Welcome to Unpacking the Digital Shelf where we explore brand manufacturing in the digital age.
Hey everyone, Peter Crosby here from the Digital Shelf Institute. As everyone strives towards increasing profitability in eCommerce and omnichannel, exerting more control over pricing erosion is a key area of opportunity which brings us to the people, process, and tech to pull that off, and that often means building out and enforcing a map policy.
Lauren Livak and I invited Rae Guimond, Director of Digital Shelf Strategy at PriceSpider, to join the pod and lay out the why, whats, and how of implementing and honing a MAP policy in this era of profitability.
Rae, welcome to the DSI Podcast and thank you so much for being here with us today.
Thank you. It's really great to be here, Peter.
So not surprisingly, because you work at a company called PriceSpider, today's topic is price, and we all know prices have been on the rise lately. Inflation, though, is starting finally to decrease, but consumers are still struggling with rising costs, and as brands try to achieve profitability or remain profitable or increase their profit, inflation is definitely on the mind of our listeners as well.
So, many brands already have a MAP policy, or just to spell it out for people, minimum advertised price policy, at different stages, but Rae, can you tell us first, how do you define MAP and why a brand should have one?
Sure, that's a great question, Peter. And as you mentioned too, we do know that shoppers are feeling the effects of inflation. I think the numbers out of late 2022 were over 50% had actually changed their buying behaviors. They were looking to purchase products based on quality and value, and in some cases, just looking for the lowest price. So I'll be curious to see what numbers come out after the first quarter here.
But a MAP policy, simply stated, is it's a minimum advertised pricing policy. That's a pricing strategy that's created by a brand. So it's really meant to give distributors and sellers that minimum advertised price that they should be listing a product available for. In this case, we're talking about online and eCommerce, and a lot of the questions that come up too is why would they want to do that? And that's been a big cause of concern with price erosion, especially as brands have actually increased prices probably over the last 18 months, two years, coming out of the pandemic and they're really looking to protect the integrity of their pricing.
So we've been talking, we are always out there talking to executives, brands, retailers, distributors, partner executives and what we've started to hear, and you can tell me if you're hearing this as well, is that they've kind of pushed, and this probably varies by category, but they've kind of pushed inflation-related pricing hikes almost as far as they can. The consumers are finally saying, "This is all I can do, so now we're going to have to start making some real choices," maybe switching more, things like that. Is that something that you've been hearing from your customers as well, that that's starting to shift and therefore it does require a different approach to pricing and how you move forward from there?
Yeah, we've definitely been hearing that. I think one of the biggest one too is, I mean, grocery and household goods, your pantry staples are things that have had a lot of pricing increases. So I think depending on what category you're talking, like 6% to 11% or more in terms of what the cost was 18 months ago, or in some cases, prior. And so it becomes an issue because brands are really trying to protect the perception of quality of their product, that there is value in purchasing the quality of their product versus trade-down.
I think Walmart's a good example. Walmart Private Label has been doing really well over the last 12 months. And if you're a brand, that means that you might be seeing some of your customers shift to a private label, and so you're losing that share of the basket. And so it becomes what can you do if you you've got shoppers in your category maybe trading down because they're trying to extend their budgets and they don't quite perceive maybe the quality and the value of what your product price point is at?
So they're really trying to get all of their retailers in line in terms of, "We will not advertise below this price, and if you do advertise below this price, then you're not in compliance and you could be subject to some complications in terms of being able to sell our goods and services."
So when we tend to see inflation happen, when you tend to see shoppers trying to stretch those budgets, brands often take a look at price erosion and price margins to try to figure out how do we protect it, but also, how do we keep the quality and integrity of our brand at a level in which a shopper will say, "Well, I'm going to cut maybe this, but I'm going to go with this branded product because I believe in its quality and its value"?
I'm going to throw a question at you that I'm not sure if you have the answer to, but I'm curious, so I'll ask it. When you onboard new customers, what percentage do you find already have MAP and are trying to do it better, and what percentage really don't have MAP, and is there any sort of category characterization that, oh, some categories are very advanced in MAP, that kind of stuff?
Yep, that's a great question and I do have an answer to it.
