Why is MSRP so far out of whack with street prices?

[TK-421]

I saw this on an old thread, and it got me thinking.

Originally Posted by bermuda

I would also venture to say the DW's drum hardware (lugs, mounts, etc) costs more than Ludwig's, and multiply that by the number of pieces attached to all the drums in a kit. Even a few $ per lug adds maybe $150, which has to be doubled for DW to make money, then doubled again for suggested retail price - that's a $600 difference right there.

What's the deal with MSRP being roughly double what anyone actually pays? This is true throughout musical instruments, so it's not just drums. But for nearly anything else, from cars to home appliances, to tech gadgets and more, there is a much closer alignment between MSRP and what you actually pay.

Does anyone have any insight into why this is the case?

[IDDrummer]

Basically, after decades of work in retail, I can say it is just a mind game. People absolutely won't buy something unless it's discounted. Since a seller has a certain price they need to get in order to make the item worth selling, they have to inflate the MSRP, so the discounted price is what they actually expect to get. Simple as that.

[TK-421]

Originally Posted by IDDrummer

Basically, after decades of work in retail, I can say it is just a mind game. People absolutely won't buy something unless it's discounted. Since a seller has a certain price they need to get in order to make the item worth selling, they have to inflate the MSRP, so the discounted price is what they actually expect to get. Simple as that.

That could very well be the case. But if so, why aren't we seeing that in other industries? Take cars, for example. If the window sticker lists an MSRP of $30,000, no one would even remotely expect to get the actual price down to $15k. You'd try to negotiate somewhere around $27-28,000, and would probably feel pretty good about yourself if you ended up paying that much.

[cerendrad]

I can tell you why. People want a deal. They are unhappy if they perceive they have not gotten a deal. A "Deal" is a loose term and very much in the eye of the beholder. I'll give an example.

I worked at a high volume car dealership in finance for about 5 years. In that time I saw every type of after sale possible. Three months have always stuck in my mind with regards to human nature.

Month one and three had the same deal. For example one mid sized car had an MSRP of $2499. Advertised was $1000 off straight to the customer. On the back end the manufacturer also paid the dealership another $1000 that was not advertised. Gross profit on the car was about $1400 (not as much as everyone thinks). So in essence a customer could come in and get $1000 bucks off right away. Not good enough, no deal. Then haggle for another $1000 off before the dealer has touched the gross profit on the car ($1400). Pretty good deal at this point really but if the customer drives a really hard bargain they might get another $400-$500 off. Now that's a good deal! very happy customer.

The second month was way different. For the first time ever the manufacturer was going to offer employee pricing to the public. Our regular staff discount wasn't even close to as good as this. The dealer bought the $24999 MSPR car at regular invoice (24999-1400=23599) then sold the car at about $3000 less than that! Then had to apply for a special credit from the manufacturer to get a profit of about $400 (on a $25000 purchase) So in this case the customer is starting out way below even the best possible negotiated prices from month one and three. With no haggling! Great deal right?

Nope human nature steps in. Almost every customer I saw was unhappy. They were all paying less than people who bought and were happy in month one and three, but they did not feel they got a deal. They were unable to talk the salesman down. I asked the unhappy ones why and they said things like "well I told the salesman - sure that's the price you give everyone, but what are you going to do for me?" and when the salesman couldn't budge the customers perception of a deal was poor. Sometimes even after I pulled out old contracts and showed just the bottom line of what people paid the month before they were still unhappy. Sometimes not. Anyway going back to month three was a relief to me because even though they were paying more everyone was in a much better mood.

Hope that helps,

[DrumEatDrum]

Originally Posted by IDDrummer

Basically, after decades of work in retail, I can say it is just a mind game. People absolutely won't buy something unless it's discounted. Since a seller has a certain price they need to get in order to make the item worth selling, they have to inflate the MSRP, so the discounted price is what they actually expect to get. Simple as that.

This.

There was a time when most people paid close to MSRP on many items.

If you had a small general store, with over head, paying decent salaries, plus paying shipping costs to get the products, you needed the margins on MSRP to make any 1/2 decent profit and keep the doors open. This is how your local neighborhood store stayed in business.

But then the discounting came in. I remember when a 20% off of MSRP was considered a great deal.

Mail order came to be, and mail order places could discount further because a warehouse often has less over head than a retail store, and they could make it up in volume.

So then chains started to follow mail order leads with buying in bulk, central warehouses, and computerized tracking to keep overhead lower and discount on par with the mail order places.

Then the internet came into being, and e-stores popped up that had NO retail space, few employees, and thus very little overhead, and they could undercut everyone by discounting further.

