Did I really save $60 on that one item?
November 8, 2010 7:33 AM   Subscribe

Can a discount store make up MSRP?

When one goes to Ross, Marshalls, or TJ Maxx, for example, the price tag always has the "original" price and the discount price. Do these stores have to follow any pricing rules (state/local), or may they put down whatever "original" price they want?

It is not entirely evident to me as some items will be marked down from $90 to $29.99 and others will be marked down from $30 to $19.99, suggesting that garden variety discounts are of wildly different percentages.
posted by teg4rvn to Law & Government (15 answers total) 5 users marked this as a favorite
I don't know whether there are rules on pricing in this way (though I doubt it) but MSRP is often kind of a trick to change your frame of reference on what is a deal.

Wikipedia has some info:
Suggested Retail Price
Resale Price maintenance
posted by ghharr at 7:53 AM on November 8, 2010

I've noticed that whenever Kohl's has a "sale" it usually is not really a good deal. Some of their stuff is hard to compare since it's their store brand, but they do sell name brand kitchen appliances. One of their sales proclaimed that they were selling a coffeemaker for 30% off. Yeah, it was 30% off a price that was $10 above MSRP. The result of the sale was that you still paid $5 more than the normal price at Amazon (plus tax, too).

The only time I really find stuff on sale is when it's the end of a season and they are looking to unload stuff. For example, winter jackets in April.
posted by buckaroo_benzai at 7:57 AM on November 8, 2010

I'm under the impression that industry basically works this out privately. If a manufacturer finds out that a retailer is playing games with MSRP, they have ways of making their displeasure known.
posted by valkyryn at 8:10 AM on November 8, 2010

Maybe I look at this sort of thing all wrong, but I never worry about sale price versus list price. I simply ask myself if I need (in some cases want) the item. Then I look at the price to see where it is relative to others selling that item or a fungible one. Finally I decide if it is "worth it" to me and either buy or not. What the manufacturer or retailer thinks is a good price is not relevant.
posted by AugustWest at 8:21 AM on November 8, 2010 [4 favorites]

The 'original' price might be the MSRP, but that doesn't necessarily mean that it was ever offered at that price. A lot of times, the 'normal' price for an item is below MSRP, and if the item goes on sale, the percent savings is usually calculated on the difference between the same price and MSRP; in fact, the 'sale' price might actually be higher than the 'normal' price, and still be shown as a sale.

I forget which one it was, but one of the Black Friday ad scans I saw had a disclaimer at the end that basically said "MSRP/Original Price does not necessarily imply that item was ever offered at that price," giving them leeway to calculate their percentages from that price, rather than their everday (lower-than-MSRP) price.
posted by Godbert at 8:57 AM on November 8, 2010

Best answer: blog post at "Sociological Images" on this: The Meaningless Discount

I am a bit paranoid of shoddy goods manufactured exclusively for that market, Walmart-level goods with lies slapped on being even worse than simple Walmart-level goods. Which is not to suggest that all stuff in that sort of discount store is crap, but I notice an increasing amount of junk one just does not see sold elsewhere, and which would very clearly never sell at the "compare at" prices.
posted by kmennie at 9:28 AM on November 8, 2010 [2 favorites]

I sell office machines from several different manufacturers. In their price guides, almost all of them have a statement similar to this: "List Price" is the price at which [MANUFACTURER] believes this product will best sell in the market, and may or not be the best price for your particular marketing area." Basically, "we made this price up, knowing you're going to sell at %GP markup over cost anyway."

Nobody sells copiers at list. Ever. At least, not more than once to the same (pissed off) customer. I mean, some of our copiers have a MSRP of nearly $50,000.00 and we sell well over 30% below that, or I'd never move one. MSRP is basically meaningless. In office equipment and other business equipment (furniture, vehicles) lease funding approval is based on the purchase price vs. the MSRP of the equipment, sort of like the loan-to-value ratio on your home mortgage.

