In my second job out of college I was tasked with, in some instances, creating a luggage collection and working all the way through from concept to design to sourcing to pricing. When it came to the latter, I have to admit that I was pretty green in understanding retail vs. wholesale vs. MSRP vs. etc. etc. pricing and how it works.
I can by no means say that I am any more well versed in it but it does make more sense now. But, it never hurts to look back and learn more about that thing you used to do and see how you could have understood it better. So to google I went.
Well, I happened upon a great article that talked about MSRP (Manufacturer Suggested Retail Price) vs. MAP (Minimum Advertised Price).
Here are 5 key take-away’s:
1. “The price resellers pay is determined mostly by your MSRP (Manufacturer Suggest Retail Price). But once they’ve paid, they can then sell at whatever price they deem profitable to them. So if your MSRP is $50.00 and you sell to a retailer at 50% discount, they have the potential to make $25.00 profit. But if they’re willing to make less they can undercut the competition.
When this happens, and the price war kicks in, your MSRP goes out the window and your phone starts to ring off the hook with complaints from resellers.”
2. “A minimum advertised price is just that – it’s the agreed price a reseller agrees to advertise a brand or product at. There may be some wiggle room, but generally, when a reseller accepts the agreement, they’re stuck. They can’t advertise a product for sale any less than the agreed price. This means in print, online, or any where.”
3. “While collusion to maintain a fixed price or profit margin is illegal in most circumstances MAP policies are legitimate and valid – if done correctly…here’s the big differentiator – MAP pricing does not limit the actual selling price. It simply sets the minimum price a product can be advertised at – whether that’s in print or online.”
4. “Resellers are adverse to risk. They certainly don’t want to take on new brands and products that they’ll be undercut on by other resellers. They want to have some cost control and profit assurances. MAP affords them some protection. They know that if they buy your product to sell, they won’t necessarily see it online tomorrow advertised for way less.”
5. “MSRP is what you’d like everyone to sell your product at – and you’re discounting levels are based on it. While MAP is the price resellers agree to advertise your product at – provided you’ve had them sign reseller agreements. So, make sure you have reseller agreements in place.”