Recommended retail price, also known with many names like list price, suggested retail price, or manufacturer’s suggested retail price, is a pricing term that defines the amount the manufacturer suggests the product should be sold for. However, the end price, we mean the retail price, can change if the reseller buys the product in bulk and wants to offer a competitive price, or wants to maintain a higher profit margin and increase the end price. So, as long as you respect the recommended retail price, which is the recommended price that local and international merchants, retailers, and resellers can offer customers, you can experiment with whichever pricing strategy fits your business goals the best and start gaining profits. Alright, let’s dive deep into what is RRP in business, and the difference between retail and wholesale price.
What’s a Retail Price?
As we mentioned at the start, the retail price is the end price consumers pay to acquire products and services. Well, what goes into the retail price highly depends on how you purchase the product. For example, if you are purchasing the product from a store, there might be additional costs, such as profit margins, rental, and employee expenses, that add to the product’s recommended retail price. On the other hand, if the customer buys the product from an online merchant that practices dropshipping, the cost would be lower, and the customer can get a better deal.
Another example of retail pricing is that when a brand enters the market or introduces a new product, if it is not a premium brand to begin with, it may prefer to stay as close as possible to its list price, ensuring it covers its costs and earns a profit from sales. But if the merchant began sourcing from a manufacturer, it may be best to stay within the price points where the manufacturer’s suggested retail price applies.
If demand for a product increases, the product’s selling price should also rise to leverage customer demand and raise profit margins. Also, practicing competitive pricing helps retailers to determine the positioning of their items in the market and set the right selling price, while still generating a profit by monitoring competitors.
Difference Between Wholesale Price and Retail Price?
This one is for retailers. Sometimes manufacturers sell their products to retailers at a discount through bulk purchasing. The product price from bulk buying is the wholesale price. This way, manufacturers can cover their production, labor, and overhead costs while applying the desired profit margin, and retailers can benefit from bulk buying as they can increase their profit markup. The possible issue for retailers here is estimating whether they can sell all the products they bought in bulk. In that common scenario, retailers usually set a higher profit margin to cover their costs in the beginning, capitalizing on the hype around a newly introduced product. So, the first selling price of the product can be well above the recommended retail price.
What Happens If You Fail to Follow the Recommended Retail Price?
If merchants excessively discount products or set the first-sale price below the recommended retail price, they cause price erosion. The more a retailer discounts, the more the customers expect products at much lower prices, eventually ruling out the option of raising prices. Since the brand image and value propositions get destroyed at that moment, if merchants don’t want customers to prefer other options, they can increase their sales volume at a loss, but only when discounting. This can also cause issues between manufacturers and retailers, since the unnecessary low prices will affect customers’ willingness to pay for the specific brand.
Difference Between the MAP and RRP
Minimum advertised price (MAP) policies set the minimum price at which a product may be sold. Also, it refers to the minimum price that can be shown in advertisements. So, the MAP is typically at or can be below the recommended retail price. However, if a merchant chooses to price their products below the minimum advertised price, the manufacturer may penalize them. Even though recommended retail prices aren’t legally binding, MAP policies are protected by law in some countries. Also, the manufacturer can suspend supply to retailers to ensure a fair competition among retailers. Just like the recommended retail price, minimum advertised pricing also aims to protect brand image and prevent price erosion.
Pricing software like Prisync allows manufacturers and retailers to monitor their resellers to ensure they follow MAP policies and prevent damage to the brand image.
Conclusion
Deciding which price points best serve both customers and merchants can be hard, and manufacturers also aim to cover their expenses and maintain their brand image, so recommended retail prices can be vital in the world of ecommerce. As a retailer, once you have followed recommendations, you can try different pricing strategies that align with your business goals to stay competitive and keep your prices dynamic, reflecting your customers’ expectations and market demand. So, track your competitors’ prices to know how intense the competition is in your industry, since the selling price reflects these factors.
