I am curious how manufacturers calculate MSRP. Say a product MSRP is $10.00. What is the product cost and how are the markups of distributor and retailer calculated? What about a $100.00 loco. Are the percentages the same?
Pete, I can not say how the train manufacturers factor MSRP, but here is a list of the general cost categories: 1- Tooling recovery 2 - Cost of materials 3 - Cost of manufacture 4 - Manufacturer Profit Margin 5 - Shipping and destination fees 6 - Sponsors Profit Margin 7 - Primary Distribution Channel Margin 8 - Secondary Distribution Channel Margin 9 - Retailer Inventory Costs 10 - Retailer Profit Margin Of these, two steps may be omitted, the tooling recovery. If the tooling costs have already been recovered. But this may still be in place to collect funds for possible replacement tooling. The other would be the Secondary Distribution Channel. But in that case the Primary Distribution channel wiil retain both margins. For example, Atlas sells direct, thus they would keep the lions share of the profits. But if the local shop buys the product from Walthers, then Walthers takes the Secondary Margin. Without knowing the business accounting model or the manufacturing contracts, it would be difficult to know exactly how MSRP is determined. Sometimes there is no real formula, and a number is pulled out of thin air. Welll not really, but sometimes marketing research can determine the market value and then you work the numbers backwards. I do not remember what my local shop owner told me about his margins, but it seemed they were pretty small. At the same time, I did hear from one manufacturer who told me the manufactured cost was 35% or the MSRP. I got this information because I was contracting a special run. I hope this helps shed some light for you.
Not sure exactly, and know it does vary, but I think the 35% for the mfg for locos isn't too far off. I have heard that of that $100 loco, $45 goes to mfg, 12-15 to the wholesaler and $40 to the LHS. Both the wholesaler and LHS might get a few % points off for quick payment. I believe smaller products have higher margins, while mags have lower ones. I also got some wholesaler cut sheets once, and not all mfgs are the same. Despite a similar MSRP, for example, LL and Bachman always had more margin, which is why they can always be discounted further than other stuff. I would also venture to guess that the lowest price you see stuff at is probably the dealer cost, so if you see a Walthers structure at 40% off, that is probably what they paid, or maybe a few dollars more. But, with all figures closely guarded, those could be wrong and changed since I last heard them. I wouldn't be surprised in this economy if the mfgs squeezed the margins of both their wholesalers and retailers rather than have their price increases fully passed on to the public.
I am a conspiracy theorist. I think I will just unplug my keyboard...now.... *bbbbbbbbbbbzzzzzzzzzap* :tb-wacky: .
Having had a few years experience as a CFO in a Fortune 500 company, I can assure you that DCESharkman has it nailed. Any attempt to formulate percentages of markup for an industry is futile. And, if you know the markup % you still must know the actual costs to arrive at the MSRP. And then there's the Walmart approach. Send shoppers around and find out what price will be the cheapest. Use that price until the competition goes out of business."We have enough cash to wait 'em out" - from the mouth of a Walmart regional shopper manager. So the answer to the original question is: MSRP will be whatever the M (for manufacturer) wants it to be, having based that decision upon its own criteria.
Sorry...I like Walmarts approach. Reminds me of the old "gas wars". One station lowers its gas price by .02 over the station accross the street. People start using them more. That other station lowers its price by .04 a gallon. People lined up for the cheaper priced gas there. Back and forth they would go...untill one finally threw in the towel. We NEED that in this hobby. Price wars !!! Someone to step up and say that they are tired of the consumer getting screwed !!! May the best MAN-ufacturer win !!! JMO...thnxs. :tb-cool: .
That kind of menality is exactly why there are no more "mom & pop" full service gas stations any more. Same would be true with the hobby industry. You also didn't read into the last part of his statement....soon as walmart shuts out the competition, they raise the price back up or cut the profit margin of the manufacturing source to the point that they can not stay in business. There have been many companies that Walmart has run into ruin by this method. The consumer may win short term but in the grand scheme of things, they are hurting us by limiting or eliminating product choices. Enough politicing now.
Again...sorry Tony... I reread the original reply...cant find the statement "....soon as walmart shuts out the competition, they raise the price back up or cut the profit margin of the manufacturing source to the point that they can not stay in business." "or cut the profit margin of the manufacturing source to the point that they can not stay in business" I aint buyin it. The profit margin MAY get cut...but only to the point the manufacturer cant afford 2 NEW yachts this year and can only buy ONE. Like I said...I am a conspiracy theorist...so I dont buy crap by the trainload :tb-tongue: .
My last post on this topic... http://www.npr.org/templates/story/story.php?storyId=5181097 If you want the whole story....buy the book. http://www.walmarteffectbook.com/thebook.html
I suspect there is a lot of padding between actual cost and MSRP. Why? Here's a question with a answer only the manufacturers can answer and as we know they ain't saying. How many N Scale cars,locomotives,wheels,trucks,driveshafts and handrails can one make from a ton of raw material? They buy motors by the thousands and use 'em on every locomotive they make. I bet we would be shock-nay we may be outraged-at the actual cost of a $150.00 MSRP locomotive.. And in that light I believe its best we not know.
