Minimum advertised pricing trends
If you’ve shopped on Amazon recently, you may have come across listings with the disclaimer “Discount provided by Amazon” posted prominently below the description. Of course, Amazon has started this practice in part for the consumer — who doesn’t love a good discount? But there is more going on here than consumers realize and much of it is in response to the minimum advertised price (MAP) policies Amazon’s vendors have in place.
MAP policies have contributed to a lot of change in the retail industry, and as e-commerce cuts further into total retail sales, these policies will help shape the future of online retailing. With key online shopping events such as Amazon’s Prime Day, Back to School, and Holiday 2018 on the horizon, there are three key areas retailers should be watching with respect to MAP policies:
1) Amazon innovating around MAP
Amazon has historically been notorious for not only putting a strain on MAP policies, but also for being too light on enforcement against third party sellers that may be damaging a brand’s value with their listings. In the past couples of years, however, Amazon has changed some of its own policies to help protect brands and their prices. Though brands have questioned the impact of these policies, Amazon continues to trial new behaviors that serve consumer interests, the brands’ interests, and their own.
Among these changes were an overhaul of Amazon’s Brand Registry to help better protect brands from rogue sellers, and a more concerted effort on Amazon’s part to remove unauthorized and inauthentic product from their marketplace.
Amazon is also continuing to push the envelope with such things as Guaranteed Margin Agreements on products sold directly to them, and providing discounts to end users out of its own pocket on offers made by third-party resellers on the Amazon. By advertising the discounts as “provided by Amazon”, they can maintain low price leadership, while technically staying within the confines of a brand’s MAP policy.
Competing retailers should be taking note of these changes and looking for their own ways to innovate around MAP. The end goal should be finding a balance that allows the retailer to compete on price, without negatively affecting a brand’s value to the point where pulling the product becomes a consideration for the supplier.
2) Policies reflect mutual understanding
MAP policies are known to put a strain on retailer-vendor relationships. If one retailer drops below MAP, brands may have a long line of retail accounts banging at their door for an explanation as to how they are supposed to compete when others (often, Amazon) drop below MAP. This strain has resulted in an evolution of MAP policies that both protect brands from price erosion, and afford retailers some flexibility on price.
One trend seen more and more in MAP is the inclusion of “strike” clauses. At a basic level, brand manufacturers afford retail accounts a certain number of “strikes — or MAP violations — before taking some elevated action like pulling product. Knowing how volatile the competitive pricing landscape can be, “strike” clauses have brought some latitude to MAP policies, helping lighten the strain on the relationship between retailers and their vendors.
MAP policies have also seen increasingly complex promotional grace periods. Leveraging data to understand when promotional pricing is likely to drive more traffic and conversion, vendors have built in periods of relaxed pricing, allowing their retailer partners to run deeper discounts without getting their hand slapped, or accumulating a “strike”.
3) No longer a durables-only conversation
MAP and minimum resale price (MRP) have continued to expand into CPG products, both to prevent price erosion and, in some cases, to provide an adequate margin to online resellers that offer free shipping on relatively low-priced goods. Originally, MAP or MRP (minimum resale price) applied to higher ticket items — for example, health and beauty aids with price points of $10, $15 or more — but as more lower-priced items are being sold online and facing price erosion, MAP and MRP are being applied to them too. Many of the larger CPG brands already have MAP policies in place today, even for products priced as low as $2.99, knowing their e-commerce golden era may be just around the corner.
At the same time, grocery stores continue developing their omnichannel offerings, and those that are establishing or will establish a full eCommerce offering will need to understand the implications of MAP on their pricing strategies. This includes opening discussions with their vendors about getting MAP relief during promotional periods, and assessing competitive online pricing patterns—especially on Amazon—to ensure their prices will remain competitive enough to keep shoppers coming to their site. RL