The retail places that remain, like Target, Walmart, Guitar Center, etc had to further get their over head down with more sophisticated computer tracking, efficient central warehouses, large bulk purchases, etc. As well as join in with the internet ordering.

It became a slow race to the bottom, where most stores are now selling items pennies on the dollar. Or they simply perished.

Which is why so few smaller shops exists in any retail category now.

Be it books, CDs, construction tools, musical instruments or whatever, innovation has found ways to drive down street prices further and further away from MSRP.

[Andy]

Originally Posted by IDDrummer

Basically, after decades of work in retail, I can say it is just a mind game. People absolutely won't buy something unless it's discounted. Since a seller has a certain price they need to get in order to make the item worth selling, they have to inflate the MSRP, so the discounted price is what they actually expect to get. Simple as that.

Simple as that indeed, & lots of people fall for it every time. It's much more prevalent in the US than anywhere else, or at least, the differentiation is far greater. Same deal with "sale" prices. In the UK, consumer law is pretty tight on advertising discounts, with layers of criteria that must be met, yet still, most retailers find a way around it. Holding small stocks in a percentage of stores at inflated prices for a few months, buys you a free pass on claiming a bigger sale discount than is actually the case.

The reason manufacturers collude with retailers on this is that they know the power of letting the consumer believe they got a great deal, & that a significant majority are gullible enough to have their bartering chops stroked to make it work.

[hippy chip]

MSRP (retail) includes a 40% markup from wholesale (what the dealer pays) It doesn't matter if it is a car, a drumset, or a pencil---this is how business works. I have worked in sales and purchasing in both retail and wholesale---If you buy a car with an MSRP of 30,000 for 20,000 the dealer still makes 7% profit. Large volume dealers can get better pricing from the manufacturer, and sometimes pass that savings along to customers.

[Bo Eder]

Originally Posted by Andy

Simple as that indeed, & lots of people fall for it every time. It's much more prevalent in the US than anywhere else, or at least, the differentiation is far greater. Same deal with "sale" prices. In the UK, consumer law is pretty tight on advertising discounts, with layers of criteria that must be met, yet still, most retailers find a way around it. Holding small stocks in a percentage of stores at inflated prices for a few months, buys you a free pass on claiming a bigger sale discount than is actually the case.

The reason manufacturers collude with retailers on this is that they know the power of letting the consumer believe they got a great deal, & that a significant majority are gullible enough to have their bartering chops stroked to make it work.

Is it really as simple as "the manufacturers and retailers are pulling the wool over the eyes of consumers" though?

From what I remember in a basic Business Law class in college, there are a number of people involved in getting a product from drawing board to the actual market, and they're not doing it for free, so some money is actually used to pay somebody, no? Otherwise, the basic assumption makes it look like there's only the manufacturer and the consumer, and the manufacturer is reaping a huge profit. Distribution of products, advertisement of products, ultimately account for a bit of that profit, doesn't it?

And of course, prices probably wouldn't be what they are if actual consumers were honest. Credit fraud and other crimes committed by the population ultimately has to get paid from something, so there's another reason product prices are higher too.

So I'm not sure I'd say there's some kind of collusion going on between the manufacturer and the retailers. They have to pay somebody to make their products, and if you're in the great state of California, there's probably quite a bit of taxes you must pay for fuel emissions and other "green" initiatives designed to keep the state beautiful (because CA likes to legislate everybody's safety).

[IDDrummer]

Originally Posted by Bo Eder

Is it really as simple as "the manufacturers and retailers are pulling the wool over the eyes of consumers" though?

From what I remember in a basic Business Law class in college, there are a number of people involved in getting a product from drawing board to the actual market, and they're not doing it for free, so some money is actually used to pay somebody, no? Otherwise, the basic assumption makes it look like there's only the manufacturer and the consumer, and the manufacturer is reaping a huge profit. Distribution of products, advertisement of products, ultimately account for a bit of that profit, doesn't it?

And of course, prices probably wouldn't be what they are if actual consumers were honest. Credit fraud and other crimes committed by the population ultimately has to get paid from something, so there's another reason product prices are higher too.

So I'm not sure I'd say there's some kind of collusion going on between the manufacturer and the retailers. They have to pay somebody to make their products, and if you're in the great state of California, there's probably quite a bit of taxes you must pay for fuel emissions and other "green" initiatives designed to keep the state beautiful (because CA likes to legislate everybody's safety).

All this is reflected in the overall cost of a product, but has little to nothing to do with the difference between MSRP and the actual selling price.

[AndeeT]

I find in the UK, MSRP is usually pretty close to street price.

