Prices are a funny thing. We often don’t understand why we pay what we do, nor do we often understand why some places can or do charge more for the same goods. In the retail goods market, there is such a thing as the MSRP, or manufacturer’s suggested retail price. I have no idea where this price comes from. The best I can understand, there is a secret smokey room meeting where such numbers are obtained. MSRP prices attempt to combine the cost of production along with design, marketing, administrative costs, distribution, and of course profit.

The profit margin on an MSRP is rather thick. Not only because the manufacturer need to make a profit, but so does everyone in between. This involves at least one other party, which is the retailer. Often times the retailer is broken further down and various mid level or sales people need to make a cut. This is all part of the process of getting you valuable goods that you want!

Another thing you need to know is that retailers are keen to the fact that you like getting a good deal. Consumers like savings, and mark-offs, and sales. What better way to indicate perceived savings that start with an inflated “retail” cost, and then offer you something below that price. In fact, most MSRP (usually the same as retail prices), are based at the top of what they think any consumer will pay for the good. From there, each retailer has a degree of wiggle room. This is why you always see a retail price with a slash through it, and the price at which you can buy it. In fact, in most categories, you should never actually have to pay retail for anything.

This is where the Internet comes in and scares the hell out of traditional “brick and mortar” retailers. Internet based stores don’t have nearly the overhead as traditional stores do. No sales people, no display space, just a website, which costs a lot less. Because of these lowered costs, Internet retailers can charge less to the consumer and still make a profit. You can see why this would scare traditional businesses. In the watch world, this has partially translated itself into watch makers not allowing Internet retailers to be “authorized dealers” online, and typically glossing over the subject of the internet as is. But this is another discussion entirely.

So when you see a retail price on a highly desirable good, you know that the price is just something set at the top of what people will pay. This goes for just about every piece of electronics, and almost every watch. This gives retailers a way of displaying that you are getting a deal. “Look at the price on the tag, now I’ll take 10% off that. Aren’t you happy?” Sure, that’s nice of them, but they are still getting at least 20% as a profit. I personally don’t feel right about giving a retailer more than 10%, maybe 15% profit, but that is just my feeling.

So when you see a retail price with a slash through it, you might as well ignore that price. Few people, if any, actually pays retail on such goods. The majority of us purchase goods at varying levels of profit to the retailer. It is not to say that Internet retailers get less of a profit that traditional stores, but rather they have less overhead before making a profit, so they can charge you less.

Now that you know this, you don’t have to act surprised when a vendor offers 15% off or pulls out the calculator to give you a deal “today.” Instead you can simply push a bit harder, because you know that MSRP values are a game, and you are there to do business.