What to pay attention to? The recommended retail price is not mandatory, and the seller does not have to set it. However, the manufacturer reserves the right to influence the distributor who deviates from the RRP.
In this article:
The concept of RRP
The Importance of RRP
Legal regulation of RRC
Calculation of RRP
Control of the RRP by the supplier
Ways for sellers to bypass the RRP
Development of the selling price taking into account the RRP and other factors
Frequently asked questions about RRP
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The concept of RRP
Recommended retail price (RRP) is the amount for which, according to the manufacturer's calculations, a unit of product should be sold in a retail network. The English terms RRP (recommended retail price) and MSRP (manufacturer suggested retail price), which is also called smart price, are also used.
The RRP in trade is calculated in such a way that all participants in the market process, from the manufacturer (or brand owner) to the seller, receive a stable income.
The concept of RRP
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A specific RRP is calculated for each individual product.
The RRP should be established and monitored, since its change by one participant affects the income of all others. By increasing the price of a product, a retailer can increase revenue, but at the same time, the total volume of sales may decrease, which will negatively affect the income of wholesalers and the manufacturer.
The same thing happens when the retail price is reduced below the RRP. Sales and revenue of a particular seller will increase, but demand for others will decrease. Dumping price is a method of unfair competition. If several sellers play this game at once, it leads to a collapse of the market.
MRC
They set the MRP (minimum retail price), below which it makes no sense to sell the product to the end consumer. The beneficiary has no choice but to set and monitor the MRP.
MRC
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But large wholesalers try to extract double benefit: they buy goods at the lowest price, and then sell them below the MRP. Paradoxically, the buyer forces the manufacturer to work for himself.
Moreover, networkers use deferred payments, installments that can last up to six months!
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The Importance of RRP
The manufacturer sets the RRP because it has calculated in advance what income it provides to all participants in the process. But first of all, the RRP in trade protects the interests of the supplier itself.
Why the manufacturer is against prices above the RRP
It would seem that the manufacturer (supplier) does not care at what price the product will be sold at retail, because he has already sold it at the selling price. Is it bad that the retail chain will increase its revenue by raising the price? Why is the RRP needed?
The supplier tries to prevent this. When the price increases, sales may fall. Having suffered losses, the seller will refuse further purchases. This is unprofitable for the supplier. Increasing the RRP may negatively affect the income of all market participants.
Why the manufacturer is against prices below the RRP
The manufacturer tries to prevent the RRP from decreasing. The logic is as follows: when one of the sellers dumps, his sales grow, while the others' sales decrease accordingly. Having suffered losses, they reduce purchases, and this is extremely disadvantageous for the supplier. A decrease in the RRP is beneficial only to one of the sellers for a certain period of time.
When one trader wins, other market participants lose income. Let's take a closer look at how the RRP reduction works.