Purpose of DVD MSRP?

Discussion in 'Archived Threads 2001-2004' started by Malcolm R, Mar 6, 2002.

  1. Malcolm R

    Malcolm R Executive Producer

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    This may be more suited to Retail Feedback, but as it's not about any particular retailer, I thought I'd start here.

    Can anyone with knowledge or experience in retail explain the purpose of MSRP?

    I know this is a "suggested" price level, but what exactly is this suggestion based on? Is it just wishful thinking? Why does the wholesale vendor care anyway as long as they're getting their desired wholesale price? Do they see this as the true "value" of their merchandise, even though they're willing to sell it to retailers for much less? Is it some sort of marketing ploy so that consumers feel they're getting a bargain if they pay less than MSRP?

    It seems very few retailers sell DVD's (or any type of merchandise for that matter) for the actual MSRP, but always end up discounting it. It's generally just a question of how far. Even here on the forum, when we discuss DVD prices we start with the MSRP and automatically cut it by at least 25% or so to find the "real" price we expect to pay. Yes, it's fun to see how much we can save, but why play the game in the first place?

    Like the new "Book of the Dead." MSRP is $49.99, but I've yet to see anyone selling it at that level. Most have it in a range from $27.99 to $32.99. Some as low as $19.99. So, since this sort of release does not seem ideally suited as a loss leader, if a retailer can sell it for half-price or less (based on MSRP) then their wholesale price must be even lower than that since we can assume they're still selling at a profit.

    And why would Anchor Bay, who issued the item and set the MSRP, want stores to sell it for $49.99 if they are selling it to retailers for less than $19.99 wholesale? Do they have any stake in that $30 difference? I thought it all went into the retailer's pocket?

    Same with the upcoming "Harry Potter" DVD. MSRP seems to be $26.99, yet no one is selling it for that. Most are $19.99 to $22.99 for pre-order, and we'll likely find it for less than that closer to release. Though this is the sort of title that may be treated as a loss leader just to get the hoardes of people into the store.

    The whole MSRP game just seems to be a pointless exercise. Why "suggest" that retailers sell at a certain price when you as a distributor are selling to the retailers at only a fraction of that price? A retail markup of 60% or more (as on BOTD) seems totally out of line.

    Anyone know why this seemingly futile practice continues?
     
  2. Jeff Kleist

    Jeff Kleist Executive Producer

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    It's a holdover from the days before big discount stores and online ordering. They set the MSRP knowing that people will discount from that, and it also lets you easily calculate the cost of an item.
     
  3. Chad Gregory

    Chad Gregory Supporting Actor

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    The MSRP also sets a ceiling for the prices. The intention being for Suncoast not to sell Book of the Dead for over $50. A little protection for you the consumer.

    -Chad
     
  4. Dave H

    Dave H Producer

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    The MSRP is an absolute, fixed objective price. Without it, prices would be a flux and hard to calculate for reasons given. Some type of fixed number is needed.
     
  5. Malcolm R

    Malcolm R Executive Producer

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  6. rutger_s

    rutger_s Supporting Actor

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    The MSRP of items like cars, DVD players, and cell phones are based on a calculation of cost to manufacture, cost to replicate, cost to advertise(artwork and packaging), and cost to distribute.

    A fair price is then agreed upon based on this calculation. The price allows a product manufacturer to make back the money spent on the product. Many items like DVDs are priced between $9.95 - $49.95 MSRPs in the United States due to the fact that any lower prices would result in slower revenue returns and while a higher MSRP would result in faster revenue returns, it also results in customer dissatisfaction.

    Without an MSRP, stores would be at loss as to how to price a product. Take for example, the Star Trek: The Nex Generation DVD box sets. No mininum advertised price or manufacturer's suggested retail price is set for this box set. Without these guidelines, many stores fall back on the MSRP of other titles in a similar fashion.

    The goal was to sell ST: The Next Generation for less then $100 but without an MSRP, many stores went with the same MSRP as The X Files box set which were $149.99 MSRP.

    Since a store's price is based on how much of a discount they can afford to give. Examples: Best Buy has refrigeratots to help offset costs of DVDs, Target has clothing and other merchandies to offset costs, Suncoast is strictly movie-only with few items to offset costs. So Best Buy can sell ST: The Next Generation for $99.95 since they have a nice $500 refrigerator or washing machine to help offset costs if a couple of DVDs do not sell. Suncoast on the other hand, sells it for the $149.99 price since they deal mainly with movies and movie collectables, there is no item with a worth higher then a DVD to help offset the costs if a disc does not sell.

    No store could possibly sell a DVD that MSRPs for $24.99 at $4.99 since that price goes below the cost they paid and they would be losing a lot of money. Variably, no store would sell a $24.99 disc for $44.99 unless they wanted to lose money to angry consumers.

    So the purpose of an MSRP is to give retailers a guideline of what a fair price is to consumers.
     
  7. Dave H

    Dave H Producer

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  8. Malcolm R

    Malcolm R Executive Producer

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    Thanks, rutger_s (edit: and Dave H).
     
  9. rutger_s

    rutger_s Supporting Actor

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    Let say wholesale cost of a DVD is $14.99 but the DVD carries an MSRP of $24.99.

    Quess what? The store like Best Buy sells the DVD for $19.99 thus making a profit of $5.00 while offering the discount to consumers. What happens to the other $5.00 for the MSRP? Like I said, a refrigerator, a washing machine, or other similar item helps offset that five dollars.