If one is lucky enough to have a, for example, Kato distributorship, one would be able to see what the dealer is charged for an item. I am going to guess on this, but I will say that something like a Kato SD70MAC cost the dealer around $35.00. They then mark it up to a little less than the MSRP of around $89.99 I'd say that is relatively close. fatalxsunrider43
Most retail margins are 40 points, or 40% of the MSRP. I have seen the margins for Micro-Trains and found this to be true,
Very true. Unfortunately, few people have any business savvy who discuss these things, nor do they know the history behind the above FACT. Just come to Montana and I'll show you what harm it's done here! As to pricing, every time government is contacted, acts and sticks it's nose in, up go costs. Plus taxes, taxes at every level. Regs and taxes are a huge driver of base prices. Which an unknowing public never sees and cannot comprehend. Walworld is another topic and a hot potato subject, which I'd suggest be best left out... Boxcab E50 A TrainBoard Administrator
When I was a part time train show dealer I got some excellent deals from my distributor by buying case lots..HO P2K GP7/9s was roughly $18.77 each by the case..I sold them like hot cakes for $34.95.My mark up on Athearn Blue Box kits was around 48% due to most hobby shops being overstocked with old kits...I avoided deals like 60% off "blow outs" (means overstock train set junk that nobody wants).I avoid Bachmann Train sets-to hard to sell unlike their locomotives.
My last post on the matter also... Sam Walton was an entrepreneurial genius. He made the world think..."If you cant stand the heat...get out of the kitchen!" As far as our LHS's go...maybe they should take notes. We just got a new LHS open in our town. The only real hobby store within hundreds of miles ! I was estatic! Finally a place close I could buy train stuff. I went in...not only is the train stuff 99% HO...the prices are MSRP. I checked out what they had...and as I was heading for the door...the guy asked if I found what I was looking for. "NO...not only do you have zilch for nscale...but your prices are MSRP. I wont pay that!" He shrugged it off with a "Have a nice day." I give em 6 months...and thats being generous. If WalMart carried N scale stuff...I would move closer to my "One Stop Shopping"...JMO .
Actually, with train items, it works a little different. Sure, they figure out costs, but the actual MSRP is set at new product shows. There's a scale they use on the puddle of drool. The bigger the puddle, the bigger the markup.
This is just my best guess 'humble opinion' on where the MSRP comes from. First, as mentioned by David [DCESharkman], the costs of the product and the distribution network are the basis for the MSRP. However, lowest link in that supply chain is usually a hobby dealer... and their costs of overhead can vary quite a bit. The MSRP has to take into consideration the highest overhead [potential] in the distribution network. Obviously... a hobby shop doing business in Manhattan New York is likely to have higher overhead costs than one in Manhattan Kansas. In order for the hobby dealer in New York to justify handling the product the MSRP needs to be high enough for them to even bother carrying the items...as they are the most likely NOT to discount from the MSRP. Meanwhile... a hobby dealer working out of a quonset hut in the backwoods of Tennessee might be able to offer 30-40% discount from MSRP for the same item. So... if you have a small hobby shop in a downtown setting... even in a relatively small city... their overhead costs could dictate how much below MSRP they can offer the items. In fact... if they are not buying in large quantities direct from the manufacturer or a primary distributor... they're buying small quantities from a secondary distributor... they may need to sell at MSRP to justify carrying the product(s).
I believe that the overhead cost (rent/lease) of a store front has put many people at a dissadvantage against on-line sellers, e-bay etc. Overhead is a killer, it is just putting money in someone else's pocket so that you can show your merchandise it person to the public. You'd have to sell ALOT of items to make up for that expense. Hence...no more moms & pops shops, sad but true. The Internet changed things so radically in the world that it is difficult for many to undertand....or accept. I like to have International access to items I want, but I miss the intimacy of the little hole in the wall train shops that had lots of goodies hiding in the corners. One place that still exists in a time warp and BEAUTIFULLY so is The Train Stop in San Dimas CA. That is one very, very cool shop with a GREAT owner. Its the kind of place where you can go & purchase items, or just go and talk trains, browse and enjoy. Some things the world has no effect on, and that place is one of them, it is like going into a time passed by full of trains of all sizes, Its like a dream. Like Mayberry. THE BEST. fatalxsunrider43
I feel bad about the dilema of many of the Mom & Pop LHS businesses... even businesses not in model railroading. If they do not have an active presence on the internet... and ACTIVELY promote their on-line store over their brick & mortar store... they will not be in business long. Even with all the quaint and intimate settings and bull sessions with the owners... they still need sales to justify being in business. The MSRP... usually works against many of them because 'most' people are looking for the lowest price available... not necessarily are the face-to-face interaction with the business owner or their staff.