One printer/copier manufacturer found that they weren't getting enough lease closures because the MSRP was too low based on what people were trying to sell them at. So overnight, they raised the MSRP on nearly their entire line, by over $2,000 on some models. Nothing else changed, dealer pricing remained the same, equipment features remained the same, they just inflated the MSRP. It's that arbitrary and meaningless.

So don't take MSRP or so-called "List" price into effect when determining the "value" of a discount or sale. Hell, I'll give you 99% off! I'm just gonna inflate the list price to reflect that. Go by what your actual purchase price is, and if the product or service is worth it at that price. In the end, it's what you paid that matters, not how much you "saved".
posted by xedrik at 9:31 AM on November 8, 2010

Response by poster: Thanks for all the reasoned answers so far. Indeed, judging whether an item is worth the listed price is the most important thing. The reason I posted this under "law" is because I wonder if there are any statutes/guidelines/laws that regulate this practice...anywhere. The interesting subquestion to this is why some items (e.g., a designer blouse) will be discounted 400% and a pair of shoes might only be marked down from $50 to $40. If this was ALL a psychological ploy to think you're saving a lot of money, why not applying this mega-discount methodology across the board?
posted by teg4rvn at 9:48 AM on November 8, 2010

why not applying this mega-discount methodology across the board?

Well, since you're talking about clothing, the "value" of the item is divided between form and function, and there's a spectrum between "bargain" and "fashion". A discount brand is relying on "this fulfills its function" to sell items, and has a small profit margin over materials costs, relying on high volume of cost-driven shoppers; and a well-known designer name is relying on the mystique of the fashion, and has a much higher markup to cover their much higher advertizing costs. The thing is, neither of these can afford to sell things at deep discounts: the one because of the bottom line production costs, and the other because it would tarnish their "high-end" or "quality" image. The deep discounts are part of a different business model: low-to-medium costs + high markups + fancy tags to create an image of "couture" - deep discounts to appeal to bargain hunters = "bargain fashion"

So when you see 2 shirts at $29.99, with listed MSRPs of $99 and $39, that doesn't necessarily mean that the formerly$99 one is a better value, just that the manufacturers have different business models.
posted by aimedwander at 10:16 AM on November 8, 2010

I'm pretty sure that in the UK there are laws to ensure that the "original" price is "real" (i.e. that the product has been offered for sale at that price in the same shops for a minimum amount of time), but I can't find any references for that at the moment.
posted by richb at 10:46 AM on November 8, 2010

In many cases, retailers are the proverbial "tail that wags the dog". They want to advertise 75% off, so they require suggested retail price lists from the manufacturer that are so high, they are essentially complete bunk. Nobody pays MSRP ever. Not even close. It simply allows the retailer to put big % OFF signs everywhere.

The book, "Predictably Irrational", defines "compare at" price tags as anchor prices to trick you into liking the lower price...no matter how unlikable it really is. Read it if you want to know how easy we are to manipulate when it comes to our shopping habits.
posted by davidvanb at 10:58 AM on November 8, 2010

My "friend" the ex-used-car dealer (fired by more dealerships than I care to count) swears these are made up numbers in his industry. As ghharr says, it's a gimick they use to get you thinking on their terms.
posted by Ys at 7:02 PM on November 8, 2010

i was just wondering about this the other day. i've noticed a reverse-weirdness of the "original price" shenanigans at places like marshall's or ross. for example, the sweater will be for sale at marshall's for $29.99, and the marshall's tag will say "compare at $60." but the original manufacturer's tag will say $120. i always wonder why the store is shortchanging the amount of the discount. i don't have an answer, btw, but just wanted to throw this out there. seems like, at least at these stores, they aren't consistently overstating the discount.
posted by apostrophe at 9:21 PM on November 8, 2010

