The retail price of a product is the price that a customer will pay when purchasing a product at a retail store. This is the final price that customers pay.
What Does Retail Price Mean?
The retail price is the price that the customers pay for the final product that is sold. These customers do not buy the product to sell it onwards. They buy the product to use it. There is a difference between a retail price, manufacturer price, and distributor price. These are all different prices in the supply chain between seller and seller. In a free market system, the final retailer will have the option to set their price based on their demand and supply.
If a retailer decides on a price, the main goal will be to maximize his profit while having an amount that consumers would be willing to pay for. A manufacturer can suggest a retail price to align the price with its overall strategy in producing the product.
What is the Manufacturer Suggested Retail Price?
When manufacturers suggest a retail price (MSRP), they make a recommendation to the retail store to what price a product should be sold for. Any product can have an MSRP. It is, however, frequently used by items that have high prices like cars and electrical appliances. The MSRP will keep the costs consistent across the different retail stores.
The retailer does not have to make use of the MSRP, but customers might not be willing to purchase the products at a higher price. Companies can sell the products for a lower price if they believe that it will help to increase sales.
The manufacturer determines the MSRP. This should, however, apply to all retailers in the chain. The MSRP should account for all the costs that will be incurred in the manufacturing and sales process. The average markup of the retailers should be considered when deciding on the price. The price needs to be set at an amount that will ensure a profit for the whole supply chain.
Sometime retailers will lower the price of the MSRP; the quantity that can be purchased from the wholesaler could determine this price. If the product can be bought from the wholesaler in bulk, it could lead to a profit.
The Trouble with Suggested Pricing Methods
The suggested pricing methods conflict with the competition theory, where retailers will set their prices as low as possible to get the clients. In this case, the manufacture will set the price, probably higher than it could have been, and customers will not have a competitive advantage.
The Full form of MRP
The full form of MRP is the maximum retail price that can be a charge for a product. Manufacturers calculate this price per product. This price will include all the taxes and fees.
The goal of this MRP is to ensure that retail companies cannot charge customers more than a reasonable amount. The MRP will be printed on the package of the product, making it impossible for retailers to sell the product at a higher price.
A company will set the MRP to compete in the industry while making enough profit to run their businesses. The buyer is not overcharged with this MRP visible on all packaging.
The MRP is set by the manufacturing company, and the government has no say in this. The MRP is necessary to ensure that retailers will not charge unreasonable prices for products.
Advantages of MRP
- MRP can help to promote awareness by customers so that they are not deceived by shopkeepers charging them unjust prices.
- The MRP can be changed for a product, so if it becomes more expensive to produce a product, manufactures can adjust the price accordingly. Protecting the customer and the rest of the supply chain.
Disadvantages of MRP
- Manufacturers decide the price without any outside influences. They can determine an unjust amount for the product.
- If the price is unjust, it will affect the purchasing power of the customers, especially if the product is a necessity product.
- The MRP can create an ineffective market, it adds complexity to the supply chain.
Retail Price Example
Harmony is three retail stores that sell jewelry to women and children. The store purchases jewelry from different distributors that again buy their products from manufacturers. The marketing manager is trying to calculate what he should sell the gold necklace for. The distributor sells the product for $25 per necklace. The manufacturer sold the product to the distributor for $15. The manufacturer has a suggested retail price of $30 per necklace.
The market manager decided to sell the necklace at $29 because they are new to the market and would like to attract some customers. The customers were willing to buy the product because it was lower than the suggested retail price, giving them a sense of trust in the fact that the new company would like to offer them reasonable prices.
Retail Price Conclusion
- The retail price of a product is the price that a customer will pay when purchasing a product at a retail store. This is the final price that customers pay.
- The retail price is the price that the customers pay for the final product that is sold.
- When manufacturers suggest a retail price (MSRP), they make a recommendation to the retail store to what price a product should be sold for.
- The manufacturer determines the MSRP; this should, however, apply to all retailers in the chain.
- The suggested pricing methods conflict with the competition theory, where retailers will set their prices as low as possible to get the clients.
- The full form of MRP is the maximum retail price that can be a charge for a product.