Since retailers usually purchase products from manufacturers at wholesale prices that are well below the MSRP, it is possible to offer huge discounts on the listed prices and still turn a profit. On the other hand, retailers may choose to sell certain products for prices higher than the MSRP.
However, in countries such as India and Bangladesh that use the concept of the Maximum Retail Price MRP instead of the MSRP, it is illegal to sell any product above its maximum retail price that is determined by the manufacturer. Historically, before the advent of the concept of suggested pricing , automobile dealers often indulged in arbitrarily setting selling prices, based on what they thought a prospective customer would be willing to pay for a particular vehicle.
Prices of vehicles often varied from dealer to dealer as a result of the inconsistent nature of markups. However, with the widespread popularization of MSRP, vehicle dealerships are now required by law to display the prices of the vehicles, either on stickers on the windshields or on specification sheets. Potential customers can use these sticker prices as bases for further negotiating the final selling prices of the vehicles.
The principle of manufacturer-suggested retail pricing conflicts with the basic foundation of the competition theory. Although the MSRP of any product usually takes into account the manufacturing as well as selling costs associated with it, not all retailers are able to turn similar profits by selling the product at similar prices.
This makes it difficult for a small retailer to compete solely on price because it is usually unable to dictate supply terms. Instead, it could focus on providing personalized customer service and high-end products to attract customers.
Based in Ottawa, Canada, Chirantan Basu has been writing since His work has appeared in various publications and he has performed financial editing at a Wall Street firm.
By Chirantan Basu. Basics Suggested retail prices set the pricing and profit parameters for a retail value chain, which typically consists of manufacturers, wholesalers, distributors and retailers.
Margins The selling price of a product is the ratio of its cost to 1 minus the margin. Strategies Manufacturers may increase the suggested retail price in strong demand environments or lower them when economic conditions are weak. Considerations Small retailers compete not only with their peers but also with big-box retailers, which usually have the buying power to negotiate favorable terms with suppliers.
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