Best answer: In my first line of work post-college, I worked as a Buyer (or training up to that level in various roles, really) for Kaufmann's Department Stores, then owned by the erstwhile May Company family of department stores, then after a branch consolidation with Filenes, I moved to one of Macy's parent organizations - Federated Merchandising Group. I then spent a stint back in actual buying offices with Macy's, before I finally left the industry to move to consulting. All told, I was responsible for the retail operations of my areas from planning, procurement, vendor relationships, replenishment management, warehousing and distribution to stores, in store signage and Point Of Sale system management (read: price setting), as well as advertising and reporting on sale figures / trends, and then on the back end getting chargebacks from vendors or finding other creative ways to move out of old stock that you can't sell on clearance. The areas I worked in included Men's Tailored Clothing, Men's Knits and Sweaters, another stint (with FMG) in Tailored Clothing, then with Macy's in Women's Designer Denim Collections and then my last job, which everyone questioned why I left it, buying Women's Swimwear for all of the Macy's east of the Mississippi. Heh, I still capitalize my former departments automatically.

Its been basically defined above, but MSRP is most typically a price that the manufacturer puts on their original tags that include significant blank space for the retailer to add their own pricing information. Basically, everyone in the industry *knows* that most mass-market clothing is never going to be sold at MSRP, and its understood that retailers are going to sell items typically at a price lower than MSRP. This is for the vast majority of clothing sold in the US. There will be some items that retailers will hold at MSRP and sell at that level, in the case of Men's Tailored Clothing, a Macy's might be selling a Private Brand suit or two, a few offerings from various mass-market designers (Ralph Lauren, Oscar De La Renta, etc.), and then a high end offering or two (Hickey Freeman, Hugo Boss). The latter they would in some cases rarely go on sale, because of arrangements between the retailer and the manufacturer to not dilute the price of the item in question, to keep the "high end" appeal of the product to their more limited target market.

For both items sold below MSRP and those kept at it, there are all kinds of various work-around tactics in the industry to ensure that a) product is sold, and b) the relationships between retailers and the manufacturers are maintained. The first is most important to retailers, the second to manufacturers, but the other is also important to both parties, respectively. This typically works on seasonal cycles, which I'd summarize at a very high level as:

1) Planning: Buyers from the retailer meet with the manufacturer at their swanky design offices in NYC or SF or wherever to see the trends that the brand name has been seeing in fashion, and see all of their samples for the upcoming season, and to begin to negotiate the volumes that the retailer will plan to buy and at what prices, so that the manufacturer can start producing. Even at this stage, pricing is called into question, and there may even be negotiating between buyers and manufacturers around what the MSRP should be set at, and/or what the retailer will plan or even agree to set their own price at. Typically the retailer is looking at what their Gross Margin % will be if they sell item X at price Y, and will push their manufacturers to compete against each other and provide the retailer with the best GM, but this isn't affected only by price agreements.

2) Procurement and preparation: After the manufacturers have their commitments, they start to manufacture, and send samples over to the retailers to enable them to begin their planning meetings for warehousing and distribution, store stock levels, advertising, etc.. At the same time that the retailer prepares their Purchase Orders to the suppliers, they also do all their prep work, ads are prepared to run, stock starts to ship from manufacturers to the retailer, and if all cylinders are firing, the stock hits all the stores that the buyer and planner have targeted it for, a week or two before the ads (including the pricing, mind you) hit the market. Many retailers will work with their manufacturers for advertising reimbursements, sometimes directly related to buying a specific item the manufacturer may have an interest in the retailer featuring in their ads (an "ad buy"). This can come in the form of a direct check from the manufacturer, which can also affect the GM the retailer will get and thus indirectly in some cases affecting pricing.

3) Selling Season: People see the new clothes, note the "sale" price, come in and shop, the retailer replenishes stock either automatically ("replenishment"), or in some cases - say for a really hot item that is selling out, on a once-off buy ("fashion buy"). Typically retailers have planned their prices and related advertising and signage for a whole season in advance, so I would know back in spring / summer what I was going to be pricing XYZ suit at for my sales on Thanksgiving, Christmas, etc. as well as my set prices in the in-between times.

