Apart from having a great product catalogue and a good order fulfilment strategy, your eCommerce business requires a robust pricing strategy to thrive.
After all, freight costs and packaging costs can get out of control and disrupt your supply chain budget without a proper strategy in place. You should know about the different kinds of pricing terms and should also seek an answer to the question: what is RRP?
If you are wondering what RRP means, or why you should know about it, keep reading.
What is RRP or Recommended Retail Price?
Recommended Retail Price or just RRP can be defined as the price at which the sellers tell the resellers to price a specific item. You may also know RRP meaning as the list price or suggested retail price.
Say, you sell smart mobile phones manufactured by all the major phone companies worldwide. You have a lot of competition and may be tempted to give customers a hefty discount to boost sales. While you are allowed to do that, companies like Samsung and Apple have given you strict pricing guidelines to be followed, and a recommended retail price too.
Manufacturers do so because they want to standardise the prices of their products and ensure that the product prices do not vary based on the seller or the location. As an online store, you should be aware of the recommended retail price of the products you sell and balance those guidelines along with ensuring the success of your store.
4 Benefits of Knowing Recommended Retail Price
As an eCommerce business, you may wonder why following the RRP price means so much to your profitability. Now that you know the meaning of RRP price, here are some of the benefits that you can consider getting by knowing the recommended retail prices of the products you are selling:
1. Consistency and Standardisation of Prices
Setting and following an RRP for a product ensures that the product is sold for the same price across retail stores and platforms.
Maintaining the perception of standardised pricing in the market, and reducing customer confusion are only some of the positive side effects you can get with the help of recommended retail prices. In addition to these effects, you will also be able to boost customer trust in your brand.
2. Preserve Brand Image and Value
Heavy discounts and price cuts can dilute the perceived value and image of your brand. Instead, understand RRP meaning in retail and implement it effectively. By allowing retailers to offer aggressive product discounts you will risk devaluing your brand significantly.
You can preserve your brand image and ensure that your customers will always associate your brand with quality by implementing a standardised pricing strategy for your products.
3. Simplify Pricing Strategy
eCommerce companies can simplify their pricing strategies by understanding RRP meaning in price strategies as it provides a clear set of guidelines for product pricing. The process of setting prices for your products can get quickly complicated which is why you need RRP to help you reduce the complexity of your pricing strategies and enable faster decision making.
4. Enable Competitive Benchmarking
For a brand, its pricing strategies will help make or break product sales. With that in mind, it is important to consider that RRP can help you benchmark your competitive pricing strategies and evaluate their effectiveness.
As an eCommerce company, you will be able to use the RRP of a product to compare the prices with competitors and adjust pricing accordingly. Doing so while meeting the guidelines of your manufacturers will ensure that you remain competitive in the market.
RRP vs MRP vs MAP: How Are They Different?
As an eCommerce brand, you will come across several pricing acronyms and abbreviations as a part of creating your pricing strategy. You should be able to distinctly differentiate RRP price meaning from all those other pricing acronyms though.
The terminology that you should not confuse your RRP meaning in sales with is your MAP, short for Minimum Advertised Price, which is one of the most preferred policies for manufacturers. The MAP is the minimum price at which the reseller agrees to advertise a product.
The MAP ensures that large companies do not put small businesses at a disadvantage by lowering the prices too much or offering steep discounts.
The Maximum Retail Price or Manufacturer’s Recommended Price (MRP) can often be confused with RRP rate meaning and rightfully so, considering they are so similar. However, the biggest difference between the two terminologies is that RRP is the recommended price set by suppliers, while MRP is the recommended price set by the manufacturers.
While setting the MRP pricing point is a method used by large companies that have a comprehensive portfolio, it is important to consider that even smaller brands can benefit from it.
When you set your product price based on the cost of production and supplier-recommended prices, you will have the most competitive prices in the market while securing a decent profit margin for your brand.
How to Calculate RRP?