So by and large, CPG; electronics; household goods; hardware in some cases tend to have MAP policies where you'll find brands that are really trying to bring on MAP policies, they know they might need it, they might have seen price erosion happening, especially if they've had price increases and they're not seeing retailers come into compliance.
So they're seeing this disparity where, true story, I was in the market for a little bit more of a high-end kitchen appliance, and I went to the brand.com because I wanted to be sure I was buying the brand, not a counterfeit, not a knockoff. That's also become an issue too since the pandemic and through all the supply chain issues we've had. And then I was looking on Amazon too because you go into Google, you type in what you're looking for, and by and large, the first one or two results, it's like Amazon. So you click on Amazon, you do some more research on Amazon. The Amazon price was like $45 cheaper than the brand.com.
And this is the market I'm in, but I'm also like, "Wow, is that a real product? Is it the same thing? Why is there such a disparity?" I might expect to see a little bit of disparity, even if they had a pricing policy in place, but that was some pretty good percentage off compared to the brand.com. And also, I'm a Prime member, I can get it through Prime.
So what did I do? I bought it through Amazon. It is the real product, but you think about the margin on that and the price erosion from if I had purchased on the brand.com or Amazon, and it becomes a real big thing.
And so I would say household kind of utility items like that, auto parts and automotive is where we've had more customers come in looking for MAP pricing because they're almost sort of like hardware too in where you have more entrance into the eCommerce market. So pre-pandemic, you wouldn't necessarily have seen someone buying oil filters, car parts, windshield wipers. And I even think about the things, now buying TVs online has been good. It was good pre-pandemic, but there's still more entrance in it. But a lot of those secondary categories where you didn't see as many eCommerce buyers, now we're experiencing more entrance into that market.
And so now they're finding that they're having online sales versus brick-and-mortar sales or online sales are increasing, but they're saying, "I had the volume, but what are my margins doing?" Or, "Why do I have great conversions over here, but my margins are reduced?" And part of it is you go in and you manually take a look and you're like, "Oh, they're selling my product for X percent under what I probably should have a MAP policy for."
And so CPG tends to be very well-versed in the MAP policies, although you may be surprised, some of the companies that don't have it, and now they're realizing the importance of it because it's saving those pennies and it's become really important, especially when you know your share of that shopper's basket online is under pressure because of macro and microeconomic conditions.
And now Rae, for people who are listening who are like, "Oh, well, we already work with our retailer on MSRP, what is the difference between MSRP and MAP?
That's a great call out, Lauren.
So MAP pricing is really a pricing strategy that's developed by the brand. So it often, you're not going to your retailers and saying, "Hey, what do you think about this price?" You're basically saying, "This is the lowest price I ever want to see advertised for my product. If you are a seller or a distributor of my product, you're agreeing to be compliant with this." So, an MSRP is that suggested retail price from the manufacturer. It's more saying, "Here's what we think is a good reference to sell the product at." Sometimes you'll see that MSRP, think of clothing where you might already actually have it on the tag, but it's not the actual price, so it could be on the product packaging.
It's really, an MSRP is a recommendation, so it's to help a retailer figure out where they may want to price the item. Some retailers choose to price at the MSRP, some retailers discount, some might consider that with a promo.
But the MAP, the minimum advertised price, it's basically your threshold. It's the line. It says, "Regardless of where you are, if you're below this line, you're not in compliance with our product." And so a MAP is really there for a brand to help enforce that price so that it doesn't go below a certain level.
There are some brands who might have certain promotional MAP pricing periods, so Cyber Week tends to be one or holiday weeks we've just come. We're actually, a lot of brands are preparing for Labor Day and summer sales and things like that over in the US. They might have certain grace periods where they say you can go a little bit below for that promotional period, but by and large, that MAP policy is not below the minimum of this price threshold.
And now, if you're a brand listening to this and you don't have a MAP policy, what are some of the signs that they might be picking up on similar to maybe the appliance example that you were talking about where they're like, "Oh, wait, maybe we do need a MAP"?
Yep, exactly. So in that case, I like to say, "Signs that it's time for a MAP." So I'll use the example and I'll go ahead and do an example.
