Definition of MSRP
The term "Manufacturer's Suggested Retail Price," often abbreviated to MSRP, has become a tactical marketing tool for advertisers and retailers alike. To enter a retail transaction with a full understanding of how MSRP works, though, requires a little prodding around the world of retail. This article will explore some of the nuances of retail, pricing, and MSRP.
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Function
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The MSRP is the price at which the manufacturer recommends retailers sell their products. The MSRP is intended to reflect a standard price for a product that includes all of the manufacturer's production and distribution costs, transportation, and retailer profit.
Geography
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While the MSRP is intended to induce a standard nationwide pricing structure, prices tend to vary greatly in different parts of the country. Regional variables such as median income, retail sales index, transportation costs, and product availability often affect the final sales prices, and retailer coupons or sales further alter the final sales price. Generally, according to the ACCRA Cost of Living Index, products sell for somewhat lower prices in the South, especially the South East, than in the North and West portions of the United States.
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Effects
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Although the MSRP is intended to establish a uniform price for a product, the effects of such a pricing structure could be quite profound. Because much of the American economy is built on free market and competition concepts, standard pricing would eliminate a considerable amount of competition and competitive advantage. Federal antitrust laws are even engineered specifically to avoid fixed prices on products, as price competition between retailers traditionally determines the optimal retail prices for customers.
Misconceptions
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Some people mistakenly believe the MSRP is the price at which a product "should" or "must" be sold, and that it represents a fair profit for retailers. Instead, however, the MSRP is only a recommendation; retailers are free to set their own prices to best meet the needs of their customers and their business model. Additional issues--such as bulk pricing, dealer incentives, and kickbacks--further complicate the issue of retail pricing, especially in the automotive industry.
Considerations
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A producer's MSRP can be easily manipulated, sometimes to an unreasonable level. Such manipulations can be tremendous assets to unscrupulous advertisers, as they can be used to lead consumers to believe they are receiving a "good deal" on a product even if the item is overpriced. Such fictitious "discounts" tend to surface during store liquidations and going-out-of-business sales, though they may appear during any retail transaction.
Significance
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While the Manufacturer's Suggested Retail Price (MSRP) may be most prominent on big-ticket items like cars and appliances, virtually every product from canned vegetables to freight locomotives carry some form of manufacturer price recommendation. The MSRP is so significant that product prices on the popular television game show The Price is Right are based on the product's MSRP.
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