    How?

    Same way as a DVD. They buy the refrigator wholesale for maybe $399.99, sell it for $459.99, while the MSRP is $499.99. Notice something here?

    That $50.00 seems to still be missing right?

    Not unless you keep going down the chain and realizing that Best Buy is going to make up that $50.00 with another product. Remember extended warranties? How about accessories? In actuallity, they only have to make up $45.00 since the $5.00 from the DVD sale was already made up. Now they just sold an extended warranty for $40.00. Whoa? Now they need to make up the $5.00. Hey look a DirectTV system, well that $5.00 is made up.

    Time to go through the chain again.

    Am I confusing anyone yet?

    Okay...

    Now lets take Suncoast into consideration. They buy the DVD for $14.99 wholesale. Unfortunately, they do not have extended warranties to help cover some costs. Also, they deal in movie collectables only. Well, they have to sell the DVD at the full MSRP to make a real profit since movie collectables do not move that fast. How much profit are they making? The same ten dollars as Best Buy but they do not have through a product chain to get to it.

    The wholesale cost is based on a per bulk discount. It has no bearing on the actual MSRP which is set by the studio.

    Sure a store might buy a DVD for $14.99 each wholesale but they are limited to selling that DVD at $24.99. Wholesalers also have guidelines too.

    In order for a store to make a profit, the wholesaler has to give a fair price to the dealer. Which is just the same as the dealer having to give a fair price to the consumer.

    While the distributor has to find a way to make everyone happy. With a $24.99 MSRP and a $14.99 wholesale cost everyone is making money and they are doing fairly.
     
  10. Daniel L

    Daniel L Stunt Coordinator

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    I wish wholesale on a $24.99 title was $14.99...

    Daniel L
     
  11. Malcolm R

    Malcolm R Executive Producer

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    OK, so what you're saying is it's the goal of every retailer, though the mixing and matching of whatever merchandise they carry, to eventually take in the cumulative total of all these arbitrary MSRP's of the products they sell?

     
  12. ashley c

    ashley c Stunt Coordinator

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    MSRPs are set by the manufacturers for the purpose of setting margins for each level. Therefore they buy for x$s and sell for x$ + their margin. Standard is 5-10% distribution, 20-25% reseller. How much the reseller wants to sell it for is usually based upon the quantity expected to sell, therefore a Best Buy can live off a 10% margin just because of the quantity they sell, while a Joe's Video needs to sell closer to the msrp.
     
  13. rutger_s

    rutger_s Supporting Actor

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    Malcolm,
    Paramount Home Entertainment has not given an MSRP or MAP pricing guideline for Star Trek: The Next Generation - Season 1.
    The idea was that retailers should sell it for under one hundred dollars. PHE did not explicitly say sell it for under 100 dollars. They expected it to be sold for under $100 at most retailers.
    But since an MSRP and a MAP do not exist for these products. Many retailers have chosen to use the X Files - Season x box sets to come up with a price. The result of this?
    Star Trek: The Next Generation - Season 1 not selling for under $100 at most retailers.
    Now wait...right now ST: TNG is selling for under $100 at a lot of online stores. But these are pre-orders and are online orders. What happens when the title finally streets and a few weeks have passed? What happens when the title is finally in stores?
    Since they go by the X Files MSRP of $149.99, quess what price tag you'll aee at Best Buy when ST: TNG is a few months old. Or howabout at Suncoast when it does finally street?
    MSRPs are not random numbers. There are calculations that results in profit margins for everyone involved.
    Early on in DVD's life, the MSRPs were quite high at the $39.99 - $49.99 price range. This was so that profit margins could be satisfactory. Now that DVD penetration is much, much, much larger. The MSRPs can drop to as low as $9.95 and still maintain a healthy profit margin.
     
  14. Jeff Kleist

    Jeff Kleist Executive Producer

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    I wish wholesale on a $24.99 title was $14.99...
    Actually, it's $15.61 on Warner titles and $15.83 on Columbia if memory serves [​IMG]
     
  15. rutger_s

    rutger_s Supporting Actor

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    I know wholesale is a bit higher. I was just using it as an example.
     
  16. Malcolm R

    Malcolm R Executive Producer

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    So I guess without MSRP, like in the case of ST:TNG, it comes back again to perceived value.

    It would seem to make sense that "The X-Files" and "ST:TNG" would be very similar in value and priced in a similar manner. Both are hour-long sci-fi dramas. Both have approximately the same number of episodes per season and discs per set. Both have some decent extras. Both have a *very* loyal fanbase.

    But apparently Paramount places the value of ST:TNG at lesser level than Fox's TXF? If Paramount was expecting retail prices to be under $100, and Fox set the MSRP of TXF at $150, why does Paramount to see their set as being of lesser value at retail? Or has Fox inflated their TXF MSRP?

     
  17. Chris Hicks

    Chris Hicks Stunt Coordinator

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    My local Media Play actually sells some titles above MSRP.I have seen a few AB LE tins going for $55.00 with a MSRP of $60.00 but when I bought these titles when they first came out the MSRP was actually 15.00 lower. And when was did you ever see South Park eps. with an MSRP of 30.00?
     
  18. Dave H

    Dave H Producer

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    It wouldn't suprise me with Media Play because they are, in general, a ripoff when it comes to DVD prices. I can't believe anyone in this day and age would pay what they are asking for most of their titles.
     
  19. ashley c

    ashley c Stunt Coordinator

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    AaronMK Supporting Actor

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