Pricing is tough, even for the most seasoned business owners. Valuing your products while meeting customer needs is an ongoing challenge, especially in a fast-evolving marketplace.
One approach that businesses have relied on for years is RRP (Recommended Retail Price). It’s a pricing strategy that helps you remain competitive while capitalizing on existing market conditions.
But what exactly is RRP — and how can ecommerce sellers use it to their advantage?
What is recommended retail price (RRP)?
As an ecommerce seller, how do you determine your pricing strategy? Do you base it on competitor pricing or take a more data-driven approach? Setting prices, especially for new products, can be difficult.
That’s where RRP comes in. RRP is the price at which suppliers suggest you sell products. This figure is usually based on market value, trends, and competition, helping you stay competitive without sacrificing profitability.
While suppliers in the EU can’t enforce prices, RRP acts as a recommendation, providing sellers with a solid starting point for their pricing strategies.
Why is RRP important?
RRP is more than just a pricing recommendation — it’s a strategic tool for ecommerce businesses. Here’s why it matters:
1. Standardized starting point
RRP provides a benchmark for pricing. Without it, sellers may undercut or overprice their products, risking lost margins or competitiveness. With RRP, you have a reliable foundation to set initial prices.
2. Better competitor insight
Understanding competitor pricing is crucial in ecommerce. By comparing your RRP with competitors, you gain insight into market trends and consumer expectations, allowing you to adjust your prices accordingly.
3. Build customer trust and loyalty
Customers are more likely to trust a fair, recommended price. Using RRP as a pricing guide can strengthen your brand reputation and build customer loyalty by creating a sense of value.
4. Clarity on cost structure
RRP helps you account for costs and overheads, ensuring your prices are profitable. When managing a large inventory, RRP gives you a clear path to sustainable pricing.
RRP vs. MRP — what’s the difference?
RRP and MRP (Manufacturer’s Recommended Price) are often used interchangeably but are slightly different. To put it simply — suppliers set RRP, while manufacturers typically set MRP. Both provide valuable pricing guidance, though ecommerce businesses often use RRP as a flexible baseline for pricing adjustments.
How to calculate RRP from cost price
If you need to set your own RRP, the formula is straightforward:
- Total Cost: Include production, shipping, taxes, and any direct expenses.
- Overheads: Factor in indirect costs like rent, utilities, and salaries. Divide total overheads by the number of products to find the cost per item.
- Desired Profit Margin: Set a target profit percentage based on your industry and strategy (e.g., 20%, 30%, or higher).
A simple formula might look like this:
RRP = Total Cost + Overheads + Desired Profit Margin
This method ensures that your prices cover costs and deliver a healthy profit margin.
How is RRP used in ecommerce?
Launching a new product? RRP can be your guide for setting a competitive price that covers costs and appeals to customers. You can also use RRP as a safeguard in automated pricing strategies, ensuring you don’t follow a competitor’s pricing mistake by setting a maximum price threshold.
Can suppliers enforce an RRP?
No. Suppliers cannot enforce RRP — it’s only a recommendation. As a seller, you’re free to set your own prices based on market conditions, competition, and business goals. Documenting your pricing negotiations with suppliers will help protect you from potential issues around competition law.
Key rules for using RRP in pricing
Here are some important considerations when using RRP in your ecommerce pricing strategy:
1. Understand comparative pricing
Anchoring your price to competitors’ prices is essential. Ensure your RRP reflects real market value to avoid misleading consumers, which could result in legal penalties.
2. Stay compliant with competition law
In the EU, it’s illegal to enforce RRP as a fixed price. Manufacturers can recommend prices, but sellers must have the freedom to adjust based on market conditions.
3. Avoid misleading practices
Falsely inflating RRP to create the illusion of discounts is prohibited under the Unfair Commercial Practices Directive. Always use RRP transparently and ethically to avoid legal issues.
4. Follow free market principles
RRP should not limit your ability to set prices. Use it as a guide, but always consider your market, customer base, and competitive landscape when finalizing prices.
Should you price above or below RRP?
There are times when you may want to adjust your prices based on market dynamics:
- Pricing below RRP: In highly competitive markets, going below RRP can attract more buyers. This is especially useful during clearance events or promotional periods.
- Pricing above RRP: In some cases, like limited availability or when offering value-added services, you might justify a price above RRP. High demand or premium positioning can also support this approach.
Conclusion
RRP provides a solid foundation for ecommerce pricing, offering sellers a starting point to remain competitive without sacrificing profitability. While it’s just a recommendation, understanding how to leverage RRP in your pricing strategy — and knowing when to go above or below it — can help you maximize profits and build customer loyalty.