In order to determine the RRP meaning price of a product, you can use a simple formula that uses some of the major price-related metrics associated with a product. After all, the RRP will guide the retailers on how the pricing for specific products should be structured so that consistency is maintained across various sales channels.
As a part of retail planning, the recommended retail price or RRP of a product can be calculated with the help of the following formula:
RRP = (Producer Margin x Unit Cost x Quantity per Package) + Retailer Product Margin
In this formula, the producer margin refers to the percentage of profit that a producer or manufacturer can earn on each unit of the product. The unit cost refers to the cost incurred to create a single product unit, as the term suggests.
Quantity per package as you may have guessed refers to the number of units included in a single product package or item. Lastly, the retailer product margin refers to the percentage of profit that a retailer selling the product can expect to earn on each unit.
There is also a much simpler formula that you can follow for determining the RRP of a product. Here is the alternative formula that you can consider:
RRP = Total Cost + Overheads + Desired Profit Margin
The total cost of a product is the sum of its product post or purchase cost, the shipping costs, carrying costs, taxes and other direct expenses associated with a product. The overheads will include any additional expenses that you incur for selling the product such as the rent, utilities, shipping costs and more. Lastly, you will consider the percentage of profit you want to attain over the retail price.
How to Use RRP For Your Business?
As you may have already realised, there are several ways to set and use RRP for your eCommerce business. Let us consider one of the most common scenarios that a seller might encounter: a product launch.
While launching a product, you have to set a price point that not only covers the cost of production but is also lucrative for customers. Setting an RRP is the perfect way to set a baseline for that price point. The seller can then consider the RRP to adjust the product price and make it more suitable for their target market.
Moreover, setting an RRP will also guide the sellers in the process of coming up with discounts and promotions that will protect their profit margins. Basically, sellers should ideally set their selling price so that it is more than the recommended retail price even after promotions and discounts.
eCommerce companies can also use RRP as a pricing safeguard against automated pricing strategies based on competitors’ pricing. Your competitor might make an error as a result of which their prices may be much higher than the RRP or far lower. Here, you want to set RREP as a price ceiling to mitigate the risk of making the same mistake.
Things to Keep in Mind
Considering everything that we have discussed about RRP so far, here are some of the major things you need to keep in mind while implementing it:
1. Stay Clear of Misleading Practices
Depending on the policies associated with the jurisdiction that covers your eCommerce business, businesses have to follow many rules to stay clear of misleading practices. Inflating your RRP too much or rendering an illusion of a discount or bargain is a part of deceptive practice, also known as fictitious pricing.
When implementing RRP for your products, you must implement transparent practices and not mislead customers in any way. Businesses that use RRP should be clear about the fact that RRP is the price suggested by a manufacturer and not the market price.
2. Be Compliant With Competition Law
Depending on the location in which you operate, there must be a bunch of competition laws and policies that you might need to adhere to. If you are implementing RRP in your business, be careful and stay away from deceptive practices such as price fixing.
While RRP is just a suggestion and retailers can set their preferred prices around it, manufacturers should acknowledge that they cannot enforce an RRP or punish manufacturers for not following it.
3. Learn to Navigate Comparative Pricing and RRP
When it comes to RRP pricing, it is important to understand the concept and compare the prices of your products, with the competitor product prices so that you can ensure to hit the right price point at all times. You should also understand that the concept of “anchoring” is a critical part of RRP pricing.
Anchoring as part of a pricing strategy will help your customers understand the product value, and allow them a few comparison points that can help them make a purchase decision. It is important to clearly state the RRP and any other additional discounts for a specific product.
If you fail to do so and attempt to mislead the customer, you will end up paying hefty fines and incur major legal consequences.
Concluding Remarks
The Recommended Retail Pricing or RRP is an important pricing point to consider for manufacturers, retailers and resellers. For eCommerce businesses, RRP can be the primary factor that determines the kind of profit margin they will be able to attain.
If you are worried about freight and shipping processes and need help with your order fulfilment, get a quote from our website so that we can help you further.