figured out a way that the courts and Federal Trade Commission (who oversee pricing issues) allow them to sell below MAP online.
The FTC says that the price displayed in a secure or encrypted shopping cart isn’t subject to MAP because it’s technically not advertising. Instead, the shopping cart of the online store is much the same as a brick and mortar store. So in an online world, the price paid by a customer may legally end up being lower than MAP.
Is this fair? Well, online retailers believe it is. They simply add a disclaimer that states "price displayed in shopping cart." And then the actual price to be paid is displayed there versus on the product's page on the website.
Brick and Mortar retailers argue that they cannot place a newspaper or ROP ad that shows the MAP price with a "disclaimer" that says 'actual price paid in the store is less.' So, they have heartburn over this practice. After all, customers simply add the item to the cart and then look to see the price. They do not even have to buy it or give any credit card info to find out what they might actually pay.
The Penalties for Advertising Below MAP
What are the repercussions of advertising below MAP? Quite simply, the manufacturer has the legal right to pull their products from your store and restrict you from selling them again. In some instances, vendors have been known to require a refund of any co-op funds they may have given the retailer during the time the infraction occurred.
It is best practice to honor and follow MAP policies. It shows you are a good partner and motivates the vendor or manufacturer to help when you need it - like taking back stock when it does not sell.