What is Manufacturer's Suggested Retail Price (MSRP)?

The manufacturer’s suggested retail price (MSRP) is the price a product's producer recommends it be sold for in retail stores. The MSRP is also referred to as the list price by many retailers.

Every retail product can have an MSRP, though they are frequently used with automobiles. Other higher priced goods, such as appliances and electronics, also have an MSRP as well.

The MSRP was designed to keep prices at the same level from store to store. But retailers may not use this price, and consumers may not always pay the MSRP when they make purchases. Items may be sold for a lower price so a company can reasonably move inventory off shelves, especially in a sluggish economy.

Understanding Manufacturer's Suggested Retail Price (MSRP)

The manufacturer's suggested retail price is also sometimes referred to as the recommended retail price (RRP), sticker price, list price, or suggested retail price of products. This was developed to help standardize the price of goods throughout the various locations of a company’s stores.

Some retailers sell products at or just below the MSRP. They may set the price lower if the product is on sale or has been moved to clearance. They may also reduce prices if they're trying to reduce their inventories, or they're trying to attract more consumers. Conversely, stores may set prices higher than the MSRP if a product is really popular and they know it will sell quickly.

The automotive industry frequently uses MSRP. Legally, car dealerships must display the price on a sticker on the car’s windshield or on a spec sheet. Buyers can use this price as a point to start negotiations, before arriving at a fair price for the vehicle.

Car dealers pay manufacturers an invoice price which is at or just below the MSRP—knowing this price can help consumers better negotiate with a salesperson.

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Manufacturer’s Suggested Retail Price (MSRP)

Setting MSRPs

Because the MSRP is set by a product’s manufacturer, it should remain constant across retailers. The MSRP is supposed to reflect all the 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—the manufacturer, wholesaler, and retailer—to make a profit from the final sale.

Retailers may frequently charge less than the MSRP, but the price charged depends 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. Retailers do this so they can deceptively advertise a product and list it at a much lower sale price, indicating to consumers that they're getting a far much better bargain.

Key Takeaways

  • The manufacturer’s suggested retail price is the price recommended it be sold by a product's producers.
  • They are frequently used in the sale of automobiles, although most retail products come with an MSRP.
  • Many retailers will sell products below the MSRP to reduce inventory, attract more consumers, or during a sluggish economy.


The Trouble With Suggested Pricing Methods

Using suggested pricing methods often falls into direct conflict with competition theory. The use of the MSRP allows a manufacturer to set the price of a product, often higher than usual, with the potential for having an adverse effect on consumers and their wallets.

Another suggested pricing method is the resale price maintenance (RPM) which pushes the negative impact of such practices even further than the MSRP, making it highly frowned upon and illegal in many regions of the world.