Minimum advertised price (MAP)…. Few terms in the MI industry evoke as much emotion as this acronym.
Not so many years ago, our industry was deeply involved in a race to the bottom: retailers started to sell online—shaving margins thinner and thinner—and hoping to make up for lower margins with higher-volume sales. The race got dizzyingly fast when non-traditional retailers (online-only stores and basement operators, for example) jumped in with lower overhead costs. Eventually, brick-and-mortar stores that were used to 50-point margins were left with a pool of customers who were buying from online retailers that could live with 20-point margins.
Customer loyalty evaporated as margins dropped. Established brick-and-mortar stores were closing, and the pall of MI retail’s death hung in the air like a fetid fog. And the impact wasn’t just on retailers, either. The race to zero was also seriously diminishing the perceived value of manufacturers’ products. The price knife became more of an MI Sword of Damocles, hacking away at survival potential in both directions as it swung lower and lower. The advent of MAP seemed like a simple and logical solution to the vexing problem of how to stop the downhill slide of product pricing and, along with it, perceived value.
MAP began as an easy-to-follow concept. Retailers could sell a new product for any price they wished, just as they always had. But, if they advertised the price, the product could not be advertised for less than a price that seemed reasonable to the manufacturer. No more race to the bottom. No more diminished product value due to the goods being advertised for cost plus 10 percent. Retailers knew what their margin would be; manufacturers were protected from a diminished perceived value. Everyone would be happy, the sun would shine and all would be well with the world. At least, that was the plan….
Although the race to the bottom has been halted somewhat by the introduction of MAP, it has created a new jungle of problems and troubles for retailers, who must live with the MAP dictums of the manufacturers they represent. MAP policies are frequently murky; sometimes, they’re also contradictory. There exists no consistent MAP policy for our industry. As a result, each manufacturer makes up its own policy, enforcement methods and standard of what constitutes compliance.
If a small, brick-and-mortar combo store represents 12 manufacturers, the store has 12 different MAP policies to follow. Given that most stores can’t afford to hire a pricing specialist just to make sure they are MAP-compliant relative to all the items they stock, small store owners face a compliance quagmire when trying to maintain MAP compliance on their Web sites, third-party platforms like eBay and reverb.com, and Facebook posts and e-mail advertisements.
When all those conditions are compounded by the reality that manufacturers release updated pricing schedules all throughout the year, it’s easy to see how a small retailer can suddenly find itself, quite unintentionally, on the wrong side of a manufacturer’s MAP policy.
If all this sounds like much ado about nothing, let’s take an imaginary store owner and follow his efforts to cope with numerous MAP policies. We’ll call our store owner “Joe.” He carries three major guitar lines, several lines of pro audio gear, one or two large drum lines, orchestral string lines, a line of digital keyboards, tons of accessories and a smattering of refurbished gear. Joe has a brick-and-mortar store, sells on eBay and he has some product on other sites. He has a Web site, but he sells little on it. Joe’s been around for decades, and he’s pretty representative of the average mom-and-pop music store owner.
When January and February roll around, Joe gets 10 or 15 manufacturers’ price updates. Hopefully, these lists all arrive before the new pricing goes into effect. In addition to updating his point of sale system and all store signage, Joe has to compare his online pricing and correct everything to take into account new MAP prices. Joe manages to get all these updates done, even while working the counter, answering the phone, answering e-mails and restringing guitars. Somewhere near the end of February, after putting in some late nights and weekends, Joe has all his products repriced perfectly.
Notice Joe had to reprice all his products, not only the ones he advertises. That’s because online stores are advertising all the products he carries on their Web sites, and most of them are advertised as having no sales tax and free shipping. So, there is no way Joe can charge more than MAP for anything in his store and hope to sell it, except for the occasional “gotta have it now” scenario. For Joe, as well as the myriad other MI retailers like him, MAP actually has come to mean “Maximum Asking Price.”
So, Joe has his store repriced, his eBay listings updated, his Amazon listings fixed, etc. His Web site has been fixed, as well, and Joe’s world should be all peaches and cream. And, in a perfect world, it would be. But here’s the problem: MAP policies are unilateral. Manufacturers can, and sometimes do, change their notions about MAP without warning.
Joe has stocked a red widget for years, because it’s always sold well. He has always stocked deep on the red widget because, even though he makes only 35 points, he knows the widget will sell. Poor Joe. This morning’s e-mail revealed the manufacturer has a new model red widget coming out. As a result, there’s no more MAP for the other widget. A quick check of the online discounters finds that this widget, of which he has two cases, is now selling online for less than his cost. Joe now has 24 of these in stock, but, in order to sell them, he’ll have to lose money.
