How are your relationships with your vendors? In a time when all the focus is on providing a unique and differentiated experience for the customer, the vendor relationship may not be getting the attention it should. The quest to gain a customer’s business and loyalty is now revolving around what retailer can provide the best and most unique omnichannel experience. But one factor continues to be the most significant decision driver for customers – Price. In a recent Revionics-commissioned global shopper study conducted by Forrester Consultingi, an average of 67% of respondents stated that price was the number one factor when deciding where to shop regardless if they are shopping DIY, Grocery, Fashion, or Discounts store formats. Which takes me back to my question, how is your relationship with your vendors?
If you are wondering how these two points tie together, it is pricing and staying competitive. As retailers push to attract more customers, they are tempted to ignore a vendor’s minimum advertised price (MAP) policy on items they feel they need to take a stronger competitive position on. As you may know, MAPs pricing is an agreement between the vendor and the retailer to not advertise an item below the specific price at which the manufacturer recommends that the retailer sell the product. The rationale for this is to ensure standardization of pricing across locations and protection of the brand’s price image. This does not mean an item cannot be sold for less, it is just that it cannot be advertised for less than the designated amount. In some cases, this policy may be tied to a timeframe, not allowing products to be promoted in the market, for a specific date range. There are also other vendor policies such as manufacturer’s suggested retail price (MSRP), or the recommended retail price (RRP), or the suggested retail price (SRP), or even a Maximum Retail Price (MRP), but I will defer discussion of these to a future blog.
Why is it so important for retailers to adhere to these vendor policies? Because vendors may penalize retailers, and even choose to pull their brands from their shelves, and on the flip side, offer incentives such as applying more trade fund dollars to those retailers they trust to not violate their MAP policy. However, as competition between retailers heats up in both online and in-store channels, more frequent price changes are necessary and lead times shrink, it’s becoming more and more difficult to have all the checks and balances in place to avoid the unintentional violation of their MAPs policies for both them as well as their competition.
Not staying in MAP compliance can have significant financial effects and it is not just the penalties. There are three general areas that garner attention when it comes to MAP compliance:
- Prevention – having the right tools in place to prevent price changes from violating MAPs policies
- Monitoring – constant market monitoring for violations that occur due to manual overrides of pricing science (or lack of science altogether)
- Competitive Monitoring – know whether your competitors pricing unfairly and violating MAP policies and if, the ability to highlight and show proof to a retailer’s vendors
The first two affect your relationship with your vendors and possible financial penalties, and the third affects your competitiveness as well as the brand image for the item out of compliance. Once a brand image starts to deteriorate, your margins will suffer along with that deterioration.
An advanced AI pricing solution like Revionics will enable a retailer to determine optimal and fair pricing to their shoppers while achieving financial and strategic objectives. It understands the MAPs policies and will ensure retailers do not validate them while also adhering to key business rules and competitive responses. In addition, it will also help you monitor the compliance to MAP for all your items as well as your competitor’s compliance for the same products and allow you to collaborate with your vendors on ensure competitors play by all the rules as well. The Revionics solution enables you to ensure you stay incompliance and will monitor all your product prices for those exceptions, while providing insight into price impact utilizing key metrics like company price strategy, pricing rules, vendor policies, and competitive positioning to determine the effect to top line revenue and how to prevent margin deterioration. The Revionics solution will provide alerts when someone attempts to override a price recommendation, or if it finds a price in the market that violates compliance with MAP agreements, or when your competitors are violating MAP. If your competitors are not in compliance, an image of the price can be taken and sent to the vendor as proof, to ensure they take proper action.
The prevention and monitoring of MAP compliance will allow you to maintain a profitable relationship with your vendors, sustain a brand image that will continue to be profitable, and ensure that competitors are not causing brand erosion in a race to the bottom with prices. Even though the primary focus of most retailers is on the customer, where it should be, there still is the need to make sure you are complying with your vendors and maintaining that relationship, which in turn translates into more promotion dollars for their products. Why not let Revionics help you monitor that relationship for you? For more information go to http://www.revionics.com/solutions/pricing/.