MAP – Minimum Advertised Pricing. These are the rules that limit the lowest price a dealer can advertise a vehicle (motorcycle, ATV, boat, RV, travel trailer, etc.) for. There are no constraints on what a dealer can sell something for (that would be a violation of Federal laws), just what the vehicles can be advertised at. These rules apply to websites, digital ads, billboards, newspaper, TV, and anywhere else a dealer can advertise.
Why would an OEM want MAP pricing? There are a multitude of reasons for these programs
- When new products are advertised at discount prices, the overall brand value/image is diminished. Consumers often see premium brands going hand in hand with premium prices. Why do people pay over $1000 dollars for an Apple phone when a $200 Android model will do the same thing? There is a level of prestige that goes with owning a premium product.
- OEM’s understand that it costs a lot of money to operate a dealership. A profitable brand means that the dealership has money available to invest in the facility, in employees, and that profitable businesses can better withstand fluctuations in the market.
- Costs to operate can vary greatly across the country. While a customer might not drive long distances from an area like New York to an area with a lower cost of living like Kentucky, nationwide advertising allows a dealer in one part of the country to influence what vehicles sell for in other areas. MAP pricing limits these market distortions.
- A profitable brand will attract the top retailers in that industry. Top brands want top dealers.
Before I began to work for Spader Business Management, I always believed that premium brands commanded premium prices. Now I know that I was wrong. Premium brands only command a premium price when they are accompanied by a premium experience. A dealer could sell the nicest cars in the world, but if their sales team is rude and they only take showers twice a week, those vehicles will sell at the same margins as the cheapest products in the market.
When I began facilitating 20 Groups, all of my experience was in the powersports industry. In that segment, products have a legitimate MSRP. If dealers sell at this price and they do a good job of controlling their expenses, there exists the opportunity to make a reasonable profit.
When I started working with Marine and RV dealers, I found I had a lot to learn. While there are some models of boats and travel trailers that are advertised with nationally advertised/no haggle/best price guaranteed pricing, many boats and RVs come with an MSRP that in the history of mankind, those vehicles have never sold for. If some of these vehicles sold at MSRP, the dealer would make a 40% margin, and that just doesn’t happen.
So why is this a huge problem? For one, both of these industries have created a culture of discounting. In these industries, customers are used to receiving huge discounts. After all the negotiations are wrapped up, the customer feels like he/she got a good deal, and the dealer is back to making a reasonable margin that supports the business. However, it often takes a long time to get to that point. It’s not a premium experience.
There are other problems with this model. For the brands that require dealers to comply with MAP programs and have to advertise at the factory MSRP (the mythical ones, not the legit 15-20% ones), dealers don’t want to scare customers off so they don’t put a price out there. Instead, they list these vehicles with the “call for pricing” option. The problem with this is that we are now operating in the 21st century, and consumers have access to massive amounts of data. There is a pile of research that shows that most consumers will just skip over these ads, looking instead for a dealer that is willing to show up-front pricing. There is no opportunity to present a realistic price to a customer if you never get the chance to talk to him/her.
And just when I thought I had seen it all, now it appears that some dealers have taken it way too far in the other direction. Some OEMs don’t have MAP requirements (I’m guessing they don’t see themselves as being premium offerings or the executives have never managed/owned a retail business) or they employ ineffective MAP programs. As some customers sort online vehicle listings by price, with the lowest price being first, dealers in some markets are now advertising vehicles at prices that are significantly below their cost (20% or more). This is to the get the customer in the door. When the customer does show up, they find that the dealer is tacking on massive fees on top of the advertised price in order to get back to profitability. I’ve seen the back end of these deals. In most cases, these dealers don’t make less (or more than other dealers and brands), they just take a long time to get there.
The problem with this strategy of Additional Dealer Markup is that the process for the customer is horrible. Find the list of the top 10 things that people hate. Right up there with going to the dentist, being sued, and dying, is purchasing a vehicle. The portion of that process that the majority of consumers hate is the drawn out process of negotiating the deal.
OEMs have not always done the best job of choosing their dealers, and discounting is just a crutch that poor dealers use when they don’t have salespeople who are trained to sell. When a dealer gives away product, there are no winners. The dealer isn’t in a position to invest back in their business and people. The customer will have a poor ownership experience because the dealer isn’t in a position to take care of them. The OEM sees a lot of churn because the consumer has a poor experience and doesn’t see value in the brand. Again, there are no winners.
In most cases, the best customer service is going to be offered by a dealer who is located the closest to the customer. A discounter who is giving away vehicles across an entire State (especially ones like Texas or California) is not going to be able to support those long distance customers. When the customer has issues and problems, everyone loses.
Most dealers think the OEMs make too much money. Most OEMs think the dealers make too much money. The truth is somewhere in the middle. However, if our suppliers truly see themselves as premium brands, and they have a long term view of their place in the industry, then a MAP program with reasonable margins is a great way to improve the dealer body, and the customer experience.
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