Let's say you're a brand and you're manufacturing TVs, so you're a Sony or Samsung or an LG, and you come out with a new product and you say, "Okay, our MSRP is we recommend," I don't know, "$449.99, so that's our recommended pricing." That's your price point, but we also then maybe you don't have a minimum advertised price policy in place. And so you say, "Well, we're launching this new TV, we hope retailers are going to be plus or minus within this percentage of our $449.99." I'm just trying to remember the price I said. We'll just say $450 to make it easy.
And what you might see then is you launch the product, everything looks great, but you're seeing price erosion, you're seeing prices at those retailers decrease over time, and now you're getting further and further away for maybe even what your recommended price was. So that margin is being undercut or maybe a competitor comes into play and they have a different price that is lower and now you're falling further below your MSRP.
Brand equity always comes into place as well. If you are a maker of high-end LED TVs, you want to be sure that that price is representative of your quality, of this is quality parts, this is a quality product. As a shopper, it's worth your money to spend on it.
And so lower prices do have a point where they can damage the perception of the quality or the value of the product. And that's where I kind of go back to my example where I saw such a different price disparity on a brand.com versus the Amazon. It made me question, is this a counterfeit? Is this a lookalike? Was there a defect? Is like the brand just trying to offload this stuff on Amazon to get rid of it and they're going to come out with a new model? I might think more about that than the average person since I spend all my days in eCommerce, but that's just an example of how having such a price disparity across your different retailers can affect the perception of your brand.
The other piece is unfair competition. I mean, we call it, "The race to the bottom." You might have heard that before too is you've got your retailers and distributors really advertising your prices and they really want to drive that volume to their site. We'll use seasonal holidays as an example. Let's say I'm doing a Memorial Day sale and I undercut and I undercut and I undercut because I maybe want to drive traffic to my Home Depot page, and I see a competitor has a similar product, but I want to get my conversions up. And yeah, that'll bring you the volume, it'll bring you the conversions, but you're going to then continue to see that margin erosion.
And that's the other piece. So margin erosion is a big factor. If your retailers are not having pricing discipline in how they're pricing your products, especially during promotional periods, you're going to start to see margin erosion across those retailers or across those specific SKUs.
So in summary, the four things that say, "You might need a MAP policy": price erosion; that brand equity erosion, the perception of the quality of your brand, the value of your brand; unfair competition, retailers really pitting themselves against each other to have that race to the bottom; and then as a brand, you're looking at margin erosion across those retailer channels and distributors. So I think also coming out of the pandemic, coming out of the supply chain issues, understanding that inflation is slowing down, but customers are still paying more for products and a lot of brands have had price increases. A MAP policy is a great way to protect those pennies in the basket and to really help your retailers understand that they need to be in compliance if they want to be able to sell your products.
So Rae, once a MAP policy is in place, we're talking so much about how the policy gives you the ability to enforce, and without the policy then, it's just the Wild West and, "Let's see what's going to happen." But the policy is only the starting place. So when you think about what the processes and abilities are to enforce, what do you see best practices out there?
Sure, that's a great question, Peter, and I often like to talk to brands in sort of a crawl-walk-run scenario in terms of MAP policy.
So the crawl would be like, "Oof, we've identified that we've got these issues happening, it's going to take a little bit of legwork across our teams to get a policy in place, but here's what we do." We're going to just set that foundation. What is our minimum advertised price across all of our retailers and distributors? It's not something that brands typically solicit feedback from retailers. They come out with, "This is the final version, this is what our policy is," and it's an internal process. You really need to work with your teams, work with pricing and product and your retailer relations folks to really understand, what is that policy?
It can be daunting, but a lot of major brands do it, a lot of small brands do it, a lot of brands that are launching because they really understand that it sets the tone for how retailers should treat the products from that brand. And it really, over time, helps protect the value and the quality of that brand.
So really collaborate, I also say too, with an antitrust lawyer. It can be depending on your state, your region, different laws in place in terms of competitive pricing and pricing regulations, so it's really important that you don't create it in a vacuum. There are lawyers out there who either might be on council with a brand or who they are in this specific area of MAP policy.
