What Does Retail Price Mean?

Anyone who has ever bought anything is familiar with the term retail price even if he has never really thought about its meaning. Retail price is a concept that we hear and see nearly everyday but probably don't think that much about. Here is an overview of what it means and how it affects you.

Identification

Retail price simply means the price at which goods or services are sold by a retailer to a consumer. This is the purchase price that you pay whenever you buy a product from a retail store. Retail sales are designed for consumption and not for resale of goods or services rendered.

Function

In order for a retailer to make a profit on a product, there is a mark-up on the item being sold. Mark-up is the difference in price between the wholesale unit price that the retailer purchases the item for in bulk and the retail price that he sells it to the consumer for. Often times there is a 100 percent mark-up between wholesale and suggested retail price. In other words the retailer sells the goods for double what he bought them for. This creates some room for dropping the price in sales, discounts and negotiations. Obviously, the retailer must sell the product for more than what he paid in order to make a profit on it. Other considerations like overhead costs go into formulating retail prices; a retailer can't make a profit if he is spending more on items like rent, heating, electricity and employee wages. In this way, retailers with low overhead, like websites with no physical storefront, are able to provide very low prices. This is why you'll often find deals online that are much better than what you find in stores.

Types

Other types of prices that contrast to retail price are sale prices like those found during Christmas sales, blowouts or liquidation sales, wholesale, which is the price that the retailer pays for a bulk of product from the manufacturer or other agent intended for resale, and list price, which is the manufacturer's suggested retail price. We look at MSRP in the next section.

Significance

A common term that you have probably heard in relation to price is manufacturer's suggested retail price (MSRP). This price is determined by a manufacturer of goods as a guideline for the price that should be used by retailers in selling a product to the consumer. This price is usually the highest price that you'll see the goods sold for, but retailers may choose to adjust their retail price below MSRP in order to compete with other vendors and attract business.

Considerations

Often times retail prices and MSRPs are designed to be much higher than they need to be to make a profit. This allows the retailer to offer discounts and sales that look like a great deal but actually just reflect the considerably high mark-up. This is something that consumers should be aware of when shopping. It helps to study prices for an intended purchase item over a number of retailers to help determine the best deal.

Resources

• Read this Article in Spanish
• Some retail price formulas