[Bo Eder]

Originally Posted by IDDrummer

All this is reflected in the overall cost of a product, but has little to nothing to do with the difference between MSRP and the actual selling price.

Then what does? Or is it the collusion between manufacturer and seller? That would be sad if that were true?

[Andy]

Originally Posted by Bo Eder

Is it really as simple as "the manufacturers and retailers are pulling the wool over the eyes of consumers" though?

In terms of happily maintaining an artificially high MSRP vs. actual selling price needed to keep the supply system profitable = yes. Of course there are distribution, marketing, & sales costs. Those costs often dwarf the cost of producing the product, but the marketing ploy of inflating MSRP to engender higher product value perception & the consumer snagging a "deal" is well known & thoroughly exploited to the full.

[TK-421]

I certainly understand the concept of discounting off MSRP to make it look like a good deal, I'm just wondering how the relationship of MSRP to street price got so out of whack with musical instruments.

So for fun, I looked up automotive pricing data (using TrueCar.com) so I could compare it to drum pricing.

The car I selected is a 2018 Honda Accord EX-L. The way I have it configured, MSRP is $32,860, and the average price paid (nationally in the US) was $31,078. So in other words, the average "street price" people paid was 94% of the MSRP.

Well, maybe that was a fluke. So I also looked up an Audi A3. MSRP is $32,925, and the average price paid was $28,573, which is 87% of MSRP. A bit lower than before, but within reason where the MSRP still has some relevance to what people actually pay.

Now for my drum comparison, I'll use the new Yamaha Tour Custom 4-pc kit with 22" kick. On Sweetwater.com, the going price is $1299.99, while MSRP is listed at $2150. In this case, the street price is 60% of MSRP.

What about a different drum manufacturer and different retailer? For that I looked up a Tama Superstar Classic Maple Custom 7-pc kit at Sam Ash. Their price: $899.99. MSRP: $1499.98. Again, that's 60% of MSRP.

I think I'm seeing a pattern here.

[Lee-Bro]

There's the other end of the spectrum too: street pricing is over MSRP.

I worked for a Harley-Davidson dealer briefly about 20 years ago to help out a dealership owner that I was friends with. Harley dealers enjoyed a supply and demand situation from the late 80s through the early 2000s where they could charge $3000-$5000 over MSRP if the dealership didn't utilize a waiting list system. Time and time again, I'd see a bike get bought from a "waiting list" dealership and then sure as shit, it's for sale in the local trading paper within a week or so and listed for a few grand over MSRP.

This all ended when the recession hit in the early 2000s. Nearly 20 years later and you can walk into a Harley dealership and negotiate price on practically every bike on the floor. In addition, I've seen new, never sold bikes on the dealer floor spanning THREE model years. These just weren't models that traditionally didn't sell well. They were either the same models or same model family.

Harley is facing challenges not only from the metric manufacturers, but Indian as well, combined with a shifting demographic and preference in motorcycles. This has seen them consolidate facilities, layoff workers, and finally after intense pressure, start to implement a discount on pricing.

Also, keep in mind that MSRP historically has importance in the various selling channels: distributors, retailers, and end-users. The manufacturer will set an MSRP based on their calculation of cost-of-goods, how many selling levels they expect to have, etc. If a manufacturer is selling direct to the public, then the MSRP is most likely street price or near street price. If the product has to be sold to a distributor and retailers before it reaches the public, a profit margin for each level has to be factored into MSRP.

So in other words: What affects MSRP is manufacturing expenses+profit margin(s) expectations at each level. What affects street pricing is a combination of the seller's cost + supply and demand.

[IDDrummer]

It's true individual markets vary in terms of MSRP vs street price. I think that mostly has to do with customer behaviors and what they are used to.

Take a completely different product line, shoes. I used to manage a shoe department. Let's say a run of shoes came in, and you got $100 pair, priced at $100. That's like the MSRP. The retailer likely pays 50% of that price, depending on a lot of factors.

Perhaps 10% of the shoes will sell at regular price. So, 10 X $100=1000
50% will sell at an advertised price of about 30% off, so 50 X $70=3500
30% will sell at a clearance price of about 50% off, so 30 X $50=1500
And the remaining ten percent will sell for perhaps 75% off, so 10 X $25= 250

Add those up, and the store has paid $5000 for $6250 worth of sales.The retail value for the whole run was $10,000, so you could say that's almost 40% below MSRP.

My point is, each product line will normalize so that the consumer pays as much as the market will bear, and the consumer for each type of product will bring certain expectations to the game, influencing how companies present MSRP.

