Definition of Manufacturer’s Suggested Retail Price (MSRP)

What is the Manufacturer’s Suggested Retail Price (MSRP)?

The Manufacturer’s Suggested Retail Price (MSRP) is the price at which the manufacturer of a product recommends that it be sold at the point of sale. MSRP is also referred to as list price by some retailers. Each retail product can have an MSRP, although they are frequently used with automobiles. Other more expensive products, such as appliances and electronics, also have an MSRP.

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

Key points to remember

  • The Manufacturer’s Suggested Retail Price (MSRP) is the label price recommended by the producers of a product to retailers.
  • They are frequently used in the automotive sale, 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.

Manufacturer’s Suggested Retail Price (MSRP)

Understand the 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 the products. This was developed to help standardize the price of goods across the various store locations of a business.

Some retailers sell products at or below MSRP. They can set the price down if the product is on sale or has been moved into clearance. They can also lower prices if they try to reduce their inventory or attract more consumers. Conversely, stores can set prices higher than the MSRP if a product is really popular and they know it will sell out quickly.

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

Auto dealers pay manufacturers an invoice price at or just below the MSRP, and knowing that price can help consumers better negotiate with a seller.

Definition of MSRP

Since the MSRP is set by the manufacturer of a product, it must remain constant across all retailers. The MSRP is supposed to reflect all costs incurred during the process of manufacturing and selling; an average retailer margin is also taken into account. The prices are set to allow all parties involved (the manufacturer, the wholesaler and the retailer) to profit from the final sale.

Retailers can often 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 cases, the MSRP is manipulated at an unreasonably high figure. Retailers do this so they can deceptively advertise a product and list it for a much lower selling price, indicating to consumers that they are getting a much better deal.

The problem with the suggested pricing methods

The use of the suggested pricing methods often conflicts directly with competition theory. Using the MSRP allows a manufacturer to price a product, often higher than usual, with the potential to negatively affect consumers and their wallets.

Another suggested pricing method is Resale Price Maintenance (RPM), which pushes the negative impact of such practices even further than MSRP, making it very frowned upon and illegal in many parts of the world.

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