What is a 'Manufacturer's Suggested Retail Price - MSRP'
The manufacturer’s suggested retail price (MSRP) is the amount of money the producer of a product recommends the product be sold for in retail stores. The MSRP is not necessarily the price retailers use or the price consumers pay; items may be sold for lower prices so a company can reasonably move inventory off shelves, especially in a sluggish economy. The automotive industry is one market where the MSRP is used frequently; the price must, legally, be displayed on a sticker on the car’s windshield or on a spec sheet, and is often used by consumers to arrive at a fair price for the vehicle.
BREAKING DOWN 'Manufacturer's Suggested Retail Price - MSRP'MSRP is also sometimes referred to as the recommended retail price (RRP) or the list price of products, and was developed to help standardize the price of goods throughout the various locations of a company’s stores. Some stores always sell at or just below the MSRP, while others do so only when the product is on sale or has been moved to clearance.
The Trouble With Suggested Pricing Methods
Using suggested pricing methods often falls into direct conflict with competition theory; the use of MSRP allows a manufacturer to set the price of a product, often higher than normal, with the potential for having a negative effect on consumers and their wallets. Another suggested pricing method sometimes used, resale price maintenance (RPM), pushes the negative effects of such methods even further than MSRP, making it highly frowned upon and illegal in many regions of the world.
Every retail product can have an MSRP, though such prices are traditionally seen most heavily with automobiles. Other higher-priced goods, such as appliances and electronics, also commonly have an MSRP. Because the MSRP is set by a product’s manufacturer, it should remain constant throughout all the stores that sell it. The MSRP is supposed to be reflective of all costs incurred over the manufacturing and sales process; an average markup by retailers is also taken into account. Prices are set to allow all parties involved, that is the manufacturer, wholesaler and retailer, to make a profit from the final sale.
Frequently, retailers charge less than the MSRP, but the price charged is dependent on the wholesale cost, whether purchased in bulk from the manufacturer or in smaller quantities through a distributor. In many instances, the MSRP is manipulated to an unreasonably high figure so retailers can deceptively advertise a product, listing a much lower sale price and indicating to consumers they are getting a far better bargain than in actuality.