Understanding Pricing Rules for eCommerce Resellers

It's important for eCommerce resellers to understand the rules around pricing policies and how to navigate the pricing landscape. Learning how to manage recommended pricing efficiently will benefit your business, your customers and your suppliers.

In this article, we look at the legal obligations enforced by MAP and RRP, discuss the difference between the two pricing methods, and advise when to use them and when not to use them.

What Is MAP?

MAP is a pricing policy manufacturers use to legally define the lowest price resellers to advertise their resale products. The keyword to note here is "advertise".

MAP - or minimum advertised price - does not mean resellers are legally bound to sell an item for the less than the price manufacturers stipulate in the MAP policy. As a business owner, you are free to sell merchandise at whatever price you like.

However, MAP policies restrict eCommerce resellers to advertise products for a price less than the recommended retail price. Violation of the policy is subject to penalties stated in the legal document. There are delicate issues for both resellers and manufacturers to consider.

Why MAP Matters

The overriding purpose of MAP is to allow eCommerce business owners to compete in the market and protect the manufacturer's evaluation of the product and, ultimately, their brand reputation.

Without MAP policies, established resellers would be able to adopt a low pricing strategy to undercut their competitors. Whilst that would mean a loss of ROI, they would still be better positioned to clear their inventory.

Putting a restriction on the lost amount a retailer can advertise a product, allows smaller businesses to attract customers and grow. Without this rule, businesses with less capital can easily be forced out of business.

The guidelines also help to protect the reputation of the manufacturing brand in the marketplace. When products are sold at prices well below the manufacturer's suggested retail price, it sends a message to consumers that the products are not worth the original evaluation. The risk here is that consumers will stop paying the desired price set by manufacturers.

MAP policies also help identify unauthorised online sellers that may be selling stolen or counterfeit goods or own a fake store that appears credible but doesn't actually own any products.

Navigating MAP Restrictions

MAP policies do not give manufacturers the right to tell eCommerce resellers how much they can sell a product. It is, therefore, possible to navigate the restrictions without violating a MAP policy.

Typical MAP strategies used by eCommerce business owners include:

  • Encrypting the discount in the shopping cart
  • 'Two for the price of one' promotions
  • Negotiating prices with online customers in real-time

Encrypting the discount as a promotional offer in the shopping cart is not considered a violation of MAP policies because the reseller does not advertise the price prior to the sale. The price is only revealed once the consumer has already confirmed they intend to proceed to checkout. Therefore, it is considered that the price is not manipulating a purchasing decision and does not give the seller a competitive edge.

Bricks and mortar stores, on the other hand, do not agree. The argument is that online shoppers can place a product in their shopping cart, check the price and then choose to make the purchase.

In reality, this is a weak argument, because in-store customers also have the option to decide not to purchase an item at checkout. There are also legal ways for brick and mortar stores to offer in-house discounts without advertising the price to the public. Using shop assistants to negotiate prices or revealing the discount at POS is essentially the same pricing strategy that is available to online stores.

What Is RRP?

Manufacturers have a vested interest in how much profit resellers earn because they rely on business owners ordering more stock.

Recommend retail prices are healthy guidelines that retailers can trust when determining a sales price. The RRP is the monetary value a manufacturer places on their product but is also based on research and analysis, which takes into account markups, profit margins and estimated number of sales resellers can expect to make.

Although RRP does also help manufacturers control their product's price to remain competitive and position their brand in the market, it differs from MAP in that the list price is not the lowest price. RRP is not a fixed price either. Business owners have some flexibility as to whether they set the price at over or under the manufacturer's recommendation.

However, in competitive markets, retailers cannot afford to set the price too high and don't want to risk shaving their profit margins too fine either. To find a balance, eCommerce resellers need to know when to apply RRP and when to go higher or lower.

RRP Strategies

Pricing strategies in competitive online markets should consider several factors such as international shipping, availability, seasonal sales, the strength of your marketing and more. You also want to avoid ruining your relationship with your supplier. Consistently selling their products for less than the RRP is not good for building relationships.

Incorporating other sales tactics as a persuasive device can maximise your profits. For example, bundling less expensive products is a strategy that can drive sales volume at full RRP or with a markup.

For eCommerce sellers who carry a commodity in a less competitive market, a markup on the product is unnecessary. When there is little to no competition, the smart strategy is to start your pricing high and gradually skim it down. Read more about price skimming.

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