RRP - what is it in trading?

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Modern market relations require the introduction of various tools in the trade. One of them is the suggested retail price. So what is the RRP in trade and how is it used in practice as part of the regulation of market mechanisms?

Concept

RRP - what is it? This concept represents the price that the manufacturer considers optimal for selling his products in a retail network. It is selected for each of the products individually.

The peculiarity of the manufacturer's RRP is that it is only advisory. But if a certain agreement is concluded, then the sale of any product below the specified value is impossible. So, earlier on each book it was possible to find out its cost. This was the manufacturer's suggested retail price. And book sellers had no right to set a lower price.

It is precisely because of this feature that the RRP is often also called the manufacturer's price.

RRP as a tool

Understanding this issue, it is important to note that this is only the recommended amount, which should be set at the stage of selling a particular product to its final consumer. This is especially convenient in the GBU RRC. Here pricing can be controlled by the government.

Thanks to the presence of the RRP, the manufacturer has a real tool to ensure a normal margin, as well as the desired turnover for everyone who enters the chain from the manufacturer to the retailer.

Prices are higher or lower

Of course, many who are at the stage of retailing goods would like to further inflate the recommended figures. But this can be a very dangerous step - such a decision can only be made with a good knowledge of the market and its trends, together with an assessment of the amount of flexibility in demand for goods in a particular category. Otherwise, there is a high probability of a sharp decrease in demand for products, which will affect all participants in the trading chain, from the manufacturer to the retailer.

The opposite situation is also possible, when a certain seller within the market puts the final price below the current RRP. Of course, this will allow him to significantly increase the turnover of sales of products and even oust other market participants in this niche. But the positive side of such actions is visible only at the initial stage. In the future, such actions will only provoke the so-called market collapse.

In other words, the final price should always be related to the RRP of the goods you purchase - this is one of the basic laws of the modern market. If it is reduced or increased relative to the recommended values, the consequences will be adverse. If in one case such actions are fraught with a decrease in demand, then in another, the finalgross profit will be an order of magnitude lower than with sales taking into account the RRP.

Features

When deciphering the RRP, it is important to pay attention to the fact that this recommendation from the manufacturer has no real legal force. In practice, any rigid fixation of such a price by the manufacturer is unacceptable. This is spelled out in the current legislation, which explains the concept of RRP, what it is and how this indicator is formed.

Retailers in today's market mostly adhere to recommended prices themselves. Many more carefully evaluate their direct competitors' adherence to similar pricing policies.

Often, a manufacturer may terminate cooperation with those distributors that significantly, on a permanent basis, are engaged in underestimating the recommended prices.

Adjustment

It is important to note that the RRP is an indicator that needs regular adjustment. This is explained by the fact that the market itself is not static. It changes dynamically, so manufacturers and sellers have to adapt to changing conditions.

If some changes in the RRP value are required, a negotiation process between the manufacturer and the seller begins. Moreover, in some areas, the function of assessing the RRP is entrusted to individual employees who also specialize in their timely and correct adjustment.

The main thing is to choose such retail prices that will provide a fairly high turnover rateproducts.

In order to achieve real retail price adjustments, many manufacturers also hold special events. So, to assess the RRP of Moscow and other cities, its value is first estimated. If the final cost turns out to be excessively high, the employees of the manufacturing company offer an appropriate argument for reducing it. Of course, it will be completely customer-oriented.

Retail price regulation

The turnover directly depends on the value of retail prices for any product. It should not be too small so that all market participants receive their profit. But overestimating it is dangerous. Therefore, many large manufacturers create special departments that deal with changes in retail prices from distributors. Their task is to justify the reduction of the trade margin. Usually, the emphasis is on the fact that competitors have a similar product at a slightly lower price (within the manufacturer's recommended price).

For cases where the retail trade continues to set inflated prices, does not make contact with the manufacturer, the company often changes the terms of cooperation with it. When for this reason there is a real decrease in sales and buyers begin to pay more attention to competitors, the methods of influence can be different. In some cases, the service of direct deliveries is terminated, the visits of sales representatives to certain points of sale are reduced. In others, it even comes to the withdrawal of previously provided for usebranded equipment.

RRP for selected products

Another important point is that the RRP is a tool that can be used not only by producers and sellers of goods, but also by the state. That is, for certain goods, the value of recommended retail prices is established through state regulation. This is what many people call FGBU RRP (price regulation for federal-state institutions).

But in such cases, the concept of RRP is replaced by the maximum and minimum price for retail. And their strict observance is mandatory. This rule applies to specific products such as tobacco, alcohol, etc.

Need for implementation

As noted above, the essence of the very concept of the RRP is that each of the partners of the manufacturer of products, which is engaged in its implementation, is obliged to set the final prices within a strictly specified framework. They should not be lower, but their excessive overestimation is unacceptable - such a move will harm all market participants.

Through the RRP, it becomes possible to control, evaluate the price level, taking into account the actual characteristics of sales. Recommended values are determined based on the fact that both the manufacturer and all its partners must be successful, that is, the implementation must have significant volumes.

In other words, if each of the partners will focus on the recommended prices, then both they and the manufacturer can expect to receive a stable profit, and all kinds of market fluctuations willhave minimal impact.

Implementation

The mechanism for the practical use of the RRP has the following features:

1. RRP does not belong to the category of legal norms and prohibitions, but is only advisory in nature. That is, the manufacturer cannot force the final price of the seller to change. But he can, at his own discretion, terminate cooperation with him as a partner if a compromise solution is not found.
2. The function of initial installation, correction and control is assigned to the manufacturer of the product, which owns a certain trademark.
3. Even when reselling products in the wholesale market, the RRP should be the main reference point.
4. Ideally, each partner should rely on the value of the recommended price, regardless of the current terms of cooperation and sales volume.
5. Change in the manufacturer's recommended price is possible both up and down. This is done through negotiations, taking into account the interests of all participants in the trading chain.

RRP as a pricing strategy

In today's market, there are many pricing strategies for products. One of them involves targeting the value of the recommended retail price.

This is what the manufacturer recommends for retailers, at the stage of sale to consumers. This mechanism provides a certain standardization and regulation of market prices, taking into account regional characteristics.

This is not an easy process: unification is essentialcomplicated by the uniqueness of the product. But on average, the totals for the prices of basic consumer goods are similar.

The advantage of the RRP-based pricing strategy is its simplicity and convenience - there is absolutely no need to think about the value of the final price in this case.

Along with the advantage, this option also has disadvantages - if you blindly set the recommended retail price for the product, this will significantly reduce the competitive advantage in the market conditions.

Conclusions

From the above, we can conclude:

1. The need to follow the RRP is not determined by the terms of cooperation or the volume of purchases from the partner.
2. Ideally, all deviations from the RRP should be agreed with the product manufacturer to set the optimal price for the product for the consumer.
3. The nature of the recommended price is purely advisory. But any manufacturer may, at its discretion, terminate cooperation with partners who regularly violate the recommended values without agreement with it.
4. The function of control, dynamic change of the RRP lies with the special divisions of the brand owner.

Thus, the current legislation does not provide for mandatory compliance with the established RRP. But the manufacturers themselves follow this, as it is in their interests. Therefore, the majority of implementers strive for mutually beneficial cooperation, therefore, adhere to these recommendations or discussoptimal price level individually.