By Donna Boulieu, senior product & pricing analyst, for the Resolutions blog series

Manufacturer suggested retail prices (MSRPs) — also referred to as “retails” — are the eggs of the pricing world….or are they the chickens? Which comes first? Is the development of the MSRP based on competitive market factors, backing into a list price to ensure profitability? Or does the process begin with a list price based on cost of goods and then the development of an MSRP to ensure profitability? The development and maintenance of list prices and MSRPs fundamentally go hand-in-hand, requiring checks and rechecks along the way to ensure both are on track with your company’s goals. Like most manufacturers, you conduct regular reviews of your cost of goods and various costs along the supply chain, but are you also putting dedicated effort into your MSRPs or is it the norm to let the existing margins drive the new retails?

The term MSRPs is somewhat of a catchall phrase for a larger concept. You can set a price point, however, retail price ranges by market, expected gross margins, and the relationship to competing products. Your suggested retail price is also a highly effective way of communicating which market segment you see your products playing in and it factors into the brand perception you are trying to achieve.

The factors that contribute to a solid MSRP should be given the same due diligence that all of your prices — including list, discounts, nets, etc. — receive. Among those key elements of pricing to consider:

• Trends within your products’ categories
  • Is the size or popularity of product offerings waxing, waning, or holding steady?
  • How have your competitors’ retails fluctuated based on any changes?
  • Are your products’ retails still positioned within the market as intended?
• Consumer attitudes toward category
  • Are these products still pricing sensitive, repeat purchase products; are they acute condition, destination purchases, or luxury items?
• Do your MSRPs still result in the retailers’ expected profit?
• Do your MSRPs still meet your company’s profit targets?

Monitoring your products’ MSRPs deserves a dedicated team to conduct the essential research needed to ensure that the competitive image remains in line with where it was intended to be while safeguarding the gross margins the retailer expects to achieve.  As these crucial price points are being reviewed, changed, or validated, this information, along with the supporting data, should be shared across the appropriate team members who are determining other price points. All parties involved in pricing need to be aware of the objectives of the others, including MSRPs. Setting the various price points is difficult, if not ineffective, without a target MSRP.

While retailers may choose to sell at a price other than your MSRP, it is a key element in communicating your product’s desired image and how it’s positioned among competitors. Keeping current with the category trends, competitors’ strategies, expected margins along the supply chain, and consumer attitudes will ensure your pricing message doesn’t get scrambled (pun intended).