Step By Step Invention Retail-1

It’s important to set an approximate Manufacturer’s Suggested Retail Price (MSRP) for your product right from the very beginning. Well before the design is done.  The MSRP will define a great deal about your product including whether it’s even economically feasible.

Consider what you or your target customer might pay for something like your product.  Is there a clear range of price?  Is there a maximum price?  Is it an impulse item?  Is it a luxury item?  Would there be a lot of price competition?

It’s a cliche that you can always lower your retail price but not raise it.  But as a rule of thumb it’s good to remember.  Setting a suggested retail price is an important step that will have significant implications as you develop this and any related products in the future.

Perceived value: If your product is completely unique there is essentially no competition.  You can set a retail price that is as high as you think the market will bear. However your new item will have to compete at the level where people perceive that it fits.  To some extent you can adjust this with image advertising, a product will typically find its own level.  This means that there will be a price range for the product that people will see as reasonable (a perceived value).  If your item can be sold at a price within that range it will be seen to be a good value.  If it is higher then it may be seen to be more expensive than it should be (too expensive – bad) or a luxury/style item (more expensive – good).  If it’s lower, then it may be seen to be less expensive than it should be and thus either cheaper (lower quality – bad) or a bargain (great value for money).  This is an important dynamic to be aware of since it can be very difficult to fight perceived value in the marketplace.

Establishing a target cost: Once you have established an MSRP that you believe the product would support, you can work backwards to decide what the product must cost you to produce.  As a rule of thumb, for consumer items that are sold via networks of dealers and distributors, there is frequently a cost ratio of 5:1.  For instance, if the MSRP is $20, then the completed manufacturer’s cost for the item should be about 1/5th of that or $4. Obviously the larger the margin, the easier it will be to cover the significant startup costs including marketing and advertising. It also will give you the flexibility to adjust your retail price lower if necessary and still have an operating profit.

Maintaining a retail price: This is very important though it can be difficult. Please be aware that buyers for large vendors like Amazon.com® routinely do web searches for an item they are considering. They want to see what the actual “street price” of the item is, not just your MSRP.  If they find it offered at a price that is much lower than your MSRP they will be skeptical of your retail price. They may then demand a lower cost from you so that they can offer the item at a more realistic retail that street price.