List Price

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List Price Meaning

List Price or Manufacturer Suggested Retail Price (MSRP) refers to the price the manufacturer offers to the customer. The manufacturer considers various factors and sets this price. The main purpose of this price is to set a standardized rate for products and services at various locations.

List Price

The importance of this price prevails more in the automobile industry. It helps maintain price consistency at different stores. As a result, customers only end up paying the same price at different places. However, this price often comes up in conflict with competition theory.

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  • The list price is the rate the producer sets after calculating all the costs for their goods and services. Here, retailers need to acquire the right to charge this price. 
  • It is also commonly known as manufacturer suggested retail price (MSRP), recommended retail price (RRP), sticker price, and Suggested retail price (SRP). 
  • It helps businesses in creating standardized rates across different locations. Also, there is a rightful distribution of profits among the market participants. 
  • The formula for MSRP price is the sales price to the discount obtained. However, this price needs to comply with the competition theory.

List Price Explained

List Price, in business, is a price set by the producer for the products sold to the customers. Here, the price set is the highest. As a result, everyone in the distribution process, like wholesalers and retailers, earns profits. It can also be called Recommended Retail Price (RRP) or Suggested Retail Price (SRP).

The main theme of maintaining this price is to ensure customers find the same price for the same product across various locations. Thus, the manufacturer will include all the costs and set a high (or maximum) price for the product. So, here, retailers can sell at the listed or lower price (list price discount). And the discount is possible through either stock clearance or sales.

For example, the list price of Apple phones will be the same in New York and Texas. Here, the manufacturer does not try to create bias with the products. However, the retailer can still attempt to sell the goods for more than the list price. It occurs when the product is in high demand or has a limited supply.

Here, the list price is the price customers are supposed to pay for the products. However, the retailer and wholesaler buy the same product for 2.5 or 3 times less than the list price. Therefore, every distributor earns profit until the product reaches the end consumer.

For example, the major influence of these prices occurs in the automotive sector. In the United States, the vehicle owner must stick the list price of the car on the windshield or spec sheet. It is also referred to as the sticker price. Likewise, maximum retail price (MRP) and RRP are used instead of list prices in India and the United Kingdom.

Formula

Let us look at the list price formula for a better understanding of the concept:

List Price Formula

Where:

  • Sales price refers to the price at which the product is sold to the customer.
  • D is the discount percentage (%) applicable to a given customer.

Examples

Let us look at the examples of list prices to comprehend the concept better:

Example #1

Suppose Neil runs a supermarket store on the west side of the town. He has a wide range of products, from grocery to stationery supplies. Plus, he gets all the products at a wholesale price. If the sales price of a book is $10, Neil might include a 2% discount on the product. Therefore, the calculation of the list price is as follows:

List Price Example

Here, the book's MSRP price provided by the manufacturer is $10.2.

Example #2

According to reports on March 1, 2023, Indiana-based pharmaceutical company Eli Lilly announced to cut its list price of insulin. Thus, the Insulin Lispro price of 100 units/ml 4 will fall from $35 to $25 effective May 1, 2023. Likewise, the MSRP price of Humalog will reduce by 70% effective from the fourth quarter. This action aims to increase the ease of availability of affordable insulin to common people.

Benefits And Limitations

Let us look at the benefits and limitations of the list price prevailing in the industry:

BenefitsLimitations
It helps in setting a standardized price for all customers. These prices fail to match the competition theory as the manufacturers act as price makers. 
Acts as a reference point for businesses and customers for evaluating the value of products in the market. It affects the consumer's pocket as producers often charge higher. 
It provides transparency among customers to compare across various retailers.
Enables profitability to every distributor in the process.

List Price vs Net Price

Although list and net prices are interchangeably used, they have different characteristics. So, let us look at the differences between them:

BasisList PriceNet Price
Meaning It is the highest price the manufacturer sets for a product or service.Net price is the actual price paid by the customer for the product.
Purpose To maintain a standardized price that covers all costs and stays constant at all locations.  To give a transparent price after deductions of discounts and offers to the customer. 
Set by Manufacturer Seller or producer 
Formula List price = Sales Price / (1-D%)Net Price = List price - discounts + Sales tax + Other charges
Discount deduction There is no deduction or discount included. However, retailers might sell at a lower price for stock clearance.Here, sellers do provide discounts to the customers. 
Also known as Manufacturer suggested retail price (MSRP), recommended retail price (RRP) and Suggested retail price (SRP). Final price, selling price or after-discount price. 

Frequently Asked Questions (FAQs)

1. Does the list price include VAT?

It might include value-added tax (VAT) depending on the location of the business. Some governments might have an inclusion of it or not. For example, in European countries, manufacturers must add VAT to the price mentioned or MSRP.

2. What is the difference between the list price and the cost price?

List and cost price are often used terms in the corporate world. However, they have slight differences between them. The former is the price the manufacturer sets on the products the end customer consumes. In contrast, the cost price is the price paid by the businesses for producing the goods.

3. Is the list price the same as the invoice price?

Both terms are different in their contexts. Manufacturers charge the MSRP to consumers for the products consumed. It is the maximum limit to charge for goods. In contrast, the invoice price is the price the retailer pays the producer for acquiring goods.