Also, what constitutes that violation? What are the steps that you'll do if a brand is X percent or X dollar amount below your MAP pricing? What are the steps that will happen? Can there be tiers or penalties depending on it, and when you do go the scorched earth route, which is saying, "You know what? You're not going to be able to carry that product"? And it does work because it might be, "Okay, fine. You can have our old catalog of products, but you're not going to have access to our new products, our new innovations because our margins are really important on those new products with all the investment that's gone into them. And if you're not going to abide by our MAP policy, then you're not going to get the next new best thing." And that can be really important for a retailer to understand because that's definitely going to affect any promotion and media you might spend on their retailer advertising network, as well as just the general traffic volume to their site. And then with that too, is there an appeals process, et cetera?
So once you have all that said and done, you communicate it out. So you email it out to your contacts, your retailer or channel managers, you train everyone across the organization, educate them about it. And then when they have those quarterly, weekly, monthly calls with the sellers and the retailers, they really very clearly state what the policy is, they give them a copy of that document, and hopefully the retailer says, "Okay, we'll do that." Now, some negotiation might happen, but the point is a MAP policy means there is no negotiation. This is the brand-stated MAP policy.
So, it can be difficult for some brands who haven't had a policy in place to have those conversations with their retailers, but by and large, it shouldn't be unexpected from a retailer. There's a lot of brands who put these in place or have had these in place for many, many years.
Raw, when you think of the internal politics at a brand, who hasn't had a MAP policy before, and who are often the advocates for having a MAP policy and who's on the other side that's either unwilling or frightened of what a MAP policy could mean and how their lives might get messed up? Have you seen what that dynamic is?
A little bit, either just kind of tangentially from some of the brands or in conversation, just sometimes you get some of that internal crosstalk, or just when I was on brand side too.
It can be difficult. There's a fear that it's going to reduce the volume and the sales and the conversions across maybe some of your bigger channels. There's a fear that retailers aren't just going to abide by it. There's the whole, do we have the resource to actually enforce this? And that's really important because a MAP policy developed without having a resource, a dedicated person or a person who maybe it's half of their time in terms of their role and responsibility, you really need to have the, "What is the process by which we're going to enforce this?"
And actually, talking through that really helps people who might be on the fence about it or a little bit trepidatious about it get on board because at the end, it is to the brand's benefit to have a MAP policy. I mean, I think you say pricing erosion, you say brand integrity, you say margin protection. It's hard not to say, "Oh yeah, I want more pennies in my columns," and I say pennies, but a lot of times it's dollars, and it can be big dollars depending on what you've been seeing with price erosion across your retailers.
And so, it's change. Change is never easy. I think everyone's been through a lot of change in the last three years. But if anything, if a brand is looking to grow and expand and add more retailers, it's really important.
And it also helps govern your pricing policy on your brand.com. There's a lot of brands who have gotten to that situation where their brand.com is a certain price, and then for whatever reason, we know Amazon probably has price matchers that go out and they automatically adjust the price, we've seen that happen. And it's difficult because on the one hand, you've got a retailer saying, "Hey, we want you to dedicate some of your advertising and your media budget to our platform." A lot of retailers, Walmart, Target, Home Depot, your Albertsons, they have their own advertising platforms that they want you to spend money on versus going above the top with a trade desk or something.
And so for a brand, it actually can become another tool in their toolkit where they say, "Well, I know you would really love us to increase our advertising budget by X because you really believe it's going to bring us this much traffic and conversions and margin, but you have a problem with our pricing. You're not within our MAP policy." Having a MAP policy gives you a little bit more say in that conversation. And that's not even getting to what the product detail page looks like. The digital shelf is a whole nother conversation for the shopper experience.
But just the fact of the matter is saying, "We would love to do that in partnership with you, but we need you to really abide by our pricing policy. We would love to give you exclusive products." Target and Walmart, I feel like they go back and forth between what brands are doing exclusive products, but if you've got price margin issues, you might not be so excited to do an exclusive product with a Walmart if they're not going to abide by a MAP policy for your product.