4) Stock management: As the season passes, the retailers are meticulously (or should be) monitoring their sales and stock levels to ensure they are moving through sufficient amounts of the clothes in their stores so that they'll be at negligible stock levels at the end of the season and can bring in the next season's stock without major issues. If something isn't selling as fast as it should, you may change your initial pricing plan in-season, reduce your prices, and negatively affect your GM. In which case, the savvy buyer is going to go back to his manufacturer for the slow selling item and negotiate what's called a "chargeback" or "mark-down chargeback" - yet another check cut from the manufacturer to the retailer, to help them cover the cost of getting out of the non-performing stock. Prices are then reduced even further than originally planned from MSRP, consumers finally think its a good enough deal, the product sells, the retailer and manufacturer are sufficiently sharing the loss (and the profit of the hot-selling items), and the whole thing will start over again next season.

That's how the department stores set prices. Of course, its a little different for the Off-Price retailers you are asking about (Ross, TJ Maxx, etc.), but at a high level, most of the same principles apply. The difference is typically that where manufacturers and retailers in the "on-price" market (Macy's, et. al.) will have general understandings or even written agreements on pricing, the OP retailers are buying the dregs - mostly mis-manufactured lots from the manufacturers, or lots manufactured at quality, but perhaps in too much quantity (i.e. one of the on-price market buyers changes his mind and cancels an order, either before goods hit stores or maybe early in season when a product doesn't sell well initially). While the manufacturers still want to make what they can from selling these goods, typically they are using the OP market as somewhere to dump their stock, either at a very slim profit compared to selling it to the Macy's and such, or no profit or in some cases even a loss.

Most manufacturers are targeting the on-price market and to do well there, and that is where they focus the majority of their business operations (and should). As such, they don't want to take *too* big of a hit in selling to OP stores, but they also are using them for a purpose, to get out of stock they can't sell to on-pricers. So, at the end of the day, generally speaking, most manufacturers aren't going to pay all that much attention to whatever prices the OP stores want to sell their goods at. Naturally, the OP stores will target the highest prices possible to get the best margins they can, while providing the illusion / reality of undercutting department store prices.

One last caveat: in some cases a designer brand (think back to my Hickey Freeman / Hugo Boss example) will want to put at least some cursory pricing agreement in place with the OP retailers such that they try (usually in vain) to protect some of their market image even for those lots they have to dispose of via the OP market. Its not "good" - marketing wise - for Boss to have too much of its stuff selling in the OP market, it wants to be seen as a designer store / department store brand exclusively. In such cases, they will sometimes try to dictate a time-frame at which the OP cannot reduce their price from an initially agreed sale price - something below MSRP but sufficiently above where the OP retailer might want to start selling it at.

From a legal perspective, I never really ran up against much industry guidelines or restrictions, more generally it seemed to be a whole lot of back-office agreements and decisions between the retailers and manufacturers, both of whom have at least part interest in the good performance of each other, which in my opinion is the major guiding factor in how pricing is set.

tl;dr: I still chuckle these days when I see consumers getting excited at "sale prices!!1!" after knowing all the myriad ways in which the manufacturers and retailers are planning months in advance to *create* that image in the consumers' minds, season after season, year after year. If they are selling it to you at any price, its because its at a profit or the very least a benefit to them. Remember that.
posted by allkindsoftime at 12:37 AM on November 9, 2010 [9 favorites]

Some people have suggested that stores never sell stuff for MSRP, but I've noticed that this is exactly what Dillard's does. I've gone in there to look around and they have a certain brand of jeans for $49.99. This is the MSRP. I go to every other store in the same mall (Sears, JCP, Macy's) and they have the same jeans for $34.99. I find it odd that this lower price is the same at all other retailers... there must be some minimum price mandated by the manufacturer. I see this same high MSRP pricing at Dillard's for other items too. They never match other retailers' prices until they (Dillard's) has a "sale" which is not really a sale at all.
posted by buckaroo_benzai at 8:14 AM on November 14, 2010

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