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RRP Meaning: What is it And How to Set the Right Price in Retail?

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what is rrp recommended retail price

You may have heard the term RRP, but what does RRP mean in retail? RRP is the Recommended Retail Price. A price that the manufacturer recommends you sell their product for.

The RRP tends to be higher than what the business needs to make a profit and is able to cover overhead, distribution, and marketing costs. When buying products for resale you want to consider the supplier’s policy on the resellers’ margins and if there are any.

Let’s look a bit closer at RRP and retail pricing.

RRP stands for Recommended Retail Price. RRP is the price at which the wholesaler or manufacturer recommends the retail store or ecommerce store to sell their product. So the definition of RRP is Recommended Retail Price, but it is also known as the list price, manufacturer’s suggested retail price (MSRP), or suggested retail price (SRP).

Do retailers have to sell items for RRP?

Retailers often don’t sell items at the Recommended Retail Price (RRP). The retailer can choose to sell the product at RRP, above RRP, or below RRP. A manufacturer sometimes will set the suggested retail price higher, so it looks as if the seller is offering a discount.

Retailers typically get volume discounts on their wholesale prices, so selling below RRP is quite common. To look from a cost perspective, it depends if the products are bought in bulk from the manufacturer, made to order, or bought in smaller batches from a distributor.

List prices often cannot be compared directly internationally as products may differ, sometimes due to regulations. List prices may or may not include taxes.

The seller’s product demand and sales history is highly influenced by the products’ demand and sales history. Historical info helps sellers determine if an item is priced properly so it attracts the right buyer.

How to calculate RRP

A supplier calculates the minimum RRP by adding the margin to the cost price or by multiplying the unit price with the number of products per unit. The calculation example matches the list price formula. But remember that you often might not be able to reach this pricing level, especially if your product is sold via distribution channels instead of directly to resellers.

RRP = (Producer Margin% x Unit Cost x Quantity per package) + Retailer product margin.

RRP formula

In reality, the RRP may be determined on way other factors, but this calculation gives a minimum RRP that includes the product price and gross margin for the producer and seller. Fees are calculated on individual products and not all at once. Make sure you do it right to avoid possible losses.

A Recommended retail price is determined by the manufacturer and sometimes (together with) the reseller. Determining a proper retail price is one of the most important tasks in building a successful online business, the exception may be if you are selling your own digital products. Retail price plays an essential role in advertising and marketing, and also helps to determine profit margins.

5 reasons the retail price is so important:

  1. Retail price determines the marketability of a product
  2. Retail price helps you to decide which products sell and which ones don’t. 
  3. Retail price is used by online trading platforms, such as eBay and Amazon, for various calculations – fees, shipping cost, etc.
  4. Setting a retail price helps in advertising a product e.g., it can determine how much ads can cost in SEA, banners, and promotions on websites, online promotions, magazine ads, etc.
  5. For wholesale suppliers/resellers, retail prices are important when selling products to retailers

It all comes back to pricing and the mechanics of retail math. Every retailer wants to make a profit, yet sometimes it is even smart to have a loss leader or give in a bit on pricing with the later calculation of an upsell or a cross sell taken into account.

How to accurately price products accurately?

The RRP may not be the right price to offer your products at. The seller’s product demand and sales history are highly influenced by the products’ demand and sales history. This information helps sellers determine if an item is priced properly so it attracts the right buyer.

How do you find product markers?

The product’s price marker is the product’s price. Sellers may use data on competitor prices (and potentially other data) to determine if an item is priced properly, more accurately than they would be able to, looking at only their own sales histories of items. It can gather market intelligence and adjust the pricing of your products accordingly.

Marketers who are purchasing inventory in larger quantities tend to use Marketplaces to to manage purchase orders for a wide range of suppliers/merchants as well as manage multiple currencies. Having this system allows them to easily keep track of suppliers’ stock levels or lack thereof, and make bulk orders with different merchants instantly all from one central repository.

Reasons to charge a different price that diverts from RRP

1. The product is new to the market

This means that the products still need to be tested and it needs to establish value in the market. This usually takes some time, because retailers are still not sure if they should offer the product at a higher or lower price.