So, I think it's another really good resource that a brand can have in their toolkit that applies to not just pricing conversation; it's advertising conversations, it's how a brand is sending the information to have that product detail page set up when you have your big national campaigns running, but also your shopper marketing campaigns running at the retailer site. So I'm sort of like, it can be painful in the beginning, but once you have it nailed down, once you have your resources identified for how you're going to enforce it, then it just becomes part of daily business.
And Rae, if I think back to the example you were talking about the appliance on Amazon and it being $45 cheaper, how does MAP apply to things like third-party sellers on Amazon, which I know is the Wild West where they are price matching? How do you-
It is. It's difficult.
Yeah. Does that apply?
Yeah, many brands would say that is the bane of their existence.
So one of the things you can do, and PriceSpider, one of the reasons we spend a lot of time talking to brands about MAP is we have Prowl, which is a digital shelf analytics solution. And what that does is it actually can go out and take a look at who, of anyone, would be selling your products? But the problem with the 3Ps is you could send them a cease and desist letter if you find them and they're just going to go ahead and change their name and reregister.
So part of it is it comes to the enforcement of that policy. One of the ways a brand can really help educate and enforce on that policy is to look at some of the tools that are out there to help brands enforce MAP. So those tools are able to go out, match to that brand's product at those different retailers, in some cases, identify that 3P. PriceSpider, we excel at crawling and we're actually working on a lot of 3P crawlers right now because that is one of the biggest questions brands ask us, can you tell me who's in the buy box? Can you help me find who's in the buy box, the contact information, so I can start sending them some of those cease and desist letters or emails?
So our solution has the ability, it literally just like, you can click a button and it sends you all the violations across those products at that retailer, you send off an email. A lot of brands will work with templates. They'll have notice one, notice two, notice three, and then I call the scorched earth one. And so it really is having a resource dedicated internally, looking at what tools you may have internally or what you might use outside of the resources for digital shelf for MAP enforcement, and then seeing how it goes.
I think the 3Ps, they are the nature of the game and a brand really just has to decide how much time they want to allot to the aggravation that is the 3Ps versus making sure their top 12, 15, 20, 50, depending on where they're going across the world, are all in MAP compliance because I usually say, if you know your highest sellers are within MAP compliance, you're doing good and saving those dollars in the basket versus spending time and resources to go after the 3Ps. That really does seem like whack-a-mole.
So Rae, in our current economic environment, are you seeing brands have more challenges in enforcing that policy as they're trying to figure out ways, retailers are trying to keep that discount process going?
Yeah. So as we mentioned earlier, we've definitely seen consumers are figuring out how to stretch their dollars and in some cases, they might be looking to trade down from a brand that is more expensively priced because they perceive, I'll use the Walmart example, Private Label, maybe might be the similar quality or the dollar difference just helps with the budget.
So for a lot of brands, they've actually had price increases over the last 18 months, and what's become really important is, number one, having a MAP policy, but also trying to get that time to compliance down. So a brand might have a goal if they have a MAP policy and say, "Okay, we're going to have a price increase. So what does that mean?" Well, now their MAP policy is going to be a little bit higher. So let's say I had a MAP of, we'll go back to my TV example, so might have an MSRP of $450, but MAP says it can't be below $399.99, but then I have a price increase. And now let's say, now my MAP says the pricing can't be below 419.99.
And so what brands are really looking to do is, where it might have taken a retailer, I don't know, seven to 14 days, 10 days to come into compliance, they're really trying to get pricing compliance within 48 hours, 72 hours. They're really trying to shorten the time in which a retailer is out of compliance when they do have those price increases. And that's something where if you are using an automated way to track the pricing across your retailers, you can actually see the percentage.
So for an example, we had a brand in automotive and parts who does have a MAP policy in place, have a price increase, and they were able to see that, basically within 72 hours, a majority of their retailers adjusted their prices accordingly. And why? It's because they sent out the news of the release, the retailers knew that that brand had a MAP policy, and so they were really able to see that really quickly and then get violations down below a 10% level. So some of the best brands on our platform hang out below that 10% in terms of violations of MAP policy.
