Tushar Patel, chief marketing officer, Kibo
The quest for deals has led online mass merchants to strategically offer deep discounts, making up in volume what they erode in margin. In this race to the bottom, small- to mid-sized merchants have struggled to keep up, using dynamic pricing tools to track competitors’ product price fluctuations and offering price-drop alerts and other discount-focused strategies to attract shoppers.
The situation is further complicated by increasingly sophisticated personalization tools, which enable merchants to send individualized offers to consumers based on past purchasing behavior, and mobile apps that act as discount clearinghouses, enabling shoppers to harvest promo reward codes without building relationships with individual brands.
And then there are the unique challenges faced by brand manufacturers and their retail partners. Many brand manufacturers are now selling products directly to consumers online, creating potential for channel conflict when it comes to price. Retailers selling manufacturers’ goods find themselves competing not only with mass merchants, but with cut-rate retailers whose products are featured on third-party marketplaces such as Amazon, Walmart and eBay. Those with physical store outlets must have strategies in place for shoppers using their phones to comparison shop and request price-match discounts.
Merchants have long turned to tools such as the Manufacturer’s Suggested Retail Price (MSRP) and the Minimum Advertised Price (MAP) to attempt to establish pricing parity and level the playing field against deep discounters. But do these strategies, which have been around for decades, still apply in the age of omnichannel retail?
The MSRP: Almost a Dinosaur?
In theory, the MSRP is the price that represents what manufacturers believe products are worth in the marketplace, and the price they believe retailers should set. But as anyone who’s haggled for a car knows, the MSRP more typically is just a starting point from which retailers deduct discounts to spur purchases. In fact, the tendency, never or rarely, to charge the displayed MSRP has gotten e-commerce merchants into trouble, with complaints being filed in the courts on behalf of consumers who claim the list price is subject to false advertising designed to make discounts seem bigger.
Legal challenges aside, the MSRP is less relevant in an age of personalized offers and dynamic pricing, when product price varies depending on availability, seasonality and the shoppers’ own purchasing history, location and situation.
Setting an MSRP can still be a useful exercise for manufacturers; by calculating the cost of production and assessing the market forces that might drive demand, manufacturers can use the MSRP to derive wholesale pricing and sales programs.
MAP: Work It to Make It Work
MAP policies can be helpful both to manufacturers and retailers. By standardizing advertised price, MAP enables retailers to put the promotional spotlight on differentiators such as service, product support, customer communities and in-depth content such as buying guides and flexible fulfillment policies—all of which can help small- to mid-sized retailers compete against bargain-basement mass merchants. For manufacturers, using MAP policies as a baseline enables collaboration with resellers that can help brands meet consumers’ expectations for service and product availability.
But MAP policies require an investment in resources to execute successfully, as manufacturers must both communicate the policies to retailers and follow up with monitoring and enforcement. At a minimum, manufacturers who set MAP prices should:
- Reconsider marketplaces. Manufacturers may decide to limit participation on marketplaces for authorized retailers and resellers to keep their products out of the fray of undercutting prices.
- Monitor paid search ads and own branded terms. Locking down brand names and product titles—using trademark enforcement if necessary—ensures that bargain-basement resellers won’t steal the limelight from manufacturers and their partners in Google Shopping ads and other high-visibility placements.
- Build in flexibility to accommodate retailers’ needs. MAP violations jump significantly during holiday sales as retailers vie to offer gift buyers the bargains they see —so manufacturers should cut resellers some slack during such highly competitive periods. In addition, manufacturers should consider whether to partner with authorized resellers to offer sought-after free shipping promotions or free gift cards with purchase as a way to sweeten sales without sacrificing pricing.
Given all the competing demands faced by retailers today, the promise of establishing pricing consistency is alluring. Time will only tell if MSRP or MAP will win in the end as the best way to help establish that consistency across touchpoints.
Kibo provides e-commerce technology and order-fulfillment services to online retailers.
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