Is RRP and SRP the same thing?
The recommended retail price (RRP) or suggested retail price (SRP) is the price suggested by the manufacturer that the product should be sold at.
The reasoning for an RRP price is to help standardize a product’s cost across a number of sales channels and gives a reseller an understanding of the apparent value of the item.
What is RRP in business?
The recommended retail pricing is often used in invoices and also inputed into local point of sale machines for easy recollection and storage of this information.
Very infrequently a reseller will sell a product for something other than the recommended price of a product unless they are placing the product on sale or discontinuing the item.
The RRP is sometimes also referred to as the manufacturer’s suggested retail price (MSRP) and relates to the suggested price put forth by the manufacturer of the product. On occasion, this price may also be referred to as the list price.
How to use RRP price?
The purpose of the recommended retail price is to give manufacturers some control over product prices in the market. It is done to ensure that products remain competitive price-wise.
Suggested retail prices prevent retailers from setting the price too high. Prices that are too high force customers to choose a competitor’s products.
Profits both for the manufacturer and retailer are directly influenced by how much a product is priced. It is why extensive research is done to determine the optimal pricing point. Without setting a manufacturer’s suggested retail price (MSRP), it can result in uncontrollable price variations, which confuse consumers and make your product unattractive.
A recommended retail price can also be used to deny access to retailers that radically deviate from your RRP.
How do you determine the recommended retail price or suggested retail price?
Several factors come into play when determining a manufacturer’s recommended retail price (RRP). But the most significant factor as in any business is profit. The suggested retail price reflects all production and selling costs.
The process of setting the recommended retail price is a multi-step process that involves the interests of stakeholders and current market forces. It can include the cost of manufacturing the product, distribution costs, competitor prices, and consumer sentiment. With all this considered, the suggested retail price is formulated to determine what will bring you the most profit.
1. Product costs
Your optimum pricing point starts with determining your manufacturing costs. The total price is a combination of fixed and variable costs. Your production costs will serve as the baseline from where you can build your profit margins. It is the minimum amount you can accept to sustain the business.
- Fixed costs are expenses, which include salaries, equipment, monthly rental fees, or also referred to as overhead costs. Over time, fixed expenses can also vary. These costs only remain fixed in relation to the number of goods being produced in a certain period.
- Variable costs change over time. It may depend on the price of raw materials, the number of raw materials needed for production, and labor. Variable expenses are those associated with production output. Greater or lesser demand for products, for example, can affect variable costs.
- Marginal costs are changes in the cost when there is a change in the number of goods by a single unit. It refers to all associated expenses when there is a change in the level of production. When it takes $20 to produce a single shirt and takes $30 to make two shirts, the marginal cost is set at $10.
2. Partner costs
Partner costs refer to all companies or individuals associated with the distribution or marketing of your product. These are the expenses you incur before retail stores receive the goods. Some businesses may require the services of a transportation or distribution service. While others hire a marketing company for promotion, especially for new products. Partner costs can also include outsourcing your customer support service to another party.
3. Customer research
Conducting customer research can be done via interviews, surveys, polls, or online via email. Research is done to get the general sentiment of your target market towards your product. It aims to answer whether there is an actual need, or does it have the features they are looking for in a product. Customer research will give you an idea of who much customers are willing to pay for similar products.
4. Competitor research
Existing market forces, such as your direct competitors play a significant role on your recommended retail price (RRP). It is especially true for new players hoping to get a piece of the market. Often, new businesses lower their profit margins and offer more competitive suggested retail prices to attract new customers.
Lower RRPs can make it difficult for existing businesses to compete or prevent new competitors from entering the market. It is recommended that you conduct continuous research into your competitors, especially during the early months of the business. It is to ensure that your RRPs remain competitive from a pricing standpoint.
5. Desired pricing
After considering all the different pricing points, it is now time to look inward and determine your desired profit that will make you and your investors happy to continue doing business. Decide how the profits are to be used. Determine how much would be used for improving production, expanding the company, and for you.
6. Retailer profits
The suggested retail price does not only consider the manufacturer’s profit margin but also includes how much a retailer can make from each sale. It is how much a retailer can make after purchase costs.
RRP vs. MSRP
Determining your recommended retail price (RRP) or suggested retail price (SRP) is a careful balancing act. It should reflect all the interests of the parties involved, the manufacturer, retailer, and customer. Profits may be the most critical factor in any business. But this must also be balanced with how much customers are willing to pay for your products and how attractive it is for retailers to partner with your business.