Why should Brands Embrace Price Protection with MAP?
What are some of the benefits of adopting Minimum Advertised Pricing for your brand? It can help establish a consistent value for the brand in the mind of consumers, can give you predictable and consistent margins, and can ease relationships with retail partners and resellers. But can MAP make you more competitive?
At first glance, MAP doesn’t seem to benefit competitiveness so much as control. It works as a safeguard for your business, but doesn’t seem to be oriented toward pumping up your numbers—toward conquest of your competitors, increasing your market share, or unleashing fast sales growth. Adopting MAP means taking a stodgier attitude toward your retail pricing, and when brands think about ways to compete better and grow faster, they often prize flexibility and freedom in pricing—specifically downward flexibility. If enforcing a MAP policy complicates freedom of pricing for a brand’s products, doesn’t that mean that it hurts the brand’s ability set itself up competitively in the market?
Ultimately…no. While a MAP policy may limit your toolkit for pumping up unit sales numbers just before the end of a quarter, it more than compensates by setting you up durably for the long run—for many future seasons of conquests and share increases. Below, we’ll explain why.
Competing by solving pricing first
How does MAP increase your long-term competitiveness? It does it by taking away the burden of your having to react to changing retail prices. Specifically, it relieves your everyday burden in managing the fiscal, planning, and relationship challenges that result from your prices’ fluctuations. MAP offers you a sensible and powerful way to settle the question of pricing.
Price is, after all, only one puzzle-piece in your go-to-market strategy and marketing effort. Besides price, you try to outdo your competition with the functionality and design of your product, with your copy, creative, and branding, with product reviews and paid and earned media, and with appropriate placements on physical and digital shelves. After you institute MAP as a strategy for pricing your brand, you’re free to concentrate on these other aspects of go-to-market success.
And you’ll want to do this because, after all, you don’t want your product to appear to the shopper as a commodity, relying primarily on winning a price war in order to be different and special in the market. The long-term competitiveness of most brands depends on establishing sturdier differentiation. Once you use MAP to put in place and enforce a certain picture of your product’s value, you can build out marketing efforts that reinforce that picture.
In other words, embracing MAP can prompt you to invest in the stickiness of your brand in the market, in the full scope of its value proposition. It can help you to be less reactive and more strategic, and so plan for a long future of success.
Competition without MAP: a sad story
To draw out the opportunity of MAP for longer-term competitive positioning, let’s imagine a Ghost-of-Christmas-Future scenario: a walk down the road with a brand in thrall to a practice of ever-changing and typically-falling retail prices.
This brand sells its products wholesale without imposing any conditions on the price at which they can be sold at retail. It’s attracted to this strategy for more than one reason. It has noticed that the lack of price protection boosts the products’ attractiveness to marketplace resellers, who are typically happier operating outside the governance of the brand and who value the powerful merchandising lever of price as a tool to beat the online pack. It also wants to give its retail partners flexibility on price, believing that this will future-proof its products against competitors’ pricing challenges in those outlets and will lead retailers to understand the brand organization as accommodating and versatile. It believes that its lack of price protection makes for a more friction-free buyer-seller relationship and marks it as eager and competitive. It expects that it will earn favor from its retailers by this stance.
As the brand moves forward without MAP, it sees its retail prices move lower across its channels, often because of the price-matching practices of its major ecommerce partners. But it sees the consumer market respond positively to the lower prices. The brand realizes a unit sales volume that it wouldn’t have at a higher price point. Its salespeople and marketers have plenty of encouraging numbers to report. The brand is competing well.
Or is it?
It’s common for regret to come in when brand stakeholders realize that their strategy actually creates alienation or frustration in all the classes of people essential to the success of their business, and that this weakens the brand’s competitive position. How does this happen?
Retailers with whom the brand has direct sales relationships become frustrated by price wars for its products because these hurt their bottom line. Every time a reseller on Amazon lowers his price in order to capture the buybox from another reseller, this retailer’s price-scraping tool notices and forces its own retail offer lower in order to match that price. Retailers do this because shoppers’ ease at scanning prices across ecommerce channels means that having the lowest online price becomes crucial—not just for this one sale, but for the shopper’s perception of the retailer’s value.
This means that a brand’s lack of MAP can create worsening numbers for retailer buyers and vendor managers. And smaller retailers who don’t price-match may be left feeling that they simply can’t compete against other outlets, and so deprioritize the brand’s product in their profit plans. We can see from this example how price protection serves both the brand and the retailer. A brand that doesn’t protect its retailers with MAP can put itself in worse competitive position to claim their wholesale purchase dollars.
Next, let’s look at those reselling partners on Amazon and other marketplaces. Free rein to reprice may have driven their interest in the brand, but the more of them there are, the worse any one of them is going to fare. Each of them can undercut any other—and may need to undercut in order to get sales. Each has one of several competing offers on a single product detail page, and it’s almost entirely by price that any one seller can differentiate.
So, resellers’ margins become compressed as well; they become frustrated with the brand and begin to look elsewhere for better reselling opportunities. Since this brand relies on resellers to be its sales representatives on marketplaces, they’re a vital link in its commerce operation, and their ability to realize a profit is crucial to its business’s success. Disengagement and alienation on their part hurts the brand’s competitive position.
Then there are the brand’s salespeople and ecommerce managers, who direct its accounts. When the brand’s lack of price protection compresses its customers’ margins and puts in question the profitability of the brand’s products for those customers, it’s the salespeople who field calls and emails and try to come up with constructive responses to customer pain. Their jobs can become centered on putting out fires. The brand’s execution of any strategy becomes complicated and laborious—too many mouths to feed, all of whom want something different. Opportunities are missed, and growth stagnates.
Finally, price fluctuations can confuse and alienate consumers. Shoppers rely on price to give them information about a product’s value relative to its competitors. When prices are unstable, they don’t communicate a consistent value. When a price drops after a customer has made a purchase, the customer may be frustrated with the brand—why did she pay more just last week? When the price rises again, a returning customer may notice and resent the change—why is this brand trying to take more of her money? The customer may leave for another brand whose price stability signals trustworthiness to her. Besides this, when prices are lower than the brand might like them to be, a shopper may draw inferences about a product that are inaccurate or don’t represent the brand’s category strategy. Is this product the budget pick? Is it less reliable and functional than competing products?
Competition with MAP: A Happy Story
Snapping awake from this terrible vision, we see how solving pricing via enforcement of a MAP policy enables the positive communications and focused work that let a brand drive its products to success. In the MAP world, retailers and resellers feel assured of making acceptable margin while the brand develops its appeal on vectors other than price. Sales and ecommerce managers focus on growth and operational excellence. And consumers are courted with a consistent picture of value and led to develop trust in the brand.
You can think of MAP as a way of fixing the most volatile, wobbly part of the engine of your business. When that part is wobbly, the rest of the engine is under stress, and it gets hotter than it must. Energy dissipates instead of being directed towards smooth movement. That engine loses the race.
The business engine with MAP in place directs its energy forward and outward and, if all the other components work as they can, buzzes by its competition. Your business deserves that win.