And that's something that can actually be proof. Peter, you mentioned people who are a little bit hesitant about, "Is the MAP policy going to work? Are we going to actually be able to do the job we want to do?" Monitoring tools can really help brands kind of understand where they've started and now where they're getting to. So it's not uncommon for a brand to start tracking MAP policy once they've initiated it and their violations are up in the 65% or something like that. Maybe only a third of their retailers are like, "Oh yeah, we got the notice, we're going to change the price." And then as they do the work over time, they see those percentages tick down. And if you think about that disparity, if you went from a brand having over 30% in terms of if you were going to have a MAP policy, and now you're hanging out in the 7%, that's a huge margin protection you've just realized.
The other piece that we've had too is a lot of brands who work internationally across a lot of different markets. So, EMEA comes to mind. When I think about MAP policies there, you really have to pay attention to the competition regulations and the pricing transparency regulations that are in EMEA, but it doesn't preclude brands from having an authorized seller program. And if brands have an authorized seller program, that can work as a MAP policy because you're able to set pricing policies within that authorized seller program.
And so it does kind of underline the importance of understanding how you can set a MAP policy that are within the bounds and the regulations of the laws where you operate. We have some brands who are able to enjoy quite the latitude of the US regarding MAP policy, but they also are doing business in France and they're doing business in Germany and they're doing business in Japan. And so those "MAP policies" look a little bit different because they're more authorized seller policies because they have to be in compliance with the government regulations where they're doing business.
So an important distinction, but MAP is definitely an area, as we have seen digital shelf kind of budgets either flat or down, brands are looking to make a little bit more investment into that because they've been hit with pricing erosion, they're trying to adjust to consumer changes in shopping behavior. And they also, they've known they've had to have it, and in some cases, they maybe forgot about it during the pandemic when things were selling really greatly. But now that we've kind of hit back to an average standard of eCommerce sales, they're really realizing that if they don't have a MAP policy in place, they don't want to be in that boat where it's like the race to the bottom because they're seeing promotions continue to tick down the price of their product.
So a big topic, and I find that it's something in the budget that brands are really trying to earmark for and provide because as I mentioned, if you have that internal tooling to track your metrics, it really speaks for itself because you can say, "Okay, pre-MAP policy, here's the percentage of retailers that were out of compliance. Now, we're in a..." Just one month, and sometimes just two weeks of having a MAP policy and ability to track it, you can see those retailers that are out of compliance come into compliance and actually translate that into dollars saved on your price for your products, but also your margins that you're seeing across your retailers.
And I would say on the enforcement side, one of the partners that I have learned a ton from on the legal/enforcement side is Vorys eControl, V-O-R-Y-S. I recommend them just because they kind of almost literally wrote the book on that side of the house. So if anyone out there listening wants to get connected up to Vorys, I have a couple of contacts there that I've just learned so much from.
And then you pair that with it's always people, process, technology, right?
And so you pair that with the right tools to help you stay on top of it. I think it makes a... Because it's a daunting thing to set up. If you have the right partners, then there really is a roadmap to doing this well.
And Rae, thank you so much for coming to share that roadmap from your perspective with our audience. We really appreciate it.
Of course. And happy to answer any questions that might come in after the podcast, but thank you very much for having me. MAP is something, when I think about the DSI and your maturity scale, if you're kind of in that mid part, it's MAP policy time. It's really hard to get pricing set on the digital shelf without having a MAP policy in place, so if you're looking to add a little spot to it, it's kind of like right there in the middle after you figure out some of the basics of the digital shelf fundamentals.
I love a maturity curve call-out. Thank you so much.
I do too. I always say, "Don't forget about MAP," and you kind of get the, "Ugh," and it's like, "Uh..." You know?
Right. I will say if people want more information, PriceSpider.com/map-policy, there's more information to be had for those that want to dig in a little bit more. And again, thank you so much for joining us on the podcast.
Yep, absolutely. So great to be with you, Lauren and Peter. Thank you very much.
Thanks again to Rae for bringing us a clear map to an effective pricing control policy. See what I did there?
Yeah, if my puns don't scare you away, get more info on our offerings by becoming a member at digitalshelfinstitute.org. Thanks for being part of our community.