[indedrum]

The pricing through most of the industry is designed that way. "List" or MSRP is typically what everything is based off of- kind of an arbitrary number that everything is calculated from. MAP (minimum advertised price) is the street price- dealers are not allowed to ADVERTISE under that price- it is illegal to define what they can sell it for, but in the USA you can use MAP pricing (that is illegal in the EU). MAP is typically 35% off of the List price. Dealers, depending on the manufacturer, product, and dealer level, get a discount off of the list pricing, which is what they pay for product. It typically gets the dealer 30-40% margin at MAP.

[SmoothOperator]

MSRP is more about selling the vendors on stocking the product. EG if you carry our item, you will make a lot of money. Consumers seldom look at the MSRP. High MSRP gives the vendors latitude to adjust the price to the local market. The vendor won't want to stock an item that they have to sell above MSRP, wouldn't look good if the consumer noticed that he was purchasing above MSRP.

[CommanderRoss]

So what I get from all this is, "Expect to be screwed when buying anything from a brick and mortar store".
I understand before I walk in the door that they're there to make money & that money has to come from me. If the salesman is good at their job, I'll buy. If they come off not knowing their product and give the impression they just want to go home, I'm out.

I'm a hound dog when it comes to finding the clearance isle. Even at Guitar Center or Sam Ass, I can find a good deal on what I've needed. I'll whip out the phone, look it up on their website or on another site that sells music products and see just how much they're chopping the cost to. If it's not that much off, I'll pass.

The other day in fact, I needed a replacement head for a djembe project I've been putting off. GC just happened to have what I needed for $35 out the door.
They're normally $45 and up.
SCORE!!

This is a rare occurrence of course and by no means do I expect this kind of luck on the regular.
I do try and shop smart and if I can't get something, I'll find a way around it in some way.

[jbonzo1]

Originally Posted by indedrum

The pricing through most of the industry is designed that way. "List" or MSRP is typically what everything is based off of- kind of an arbitrary number that everything is calculated from. MAP (minimum advertised price) is the street price- dealers are not allowed to ADVERTISE under that price- it is illegal to define what they can sell it for, but in the USA you can use MAP pricing (that is illegal in the EU). MAP is typically 35% off of the List price. Dealers, depending on the manufacturer, product, and dealer level, get a discount off of the list pricing, which is what they pay for product. It typically gets the dealer 30-40% margin at MAP.

Indeed.
And most drum products can be purchased at 15-20% off MAP. There's the old saying, "Never pay retail". I say, never pay MAP!
As for brick and mortar stores, my drum shop has always had the best prices when I order a new kit or snare. They beat the big box and mail order guys all the time.

[PorkPieGuy]

I, at one time, was looking at a custom drum set to get made. The dealer had a price for each individual drum and stated that I would pay 60% of the MSRP. They got the drums at 50% and sold at 60%. My brother who used to work at a pawn shop that also dealt with new instruments basically said the same thing. They had 50% in the inventory and sold it at about 65% of the MSRP.

I think it's par for the course in the music world.

[indedrum]

Originally Posted by jbonzo1

Indeed.
And most drum products can be purchased at 15-20% off MAP. There's the old saying, "Never pay retail". I say, never pay MAP!
As for brick and mortar stores, my drum shop has always had the best prices when I order a new kit or snare. They beat the big box and mail order guys all the time.

Of course, you could always just go with a manufacturer that sells direct, and get more for your money :)

[TK-421]

Originally Posted by indedrum

Of course, you could always just go with a manufacturer that sells direct, and get more for your money :)

On that note, I'd be very interested in checking out an INDe kit in person. They sound great in every video I've seen, plus I'm digging the hardware and overall look. I was hoping you'd be at NAMM, but I don't think you were.

Is there any way to see them in Southern California without having to buy one?

(sorry for derailing this thread)

[IDDrummer]

Originally Posted by indedrum

Of course, you could always just go with a manufacturer that sells direct, and get more for your money :)

That probably works in your case, given that you are the manufacturer and it's a very specialized product! lol In many cases, though, for the products I routinely buy, getting them directly from the manufacturer is often more expensive than the deals I can get in the retail world. The manufacturer has to be careful not to damage the relationship with wholesalers and retailers.

[ScottJenkinsMartin]

Originally Posted by indedrum

Of course, you could always just go with a manufacturer that sells direct, and get more for your money :)

^ This right here. Our MAP prices are what you actually pay, and there's no need for a dealer markup. I always hated playing the MSRP game.

[Morrisman]

Originally Posted by AndeeT

I find in the UK, MSRP is usually pretty close to street price.

Same in Australia. Some shops discount 10%, but never anything like the US online stores.