2. The prices across different retailers are different

If your competitors are offering the products at a much lower price then you need to find out why. It could be that they have better deals with their suppliers, or that they spend less on operating costs. A wide spread of pricing may indicate that the market is not yet saturated.

3. is it a comparable product offered online or through a marketplace like Amazon?

For online and ecommerce stores it matters a lot how comparable the products are. Generic products like a pound of salt or a package of paperclips aren’t very unique, so the price becomes a big factor. Also, multiple ecommerce stores may offer the same or very similar articles. If for instance, the products are offered through a marketplace like Amazon, prices are instantly comparable.

4. The retailer may have excess inventory

If the products are not selling well, your supplier or wholesaler may want to get rid of it at any price they can. If you offer them enough money for their stock then you might be able to lock down bulk pricing on that product forever.

5. Your product is innovative

Innovative products are those that fill a need for which there is no current solution, but they command a price premium because of that fact. This typically happens with new technology or invention – typically with new products, the costs are also still higher.

6. You have an exclusive contract with the manufacturer

With an exclusive contract, you can be the only seller of a specific product, and this can also allow you to introduce price increases. Exclusivity is common in distribution agreements for specific distribution channels or geographic areas, where the channel isn’t allowed to sell the product to other companies. If there is an exclusive contract, it makes sense to set the related products with the producer.

If you or your business has some form of legal protection then this may allow you to increase prices. For example, trademarks and patents can allow you to prevent other businesses from using your name or product.

7. Your products are purchased for their quality, not the price

When consumers purchase a high-quality good they don’t want to switch brands because they have built a relationship with your brand through positive experience. However, they might be willing to pay a premium. This is called price flexibility and is an indicator of whether your products are seen as high quality or low quality.

You can find out if you have price flexibility by looking at your competitors and seeing how much they charge. If other companies provide similar goods but their prices vary considerably then this may be a good indicator that there is some price flexibility in the marketplace.

8. The demand for the product is high so the price becomes more competitive

With high-demand goods, the price can be more competitive. If a product is widely wanted at the moment then may lead to an increase in competition and therefore a drop in prices. So before the competition will skim the margin, be sure to take advantage.

9. The market changes, or there is new technology on the market.

When new products come out and people change their preferences accordingly it may be worthwhile to reduce your prices at least for a while to take advantage of the demand that’s available for your product and attract more customers and gain a competitive advantage.

10. Items in the line are still being researched/developed by the manufacturer

Product’s list or suggested retail price is usually very high while break-even prices could be much lower. In case you find a product with a huge profit margin, don’t rush to buy it immediately because there might be something wrong with this product that causes it not to be sold by other sellers at all or without any decent profit margin

So the RRP is the suggested price or recommended retail price a wholesaler recommends but that doesn’t mean the actual sales price will be as high as or the same as the RRP or list price.

RRP FAQs

What is the meaning of RRP?

RRP stands for Recommended Retail Price. It is the price suggested by the manufacturer or supplier as the ideal selling price for a product. This price acts as a reference point for retailers and helps maintain consistency in pricing across different locations.

How is RRP calculated?

The calculation of RRP involves various factors such as the cost of goods, markup percentage, producer margin, unit cost, quantity per package, and retailer product margin. While the specific formula may vary depending on the industry and business practices, a general approach is to calculate it as follows:

RRP = (Producer Margin% x Unit Cost x Quantity per package) + Retailer product margin

It’s important to consider additional expenses like production or purchase costs, shipping, taxes, and other direct expenses associated with the product.

Is RRP with or without VAT?

The RRP can be stated both with or without Value Added Tax (VAT). In some regions, the RRP may include VAT, while in others, it may exclude VAT. It depends on the local regulations and industry practices. When promoting or advertising products, businesses usually specify whether the RRP includes or excludes VAT to provide clarity to customers.

Is it illegal to sell below RRP?

No, it is generally not illegal to sell a product below the RRP. The RRP is a recommended price, and retailers have the freedom to set their own prices. However, some manufacturers or suppliers may have Minimum Advertised Price (MAP) policies that restrict retailers from advertising prices below a certain threshold. These policies aim to maintain consistent pricing and protect brand reputation. Violating MAP policies may result in consequences such as loss of support from the manufacturer or supplier.

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