Most of the time, the list price is the maximum price that the product can be sold for. Due to competition-related reasons, adhering to the manufacturer’s suggested retail price can be difficult. In most situations, products end up being sold for less than the price suggested by the manufacturer.
In some rare situations, retailers might need to go above the suggested price. However, since the retail prices are usually 2.5 – 3 times the wholesale price, this is uncommon.
What makes the manufacturer’s suggested retail price so helpful is that it gives you a good idea about a product’s price, without having to do any pricing-related work.
It’s true that the manufacturer’s suggested retail price is helpful when pricing your products. However, to make the most out of this suggested price, there are important points that you need to consider.
Keeping these things in mind when assessing a suggested retail price will help you make a sound judgement.
Do You Buy the Products in Bulk?
Buying a product in bulk helps you get a better price per product. When it comes to assessing the profitability of a list price, this is a major factor.
If you buy your products in bulk, the profit margin that you get for selling a product for the list price is higher than another merchant who buys the product in small quantities.
Whether you should keep the higher profit margin or lower your prices depends on the market that you’re in.
In case of a product that competes mainly with its price, getting a lower price per product allows you to outsell your competition while maintaining a solid profit margin.
If that’s not the case, you can use the recommended price while having a higher profit margin, which is also great for your long-term business success.
Does Your Business Incur Additional Expenses?
The retail price that the manufacturer suggests takes additional costs that the retailers incur into consideration. This, however, is calculated based on the average. Since expenses can vary significantly from one business to the other, this isn’t always as accurate as it should be.
In some cases, your business might incur additional expenses that aren’t applicable to most other merchants, which is something that you must pay close attention to. Additional costs mean that the MSRP gives you a lower profit margin than your competitors.
Additional costs might be due to having a store in a location that’s substantially more expensive or having to pay higher taxes. When assessing the list price that’s proposed by a manufacturer, make sure to calculate all of your costs carefully.
List Price: Advantages and Disadvantages
Despite not being a pricing “method” in itself, the list price is a key piece of information when you’re pricing a product.
The following are the major advantages and disadvantages of using the MSRP for setting your prices.
One of the great things about the list price is that it doesn’t let you start your pricing process from scratch. You already have a suggested price that’s based on the research done by the manufacturer.
After you price your products, you can compare them to the MSRP to make sure that they’re relevant. Having a profitable price that’s lower than the manufacturer’s suggested price is a good thing to remain competitive in your market.
While not that common, some retailers apply the MSRPs directly without proper assessment. Doing so have a major downside, which is poor prices. This can be either because the price that you’ve set is much higher than your competitor’s so you can’t compete or substantially lower, which leaves you with smaller profit margins.
In both cases, it’s bad for your business. The only way to make sure this doesn’t happen is to asses your prices compared to your competitors’ and to the list price with a tool like Sniffie.
How can Sniffie help?
The list price -or the MSRP- is great for giving you an idea about how much you should be selling a product for. In order for this price to be useful, you must be aware of how much other merchants are selling the same product for.
Knowing this will help you asses whether sticking to the suggested manufacturer’s price is the best option for you or not. Staying on top of all these variables requires an enormous amount of work. And that’s where Sniffie can help.
How to use list price
- Know the total cost of the product that you’re selling.
- Check the list price that’s suggested by the manufacturer.
- Asses the competitiveness and profitability of this price.
- Price your product accordingly.
- Used by the manufacturers as an attempt to standardize prices in different locations in which their products are being sold.
- Always check the price that the competitors are selling the same product for.
- The manufacturer’s suggested retail price is just a guideline, not something that you must follow all the time.
- Buying the products in bulk or in small quantities has a direct effect on the relevancy of the list price.
- Keep in mind that you might have to sell your products at a discounted price later when you’re evaluating the list price.