Friday, November 28, 2014

Savvy Shoppers Know "Minimum Advertised Price" Isn't Always the Bottom Line

If you're the type of consumer who pores over print ads and scours the Internet looking for the best price on what you need, you may be frustrated to find certain products advertised at exactly the same price everywhere you look. How can it be that every electronics store in the country is selling the plasma television set you've had your eye on for $3,999? What ever happened to competition?

The fact is retailers still are vying for your business, though they can't always be as up front about it as they'd like. A manufacturer-imposed policy called "minimum advertised pricing" (MAP) can tie retailers' hands when it comes to promoting lower prices on some products. But shoppers who understand how MAP works know that the advertised price isn't always the bottom line, and they often walk away with the deal they were looking for all along.

MAP benefits manufacturers and retailers

On everything from appliances and computers to electronics and sporting goods, manufacturers are setting minimum prices at which authorized dealers can advertise their products. And retailers, for the most part, appear to comply with MAP guidelines. What are producers and sellers gaining from the arrangement?

By imposing a minimum advertised price, manufacturers help the little guys compete.

One benefit for smaller, independent retailers is a more level playing field that allows them to compete with national chains and big "discounters." If major retailers were able to lure droves of consumers by constantly positioning popular products as "loss leaders," the mom-and-pop shops would fold.

Jay Knick, co-owner of Sonoma Outfitters, an outdoor equipment and clothing specialty store in Santa Rosa, Calif., acknowledges that by imposing a minimum advertised price, manufacturers help the little guys compete. Knick explains that, especially for businesses like his, where employees often spend hours educating and fitting a single customer, it's important to have some protection against prospective buyers being able to leave the shop and find a better price at a local mega-store or through a quick Internet search.

In this case, what's good for the retailer is also good for the manufacturer. Losing smaller outlets because they couldn't compete may not be a big blow for the company that makes a product as simple as, say, hammocks. But manufacturers producing higher-end products that require a more intensive one-on-one selling process--like kayaks and gourmet stoves--can't afford to lose the specialty shops, which often are the most direct and effective link to their consumer market. By imposing a minimum advertised price, producers protect these crucial outlets and their representation in the market.

Manufacturers cannot legally dictate resale prices.

Does the consumer benefit from MAP? If you like to patronize independent retailers, if you appreciate the expert product information and one-on-one customer service that small specialty shops typically provide, and if you sometimes return to the store for product support after you've made your purchase, then you probably would benefit from MAP. According to Knick, smaller stores have to make a certain margin (the difference between product cost and selling price) to cover their higher overhead (the cost of maintaining the store). MAP allows them to do that without pricing themselves out of the market.

Some rebates are for as much as 25% of the total sales price.

Not everyone thinks MAP is a good idea. Some retailers--including Internet sellers, which have much lower overhead than brick-and-mortar stores--would prefer to compete without any pricing constraints. Why do these retailers still comply with MAP?

Some MAP policies are tied directly to advertising subsidies that the manufacturer offers its retailers. If the retailers want those funds, they must play by the manufacturer's rules.

Other retailers believe that undercutting the manufacturer's minimum advertised price would risk losing the store's "authorized dealer" status. As Patrick Roach, a deputy assistant director in the Federal Trade Commission's Bureau of Competition, Washington, D.C., explains, while manufacturers cannot legally dictate resale prices, they can choose whom to do business with--and a retailer discounting its product may not be part of the manufacturer's overall distribution plan.

Consumers can find their way around the MAP

Though some stores will charge you the full advertised price, others have found ways to comply with MAP guidelines while winning customers over with better deals. Here are five ways savvy shoppers can pay less than the minimum advertised price:

Some retailers only offer their best price in person.

  1. Get a rebate: Many retailers are offering rebates--instant or mail-in--reducing the final cost of the product. Mail-in rebates require you to be organized enough to keep track of your original receipt, the UPC (universal product code) symbol from the package, and the offer deadline. But considering that some rebates are for as much as 25% of the total sales price, the process is probably worth the effort.

  2. Receive a gift with purchase: Another way that retailers provide better value for consumers, even when they sell at the minimum advertised price, is by offering a related product free when the first item is purchased at full price. For instance, a computer retailer may offer a free printer with purchase of a laptop. Or an electronics store might throw in a DVD player with any regularly priced plasma TV set. If you were going to buy a printer or a DVD player of similar quality anyway, you could be getting a good deal.

    Don't necessarily take the advertised price at face value.

  3. Fill your online shopping cart: If you're a frequent online shopper, you've likely noticed that prices for some products on the Web are hidden. Often, all you see is a message that reads something like "Price too low to display." That's because manufacturers often stipulate at exactly what point in the buying/selling process an online vendor can reveal a price lower than the MAP. In many cases, that point is after the consumer places the item in the virtual shopping cart.

    For instance, consumers shopping for the best price on a popular configuration of the Apple PowerBook 15.2" notebook computer during the first part of 2005 found out only after placing the item in their shopping cart that they were eligible for a rebate of $150. That's a significant savings on the laptop, which was being advertised for $1,999 just about everywhere you looked. Of course, you easily can delete the product from your shopping cart if you decide not to buy it.

    Other online vendors operate within MAP guidelines by instructing shoppers to click a button that triggers an automated price quote by e-mail.

    Minimum advertised price policies make comparison shopping more time-consuming.

  4. Call or visit the store: If you're shopping brick-and-mortar retailers, calling around or sending e-mail for the best price and special offers on the product you're looking for is more efficient than driving all over town. Be aware, however, that some retailers only offer their best price in person. That may be a condition of the MAP policy, or it just may be a retailer's way of getting prospective customers into the store.

  5. Wait awhile: Manufacturers typically notify their retailers at some point that they will be allowed to start advertising for less than the price specified in the MAP policy. This may happen as quickly as a few months after a product hits the market or it may be much longer. In the case of seasonal items, like canoes and kayaks, it's typically at the end of the peak selling time each year.

Roach points out that, in cases where a typical MAP policy is in effect, you shouldn't necessarily take the advertised price at face value. Make an offer.

Though MAP does make comparison shopping more time-consuming, tenacious shoppers who invest some effort may be rewarded--with a lower price, a rebate, or a gift with purchase.

NCUA Equal Housing Lender

  Home & Family FinanceŽ Resource Center
  Copyright © 1997-2013 Credit Union National Association Inc.

University Credit Union