Recommended Retail Price
RRP stands for Recommended Retail Price. Also known in the UK as the list price, it was designed so that the prices don’t dramatically vary in different stores, and when setting it at a certain point, manufacturers keep the whole chain of distribution in mind.
As the name suggests, retail stores can choose to go either higher or lower depending on the circumstances.
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How is it used?
To avoid prices being drastically different in the stores across the country, manufacturers came up with RRPs.
Imagine two stores that have the same product (say, a single toothpaste). One sells it at £5 and the other at £2. You come into the first one and see that the toothpaste is unreasonably expensive. Coming into the second one you are now less likely to even pay attention to that particular brand. Prices need to stay in the same general area to avoid negative brand image.
Of course, retailers can go with their own prices, but they have to consider the RRP for the product since this information is available to the public. Most often, RRPs’ markup is around ‘keystone’ pricing. ‘Keystone’ is when you have a markup of 100% or, in other words, sell a product for a double of what you got it for. Learn more about what a markup is here.
What are the rules?
Manufacturers are generally prohibited from outrightly regulating the prices. This kind of interference with the market is called Resale Price Management or RPM. The only time RPM is allowed is when prices are cut for marketing purposes starting from the launch of a product, up to a maximum of six weeks.
However, manufacturers are allowed to set maximum resale prices. As long as they don’t end up dictating the price at which a retailer would need to sell the product.
Manufacturers, suppliers and retailers have to be very careful when discussing the RRP because such communications can be interpreted as an attempt to engage in RPM which is illegal in the UK, as well as the EU.
When is it a good idea to go below the RRP?
Generally, if you sell in big volume it might be a good idea to go below the manufacturer’s RRP. Be wary, though that some manufacturers and distributors look down on stores that do so because the pricing might be important for their brand image.
Sometimes it also might be a good idea if you need to move the inventory quickly. There are many possible reasons for that. Maybe there’s a new product on the way that will make your current stock obsolete or the product just loses their value over time. For grocery stores, the reason is even more obvious — milk and vegetables simply go bad over time.
When is it a good idea to go above the RRP?
For car dealerships that’s a common practice because the purchase of a motor vehicle is usually accompanied by haggling. For many popular models, the demand is higher than the supply, especially if the vehicle has only recently appeared on the market.
Another case for charging more than RRP is the availability of the goods you sell in a certain region at a certain time. For example, If there are not many 24/7 stores in an area, they can charge a little more.
Of course, it’s up to you as the main business owner to decide the price. It’s up to you to consider how much each item costs you to sell and how much money you need to make off of your inventory.
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