Grocery shelves with promotionsOpening up a retail business is challenging, and it gets even more difficult when you’re dealing with terms that you’ve always heard but never had the chance to look up. This article will discuss three terms that every prospective and current retailer must understand.

MAP

When it comes to running a business, the legislature is complex. The law and the interpretation of it vary greatly depending on the particular situation of each company. In retail pricing, one of the most controversial policies is the MAP policy. Simply speaking, Minimum Advertised Pricing or MAP is the absolute lowest retail price a company can use for advertising. The MAP only applies to advertisements, even online. Retailers can sell their wares cheaper than the MAP in-store.

Many people question the legality of such a policy, but it’s perfectly legal according to the antitrust statutes of the U.S. MAP protects the interest of the manufacturer in that it prevents resellers from selling the product way lower than the suggested manufacturer’s suggested retail price.

MSRP

MSRP or the manufacturer’s suggested retail price is often different from the price retailer’s use, but it gives the retailers a bit of an idea about how to price their items. If the sales are slow or the retailer wishes to refresh their stocks, selling under the MSRP is legal. However, the price should never be lower than the MAP.

Shrinkage

In retail parlance, shrinkage refers to the loss of inventory attributed to different factors, such as theft, security lapses, fraudulent activity, shoplifting, and more. Posting a shrinkage is reasonable, but it ultimately hurts the profit of the company. In retail, where the money is made by selling more with a small profit margin, a recurring shrinkage issue can send a business down to its knees. It’s crucial that companies pay close attention to this metric. The simple computation is the total inventory after losses.

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Understanding these different terms help you keep abreast with different strategies to stay competitive. When you know how businesses work, you’ll be able to make well-informed decisions.