Manufacturers Suggested Retail Price (MSRP) – What is it?
- June 1, 2020
- 3 min read
- 67 reads
You have probably seen MSRP written on many sales price tags or heard the words list price used a lot when out shopping, especially for a new car. But what does it mean?
What is MSRP?
Manufacturers Suggested Retail Price is exactly that, the suggested price that the manufacturer has come up with to determine the retail price of a product. The price was created to help standardize prices across all retailers.
Before the MSPR was created, many small ma and pa stores could not compete with large companies that could buy bulk and sell at a lower retail price.
The MSRP came into play through the fair trade statutes, which ensured smaller businesses some price protection against those more substantial companies. The standard price or list price allowed small and large companies to compete on an even playing field.
Who sets the MSRP?
The MSRP is set by manufacturers to provide a perceived value of goods to consumers. It also ensures that manufacturers, distributors, and retailers all earn a profit. The profit each earn is not standardized, and most MSRPs have a large room for discounts and negotiations when it comes to large items.
If a store was selling a pair of jeans for $100 and another was selling that exact same pair for $1000, the perceived value of those jeans would be inconsistent. The MSRP acts as a standard value system that should ensure a fair and accurate value for an item.
Why Doesn’t The MSRP Always Work?
The trouble with MSRP is that the retail price or list price is usually much higher than the manufactures wholesale price. Because the price is only ‘suggested,’ retailers can still offer huge discounts. It also means that manufactures know that retailers are going to discount, so they set an inflated MSRP to cover the discounting rate.
Discounting is often used to sell older stock that retailers haven’t managed to sell. Moving that inventory quickly usually requires a reduced price. Retailers are then willing to lose some of their potential profit, and old stock can soon turn into dead money if it sits there too long.
List Price for Vehicles
One market that MSRP and the words list price are thrown around a lot is in new car sales. Federal law ensures that you will find the “sticker price” displayed on the vehicle.
As a consumer, the MSRP of a vehicle will give you an essential starting point of negotiation. It allows you to know instantly if the car is within your price range. The price displayed does not include upgrades or optional features for that vehicle.
If you only take one thing away from this blog, let it be this. Car dealers do not have to sell the car for the suggested retail price. Most times, they have room for negotiation.
Get preapproved for an auto loan before you go car shopping. Knowing what you can borrow and the APRs with your preapproved loan will give you negotiating power. Check the dealer’s offers, but make sure you are getting the cheapest auto loan before arriving on the lot.
Negotiating is not everyone’s cup of tea. Most people do not feel comfortable talking money with people they don’t know. It is awkward, but remember, this is their job. They negotiate all day. If they say no, then make your decision based on that no. But it doesn’t hurt to try. In fact, more times than not, it hurts your bank account not to.
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Be aware that there are other fees involved in buying a vehicle other than the sticker price. Ask the salesperson what additional costs there are prior to making your decision.
Remember, MSRP is just a suggested price; if you know what you want, to shop around, look for the best deal, and negotiate. It’s worth trading a 10-minute uncomfortable conversation for potentially thousands of dollars less debt in car payments.
Negotiating below the MSRP can pay off. We want to hear from you, have you had success with negotiating on a sticker price of a vehicle?