Is MAP good for your brand?

The votes are in: Fahmi Grey is the winner of the Best PhD Paper at the 2023 Marketing Dynamics Conference . His advisor, Prof. Katrijn Gielens at University of North Carolina, Chapel Hill, was so kind to share the slide deck with me - below is my summary of this most excellent research.

What do the above pictured brands have in common? Their manufacturers often want to set a Minimum Advertised Price (MAP); a non-binding agreement with resellers about the lowest price at which they can sell the brand to consumers. For instance, LG in the US specifies that:

The key goals are both economic (keep manufacturer margins up) and psychological (maintain brand image, which might erode with a low price). Other benefits include the protection of value-added services and stronger collaborative relationships with resellers, who have to fear less from retail competition. However, resellers also complain about too restrictive policies and about free-riding by other resellers, and may covertly feed grey markets. Likewise, for resellers, MAP may help maintain profit margins, but also limits their reaction to changing market conditions, and costly legal fees if MAP is deemed unfair.

?It is unclear whether a MAP policy achieves these goals, and at what cost. To investigate this issue, the authors worked together with a Fortune 500 manufacturer across 7 brands, 10 channels of trade, 15 categories and 17 resellers in the 2020-2022 period.

This manufacturer implemented a MAP for about half of the cases in the middle of the data period, allowing a difference-in-differences design. Because the treated cases did not behave similarly to the control cases (failure of the common trends assumptions), the authors used synthetic control to ensure the cases are comparable, and their post-MAP performance difference can be attributed to the MAP policy.

?So what happens after the MAP policy starts? Interestingly, resellers are reducing their SKU assortment and the shelf space they devote to the brand.

?However, overall wholesale demand for the reseller, and manufacturer revenue, remain at a high level, while the wholesale price increases.

?Overall, for the studied brand manufacturer, margins do go up without a reduction in overall reseller support for the brand. However, the lower assortment and shelf space may reduce the mental and physical availability for consumers. Therefore, the researchers' next steps include analyzing the impact on retail prices and intra-brand competition, and increasing the pool of resellers to cover almost all of the brand's market. I am very much looking forward to following up!

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