Women buy a luxury bag not only because they’re stylish and can stand the test of time. A thousand dollar bag is a symbol of power, opulence, and status. It increases their self-esteem. It makes them feel good about themselves. It makes them feel like they can do anything.
The luxury brands’ skyrocketing prices give discerning and high income shoppers the one thing they crave – exclusivity.
But lately, big name luxury brands are not as inaccessible and exclusive as they once were. You could find cheaper authentic luxury bags in department stores and on Amazon.
In 2016, Michael Kors, Ralph Lauren, Kate Spade, and Coach announced that they would be recalling products from various department stores because of pricing violations.
You see, the product price is intimately related to the brand’s value. So, when a reseller sells the item for an extremely low price, it can significantly reduce the brand value. If diamond necklaces cost a dollar, do you think that rich people will wear them? No. Hence, companies must set a MAP (minimum advertised price) to protect the brand’s reputation and value.
What is MAP Pricing?
MAP or minimum advertised price is the minimum amount that a reseller or a retailer can advertise a product for.
So, let’s say that you own a boutique at a mall and you are authorized to sell Louis Vuitton bags. You’re an authorized retailer. This means that you can buy the bags at a lower price, so there’s room for profit.
Let’s say that you bought the Louis Vuitton Santa Monica Bag for $1,100, but its MAP is set at $1,860. Even if you’re okay with a $500 profit, you should not sell it below $1,860. You can sell it for $2,000 but not below the agreed MAP.
Usually, brands require retailers to abide by the MAP regulations. This means that they should not sell the product below the agreed MAP. But, you have to make sure that you have a written agreement with your distributors. If there’s no MAP agreement, it’s hard to enforce your minimum pricing.
Why You Should Create A MAP Pricing Policy
Hermes is one of the most powerful luxury brands. Celebrities like Emma Watson, Kim Kardashian, Kris Jenner, Victoria Beckham, Nicole Ritchie, Eva Langoria, and Jennifer Lopez all have a plethora of Birkin Bags.
A Birkin bag usually costs around $11,000 to $300,000. It’s safe to say that Birkin’s MAP is set at $11,000. So, consumers naturally perceive the bag’s value at least eleven thousand dollars.
But here’s a secret: according to Luca Solca, a senior equity analyst at an investment company, the production cost of a basic Birkin bag costs about $800. If some retailers start to sell the Hermes bags at $1,500, shoppers will get used to that price. Their brand expectations are reset. Because of this, Hermes perceived value will significantly go down and no one will ever want to pay $293,000 for Hermes Himalaya Birkin.
MAP helps you preserve your brand value and equity. It also levels the field and protects small distributors from big retailers.
Benefits of Having a Tight Minimum Advertised Price Strategy
With the rise of online shopping, price monitoring has become a modern necessity of sorts. You see, Amazon is one of the most competitive online marketplaces. According to a study, half of the American population has shopped online and over eighty percent of online shoppers are actively looking for cheap products. This is retailers are under so much pressure to offer the last price to meet their sales target. This is the reason why you should set a MAP for your products.
Minimum advertised price (MAP) enforcement can benefit your business in a lot of ways:
1. It helps you protect your profit margins.
MAP creates a win-win situation between retailers and manufacturers. It can benefit manufacturers because it helps preserve brand perception and value. It protects all the company’s branding and marketing efforts.
MAP is also beneficial to resellers because it helps maintain their profit margins. You see, more sales don’t necessarily mean more profit.
Let’s say that you’re a reseller and you’re selling high end bath towels for $100 dollars each. You bought these towels for $20 each. This means that you have a profit of $80 per towel.
If you sell these towels at the agreed MAP of $100, you will get a profit of $2400 a month for 30 towels.
Now, let’s say that you want to generate more sales. And so, you decided to lower down your price to $40. This means that you only make a profit of $20 per towel. This means that you’ll only get a profit of $20000 even if you sold 100 towels per month.
2. It promotes fair competition across all your distribution channels.
Larger retailers usually get huge discounts, so they can afford to sell the products at a lower price to increase their market share.
Minimum advertised price allows smaller distributors to compete with huge retailers, so it promotes fair competition.
3. It prevents underpricing.
As previously mentioned, underpricing can ruin the brand value. Consistent pricing sends a clear message about your brand value to the shoppers – if you want to buy this product, you have to pay for it at full price.
MAP Enforcement Tips and Action Items
Failing to enforce your MAP policy can reduce your product equity and value. The shoppers’ perception of how much they should pay for the product will drop. This could reduce your revenue and profits in the long run.
Here’s how you can prevent and police MAP violations:
1. Include MAP in your “authorized reseller” agreements.
It’s easier to enforce MAP if it’s included in the authorized reseller agreement. You can easily sue a MAP violator for breach of contract. This will push your retailers to strictly follow your MAP policy.
2. Create solid distribution channels.
To avoid Map violations, you have to get rid of the gray market or unauthorized sellers. Hire a trademark and intellectual property lawyer to create an airtight online selling policy for your brand. This will make it easier for you to go after unauthorized sellers.
It’s also important that you have an open communication channel with all of your retailers. This way, it’s easier for you to address issues like MAP violations.
If you market your products through distributors, each distributor should provide an authorized retail agreement to all resellers under its wing. Make sure to review these contracts so it’s easier for you to police MAP violators.
3. Protect your supply chain through product serialization.
Assigning unique codes for your products help you identify and control your products. This gives brands control over their product quality. This also helps you track the original purchaser of the products. This makes it easier for you to identify which distributor to reach out when a product is underpriced.
4. Create a solid MAP policy and monitoring process.
To effectively identify MAP violators and protect your brand, you must have a solid MAP policy. You must outline your MAP monitoring process. You must also specify the penalties for MAP violations.
You must make sure that your MAP guidelines are crystal clear to avoid confusion. For example, it’s okay for resellers to give discounts as long as the discounted price is still above the minimum advertised price.
You can also implement a progressive penalty system. For example:
First offense – First written warning
Second offense – Final written warning
Third offense – Removal of the access to certain product lines
Fourth offense – End of contract
5. Call out violators right away.
Assign a point person to monitor prices across all channels and resellers. Once you spot violators, notify them right away. Log the violations so it’s easier for you to track compliant and non-compliant resellers.
6. Register your brand in Amazon Brand Registry (ABR) program.
It’s no secret that there are hundreds of counterfeiters selling on Amazon. Counterfeiters can take away a chunk of your revenue. They can also destroy your product value and reputation as they sell replicas of your product for half the original price.
The Amazon Brand Registry has a feature called Amazon Zero which you can use to protect your brand from counterfeiters. This feature allows you to actively remove counterfeit items from Amazon.
For now, Amazon Project Zero is still an invite-only program. But, if you have a registered brand, you can join the waitlist.
7. Learn about the tricks of MAP violators.
When you notify a reseller about his MAP violation, that reseller may try to sell the underpriced products through another seller account. Some MAP violators even use brand misrepresentations to stay off the radar. Knowing their tricks can help you properly spot and police minimum advertised price violators.
8. Be consistent in enforcing your MAP policy.
Don’t adjust your policy for your big resellers. Be fair and implement your MAP guidelines across all resellers – big or small.
9. Notify your retailers of any policy changes.
It’s necessary that you have an open communication with your resellers. Make sure that the contact information of your resellers is up to date so it’s easy for you to notify them.
Underpriced products can tarnish your brand reputation. It can reduce your future profit margin and it could take away a huge amount of your revenue. This is why you have to address MAP pricing violators right away.