MSRP Vs. MAP Pricing: What They Are And How Do They Compare?

Over 20% of all retail purchases will occur online in 2024. And by 2027, 23% of purchases are expected to be online.

If you want to take advantage of the growing eCommerce market, you’ve got to consider your pricing strategies, as this is how you’ll keep your business profitable and stay competitive.

For example, if you’re selling on marketplaces like Amazon, pricing is one of the main factors in winning the coveted buy box.

However, when deciding on your pricing strategy, you must consider the minimum advertised price (MAP) and the manufacturer’s suggested retail price (MSRP). 

Retailers sometimes use these terms interchangeably, even though they’re quite different. 

In this article, we will discuss the differences between MAP and MSRP pricing policies and outline three pricing strategies for remaining competitive and maintaining a profit.

What Is the Minimum Advertised Price (MAP)?

MAP pricing, or minimum advertised price, is a pricing policy that manufacturers or brands establish to control the lowest price at which retailers can publicly advertise their products.

You may also have heard of iMAP, which is a version of MAP that stands for Internet minimum advertised price.

While retailers are free to set their actual selling prices, a MAP pricing policy restricts the advertised price to protect the brand’s perceived value and avoid price wars between retailers.

MAP pricing is an agreement between manufacturers (or suppliers) and their retailers or distributors. Under this agreement, the retailer agrees not to advertise the products below the specified price.

MAP is only concerned with advertised prices, so if your customer uses a coupon or discount code to bring the price below MAP, this is permissible. As long as you advertise a product at or above MAP, you’re allowed to negotiate a lower price with shoppers privately.

While retailers can technically sell the product for any price they want, they can’t advertise it below the MAP price. If they do, they risk violating the agreement, which can result in penalties, such as the manufacturer:

❌ Banning you from selling their products.

❌ Refusing to let you order more stock.

❌ Terminating the relationship.

➡️ The purpose of MAP pricing

MAP pricing is designed to protect several key aspects of a business:

The brand’s value

When products are consistently advertised at too low a price, it can harm the brand’s premium positioning. MAP ensures that even if discounts are applied, the brand maintains its value perception.

Retailer competition

Without MAP, large retailers could undercut smaller stores by advertising at significantly low minimum advertised prices. This would create an unfair playing field, leading to smaller retailers being forced out of the market.

Profit margins

MAP helps retailers maintain a healthier profit margin by preventing aggressive price reductions that could impact profits.

➡️ How MAP pricing works

A manufacturer will set a minimum price threshold, which all retailers must follow when advertising a product. Here’s how it’s implemented:

• Agreement: The manufacturer and retailer must sign a legally binding contract that includes the MAP policy.
• Monitoring: Manufacturers regularly monitor retailers’ advertising to ensure compliance.
• Enforcement: If a retailer violates the MAP pricing policy by advertising the product below the agreed price, the manufacturer can impose the penalties outlined above. 

👍 The pros of MAP pricing

• Protection of profit margins: MAP policies prevent retailers from entering into price wars with competitors, which could otherwise impact profit margins. By working with suppliers that enforce a MAP price, retailers can avoid being forced to cut prices drastically to stay competitive. This is especially true for well-known and high-demand brands.
• Stable pricing environment: Retailers can count on more predictable pricing structures, making it easier to maintain consistent margins without the need for constant price adjustments.
• Fair competition: MAP pricing levels the playing field for small and medium-sized retailers who might not have the resources to match the significant discounts large retailers can offer. By preventing excessive discounting, all retailers can complete more fairly.

👎 The cons of MAP pricing

• Limited promotional opportunities: Retailers can’t freely advertise their discounts, which limits their ability to run sales, promotions, or special offers that attract price-sensitive customers.
• Competitive disadvantage: If competitors find a way to circumvent MAP policies–-like using coupon codes or cart pricing—a retailer who strictly follows the rules might appear less competitive.
• Larger retailers have more resources: Big retailers can offer better customer experiences, loyalty programs, or bundle deals that make up for their inability to advertise lower prices, while smaller retailers might struggle to compete in this way.
• Price-conscious consumers: MAP pricing can alienate bargain-hunting customers who are always looking for good deals. If they can’t find a price that stands out, they may turn to your competitors, reducing your ability to convert potential buyers.
• Time-consuming and resource-intensive: Retailers must constantly monitor and ensure compliance with MAP policies, especially in eCommerce. 

What Is the Manufacturer's Suggested Retail Price (MSRP)?

MSRP, or manufacturer's suggested retail price, is the price a product’s manufacturer recommends retailers sell it for. It’s a retailer guideline on the expected price point, considering the product’s value, production costs, and market demand.

However, retailers are not required to adhere to MSRP and can choose to sell the product above or below the suggested price.

MSRP reflects the product's perceived value, ensuring consistency across the market. 

Unlike MAP, MSRP is simply a recommendation and retailers have the freedom to set their own pricing, which could be higher or lower than the MSRP.

➡️ The purpose of MSRP

The primary purpose of MSRP is to create a consistent price point for consumers and help standardize a product's market value. 

By offering a benchmark price across all retailers it helps avoid drastic price fluctuations that could confuse or frustrate consumers.

MSRP also serves as a reference point for consumers to compare prices at different retailers, making it easier for them to decide whether they’re getting a good deal.