[indedrum]

Originally Posted by TK-421

On that note, I'd be very interested in checking out an INDe kit in person. They sound great in every video I've seen, plus I'm digging the hardware and overall look. I was hoping you'd be at NAMM, but I don't think you were.

Is there any way to see them in Southern California without having to buy one?

(sorry for derailing this thread)

There may be a owner in your area I can connect you with- can you email me your contact info and I will make an introduction? josh@indedrum.com

[indedrum]

Originally Posted by IDDrummer

That probably works in your case, given that you are the manufacturer and it's a very specialized product! lol In many cases, though, for the products I routinely buy, getting them directly from the manufacturer is often more expensive than the deals I can get in the retail world. The manufacturer has to be careful not to damage the relationship with wholesalers and retailers.

Well, that is kind of the point- is the manufacturer working to satisfy you-the drummer, or the distributors and dealers? There are a lot of businesses like mine, in just about any industry, that have found they can supply better value and support direct to the customer than they can with a middle man.

[IDDrummer]

Originally Posted by indedrum

Well, that is kind of the point- is the manufacturer working to satisfy you-the drummer, or the distributors and dealers? There are a lot of businesses like mine, in just about any industry, that have found they can supply better value and support direct to the customer than they can with a middle man.

I understand what you are saying, and I agree, especially in specialized industries like yours. But part of the issue is scale - you are not expecting to sell 10 million drum kits a year. To industries in which supplying a high number of reasonably priced, quality goods is an important part of taking care of the customer properly, taking care of the "middleman" and the retailer is an important aspect of the business.

I guess my issue is with the blanket vilification of people selling products. The question "is the manufacturer working to satisfy you... or the distributors and dealers?" implies that the dealers and distributors are bad guys working against the consumer and the manufacturers are in collusion. Consumers wanting to buy reasonably priced soccer balls, shoes for the kids, toasters, bed sheets, etc want to be able to get a good selection cheaply and locally. That is best served by manufacturers working with distributors and retailers, who do their jobs efficiently, to get the right amount of product where it needs to be, when it needs to be there.

So, to me, a manufacturer taking care of of the distributor and dealer IS taking care of the customer, not colluding against them.

Likewise, there is a place in most industries for businesses like yours, who offer a very high quality product and personalized attention to the customer. That's fantastic! But that does not mean that it's the right choice for everyone. Many, many consumers' needs are best served by (read that as "What they want is...") an inexpensive, readily available product. That's why it's important for manufacturers of those goods to respect their distribution networks.

IMHO

[Dr_Watso]

It's a tale as old as time.

Mark it up 300%, then hit em with the big 50% discount. Suckers love that.

It's a lot harder than it was before though, now we got internets on our phone and can tell anytime if we're not getting a good deal.

[indedrum]

Originally Posted by IDDrummer

I understand what you are saying, and I agree, especially in specialized industries like yours. But part of the issue is scale - you are not expecting to sell 10 million drum kits a year. To industries in which supplying a high number of reasonably priced, quality goods is an important part of taking care of the customer properly, taking care of the "middleman" and the retailer is an important aspect of the business.

I guess my issue is with the blanket vilification of people selling products. The question "is the manufacturer working to satisfy you... or the distributors and dealers?" implies that the dealers and distributors are bad guys working against the consumer and the manufacturers are in collusion. Consumers wanting to buy reasonably priced soccer balls, shoes for the kids, toasters, bed sheets, etc want to be able to get a good selection cheaply and locally. That is best served by manufacturers working with distributors and retailers, who do their jobs efficiently, to get the right amount of product where it needs to be, when it needs to be there.

So, to me, a manufacturer taking care of of the distributor and dealer IS taking care of the customer, not colluding against them.

Likewise, there is a place in most industries for businesses like yours, who offer a very high quality product and personalized attention to the customer. That's fantastic! But that does not mean that it's the right choice for everyone. Many, many consumers' needs are best served by (read that as "What they want is...") an inexpensive, readily available product. That's why it's important for manufacturers of those goods to respect their distribution networks.

IMHO

I agree with all of this, and certainly don't intend to vilify anybody. There are tons of great retailers in the world, across most industries that add value to the customer. And there are some really great drum shops out there that provide services that are impossible remotely/direct. For my specific market, I can provide more accurate product information, more customization, and better value than I could going through retailers.

[IDDrummer]

Originally Posted by indedrum

I agree with all of this, and certainly don't intend to vilify anybody. There are tons of great retailers in the world, across most industries that add value to the customer. And there are some really great drum shops out there that provide services that are impossible remotely/direct. For my specific market, I can provide more accurate product information, more customization, and better value than I could going through retailers.

Excellent! The fact that I hear so many good things about you and your drums speaks volumes.