Recommended Retail Price: How to set your prices?

Australian businesses can sell and advertise products or services in many ways according to what they think would put their business in the best position in the market. However, it is still essential to consider the limits and legal requirements for price setting. 

Pricing regulations provide a standard for product pricing. It ensures consumers, retailers and manufacturers that fair selling and buying exists in the market. This is why manufacturers need to set a recommended retail price.

What does RRP stand for and what is the meaning of RRP?

The RRP stands for the Recommended Retail Price. It is the value of the product a retailer/store is being suggested to follow. The price at which is set by manufacturers to ensure fair trade in the market.  

Factors that affect the calculation of the RRP

For manufacturers, setting a recommended retail price involves extensive research as they intend the product to do well while at the same time, gaining control over the market prices. Manufacturers also make sure that the value of the product would still benefit the retailers to encourage them from stocking up while consumers would still be able to afford the product. 

Setting the RRP would vary depending on several factors. Conducting proper market and competitor research can be effective in keeping the RRP competitive from a pricing standpoint. 

Here are some of the factors manufacturers should consider when calculating the RRP:

• The cost that goes into developing and producing the product. This includes the fixed costs which cover the wage of the workers, equipment and overhead costs, the variable expenses that may change over time and the marginal cost which affects the change in the level of production;
• The demand and changes in the market;
• The competition for the product;
• The desired profit and how much the retailer will get from each sale; and
• If the product has already been tested and established.  

Can retailers choose their pricing?

Pricing is one way to stand out from your competition however, it is important to be aware of the regulations set by ACCC. 

Recommended Retail Price Law

The Australian Competition and Consumer Commission (ACCC) states that component pricing must be used when presenting prices to customers. As a result, you must provide your customers with a unit price that represents the complete cost of the commodity or service. It’s critical to understand the price restrictions that apply to your company because there are certain additional rules that may apply. 

It is important to note that it is illegal to mislead or make false claims about products to consumers. If you breach legal obligations regarding advertising prices, you may face legal consequences.

If you are unsure about your product pricing, you should seek legal advice.  

Importance of RRP to your business

As retailers, the pricing of the product plays an essential role in your business. You can charge slightly above the RRP to increase your profit margin or you can charge lower. It will depend on the market situation and what is best from a commercial perspective for your business.

What to consider when following the RRP

It is important to consider building a loyal customer base first before marking the price up, to acquire a safe customer base. You can apply higher prices to popular products. It is, however, important to be careful as marking the product too high, as it may force consumers to opt for the competitor’s product. If you are trying to get rid of stock or attract more buyers, charging less might be the way to go. 

Manufacturers have no legal authority to control the price that a retailer would charge for a certain product however, retailers must exercise caution when marketing their products if they don’t want to run afoul of the law. 

Key Takeaways

The recommended retail price (RRP) is an important part of the Australian business landscape. It is a key factor in setting prices, and it also provides businesses with protection against unfair competition. In this article, we’ve looked at what the RRP is, how it’s calculated, and some of the benefits that come with using it. If you have any questions about the RRP or would like more information, please don’t hesitate to get in touch. 

Related Articles