Joe’s mailbox doesn’t have news that’s any better, either. He just got an overnight letter telling him that he can no longer buy blue widgets from the manufacturer. Why? He’s inadvertently violated MAP by keypunching the blue widget’s price on Amazon at $99.95, rather than the current MAP of $99.99. The manufacturer has now restricted him from buying blue widgets for 30 days. And, if he makes another mistake, he can lose his dealership. Frustrated, Joe removes all of that manufacturer’s products from all his online listings. Joe’s day is bound to get better after having suffered those two blows, though, right?
Yellow widgets are a hot ticket these days, and Joe realizes that the 20 yellow widgets he has on eBay at MAP ($79.99) just aren’t selling. When he looks at eBay listings, Joe is shocked—shocked!—to find there are 25 other retailers advertising the same yellow widgets for $79.00, thus forcing his listing to be number 26 (on page three) of the eBay results. When Joe calls his inside rep to report these MAP violations, he finds out the manufacturer doesn’t consider any violation of less than a dollar to be a violation. But, his rep says reassuringly, they might change that in the near future.
Retailers like Joe have to deal with this mish-mash of MAP-generated stress daily. If those situations (all of which are real) aren’t enough to make you think there is something amiss with our industry’s approach to MAP, then how about the following: one manufacturer has a multi-page MAP policy that starts and ends with the admonition that the manufacturer’s reps will not discuss MAP, or even admit the policy exists. Want to discuss MAP? You’ll have to call their legal department.
Another advises that bundling product with other non-MAP products is forbidden. Still another advises that bundling with products from another brand doesn’t violate MAP. One MAP policy warns that suggesting you’ll sell for less than MAP, which they define as “call for price,” “click to see price” or “best offer,” will put your dealership agreement in danger. Another manufacturer stresses that it has strict MAP policies, but it has no problem with advertising its products on eBay with the “best offer” option enabled.
Retailers who, like Joe, want to play by the rules observe MAP: not only to the letter of the policy, but also to the spirit of the policy. They understand and appreciate the value of protecting the brand they’ve helped to build, and they know all too well the need to protect their margin. Joe tries his best to follow the rules and tries his darndest to keep up with the moving sea of MAP requirements.
Joe determines that he has too many of a particular item in his inventory. He decides to list some of those items on eBay—at MAP, of course—only to find that one of the big online discounters—an authorized dealer for the same manufacturer—has 25 of the same items listed on eBay at 20 percent less than MAP. He calls his inside guy at the manufacturer, who says, “Yeah, well, he’s got them listed as ‘open box.’ So, MAP doesn’t apply. Nothing we can do…not a MAP violation. Sorry.” Open box? Joe points out that the seller also lists the items as new with full factory warranty, and the seller is obviously selling new product for less than MAP. The inside guy commiserates with Joe, assuring him he feels his pain. But there’s nothing he can do.
Poor Joe. He’s just run into one of the biggest MAP dodges in our industry: the “open box” dodge. It ranks right up there with the “display model” and “demo” dodges as the top MAP-violation tricks of our day. To be sure, there are actual demo units and actual floor models being sold. But, when an online seller consistently has dozens of the same item available for less than MAP, one has to wonder about the veracity of the seller.
The frustration felt by MI retailers is made evident in comments from Steve Petrullo of SNK Music in Everett PA. He said, “MAP is the new MSRP. Nobody believes that an instrument with an MSRP of $1,399 is worth that when the MAP is $899. With a net of $675, plus $105 in shipping, who can make enough profit to really justify carrying that product?”
The symbiotic relationship of manufacturers and retailers must have a balanced, give-and-take dynamic. Bob Josjor of Lou Kraus Music in Ogallala NE summed up the dilemma caused by MAP-imposed narrow margins. He said, “We will never go back to ‘the good old days’ when the manufacturer would publish a retail price and most of us would ‘make a deal’ with the customer for 15 percent off of that. It’s just not going to happen. But the manufacturers, if they chose to, could make MAP that same 15 percent off MSRP rather than the 30 to 40 percent off that many of them are doing. That would allow the retailer—the guy who is building their business for them—to make a living while doing it.”
As in any healthy relationship, boundaries and expectations in our industry must be clear and consistent. MAP policies must be favorable to the financial health of not only the manufacturer, but also the retailer. Enforcement of policies must be reasonable and consistent across all groups of sellers. MAP should be enforced in such a manner that the usual dodges no longer work. Finding and eliminating the product sources for third-party retailers that ignore MAP in their quest to continue the race to the bottom should be a priority for all manufacturers.
Are these ideas too lofty to entertain? I think not. Are these the only things we need to fix about MAP? I’m sure they aren’t.
What I am also sure of is that we need to talk to each other about what does, and what doesn’t, work in the world of MAP policy. Manufacturers have built their businesses with the enthusiasm and devotion of the independent retailer.
Constructing a core MAP policy that protects the manufacturers and lets the retailers make a living, and then enforcing that policy fairly, might be the critical step in making sure our industry is one that thrives in the future.
Allen McBroom is a Partner of Backstage Music in Starkville MS.