➡️ How MSRP works

A manufacturer determines the MSRP based on factors such as production costs, target profit margins, competitor pricing, and market pricing.

• Manufacturer calculation: The manufacturer sets the MSRP after considering production costs, research and development, marketing expenses, and desired profit margins.
• Retailer pricing: Retailers receive the product and the MSRP guideline, but they can adjust their pricing based on their business model, if they want to offer discounts, or if they cater to a high-end market.
• Consumer awareness: MSRP is often displayed on the physical product so consumers are aware of what the manufacturer recommends the item should cost.

👍 The pros of MSRP

• Pricing consistency: MSRP provides a consistent price point for the same product across various retailers. This creates a unified message about the product’s value and ensures consumers have a reference point when comparing prices.
• Simplified pricing decisions: With an MSRP in place, retailers don’t have to spend much time determining prices for their products. The manufacturer provides a clear recommendation, making it easier to price the product appropriately while still having flexibility.
• Avoids price wars: MSRP helps retailers avoid significant price competition that could impact the perceived value of the product. By adhering to the manufacturer’s suggestion, retailers can maintain the product’s reputation and avoid devaluing the brand.

👎 The cons of MSRP

• Inability to compete on pricing: Retailers might find it difficult to compete with others who choose to sell below the MSRP. While MSRP is only a suggestion, adhering to it may cause a retailer to lose customers who are shopping for the lowest price.
• Restrictions on discounting: MSRP can act as a ceiling price, making it harder for retailers to offer attractive discounts. Retailers who want to move inventory or run promotions may feel constrained by the suggested price.
• Inflexibility in pricing strategy: The MSRP might not account for local market competition or conditions. Retailers may need to adjust their prices to reflect their specific market but may lose profit if the suggested price doesn’t align with what customers in that area are willing to pay.

What’s the Key Difference? 

At this point, these two pricing policies might sound quite similar. However, there is one key difference between the two.

MSRP is only a suggested price that retailers can follow at their discretion. On the other hand, a brand’s sellers must comply with their MAP policy to avoid penalties and continue to sell the product.

➡️ Pricing Strategies to Consider

While MAP and MSRP are policies set by suppliers, a pricing strategy is what you can use to determine your prices. 

Here are three types of pricing strategies you might want to consider when determining the amount you want to charge your customers:

💰 Unit cost pricing

While your manufacturer recommends the MSRP and MAP, you have control over unit cost pricing. This is when you price your products based on the total amount of money you spend on one unit. 

If you are buying from a supplier, you will need to consider the price per unit and whether they have a MAP policy in place.

However, the issue is that many sellers forget to factor in all their costs, skewing their true unit cost and profitability. Ensure that your total cost includes:

• Fixed costs: These are the unchanging costs of running a business, like rent, vehicle payments, taxes, and salaried employees. 
• Labor costs: This is the cost of hourly or wage workers. Labor costs can be variable because hourly employees work based on your business needs. 
• Manufacturer price per unit: Another cost you need to consider is what you will pay the manufacturer per unit.

Once you calculate your cost per unit, you need to price the product to make a profit. You want to price the product above your expenses or your breakeven point. 

For example, if a product costs you $5 in total, you need to price it above $5 to make a profit. Selling the product for $25 generates a $20 profit per sale or an 80% margin. If the MAP is below your total cost, it won’t be profitable for you to sell.

You can work out your margins using this calculator to determine a profitable price that consumers will likely find attractive. 

💰 Competitor pricing

A competitor pricing strategy involves setting your product prices based on what your competitors charge for similar products. The purpose is to remain competitive in the market, attract more customers, and drive sales while maintaining profitability.

Here are some common approaches to competitor pricing:

• Price matching: This involves setting your product prices to be the same as those of your competitors. This approach helps ensure customers don’t choose competitors solely based on price.
• Premium pricing: An approach that involves setting your prices higher than competitors to position your products as higher quality or more exclusive. This works if you offer unique features, better customer service, or brand prestige.
• Dynamic pricing: This is when you adjust prices in real time based on competitor prices, demand, and other factors. 

💰 Bundle pricing

A bundle pricing strategy involves offering products together as a package or bundle at a lower price than if each item were sold separately. This approach encourages customers to buy more items, often increasing the overall value of the purchase. Pairing slow-selling products with popular items can also help you move them.

Here are three types of bundle pricing you may want to consider:

• Pure bundling: Your products are only available as part of a bundle and aren’t sold individually.
• Mixed bundling: The products in your store are available individually but can be purchased at a discounted rate when bundled.
• Cross-product bundling: This is when you take products from different categories or product lines and group them together, encouraging customers to try new products.

Additionally, bundle pricing can be used to get around MAP policies because it allows you to offer discounts on products without violating MAP restrictions set by manufacturers.

Since the discount is applied to the total bundle price and not the individual item in the bundle, you stay compliant with MAP rules.

Automate eCommerce Pricing with Spark Shipping

The MSRP and MAP pricing policies we outlined above can become confusing. However, you need to ensure your pricing and cost models work together to keep your eCommerce business profitable.

A solution like Spark Shipping can simplify your pricing, ensure you remain MAP compliant, and make your operation less complex and more profitable.

Automating the eCommerce process saves you time and money, and prevents costly errors that could deter your customers from purchasing your products.

Visit our website for a free Spark Shipping demo to see how simple pricing your products can be.