In some (but not all) cases, advertising the manufacturer’s suggested retail price (that’s the MSRP you hear about on car commercials all the time) is helpful. In the automobile example, where a dealer typically sells cars for less than the MSRP, the dealer looks very good. But in the case of a candy bar, for example, where the MSRP is 50 cents, but the big chain stores sell it for 40 cents, and the airport gift shop sells it for a dollar, you find customers scratching their heads and wondering what the heck the real price is on this candy.
Be very careful when using price or terms as reasons for customers to visit your store. When you advertise price, you run the risk of getting caught in what I call the price trap. If you’re only selling price, you have to continue to lower that price — or come up with even better terms — on an ongoing basis in order to continue to attract new customers.
For example, the cell phone business has fallen into the price trap. When you look in the newspaper, you may have a tough time choosing a wireless phone company or deciphering the best available bargain because you have to sift through the various stores’ offers of free minutes, free phones, free longdistance, free mobile-to-mobile calling, and any number of price and terms offers. And all of these stores have to continually create new and better offers in order to compete.
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