What is RRP price in online selling?
Recommended Retail Price (RRP) is the markup on the wholesale price at which the manufacturer or supplier advises selling their product to the end consumer. It is essential to understand the RRP rule: you can't sell goods at a lower or higher price. In the event of a violation of the RRP, the supplier who monitors it can quickly find out about the "violation" and refuse further cooperation.
Who benefits from RRP rule?
To manufacturers (or suppliers)
The manufacturer (or supplier) takes care of selling the product. If someone inflates the price, the manufacturer fears a decline in sales.
Yes, it is quite possible for a retailer to experience declining sales while increasing margins – this is not always a bad thing. But for a supplier that has a fixed profit from a single product, this is really a problem. Therefore, he wants the seller to be more likely to sell more units of the product and monitors the prices.
On the other hand, if someone sells below the RRP, then another problem arises: one spoils the sales of all other sellers, so the supplier is again unhappy, because in the end he will still sell fewer units.
In the context of online stores, when a user enters a desired product in the search, he immediately sees price offers from Google Merchant in front of his eyes. And if someone sells the same product at lower prices, he immediately attracts attention.
It becomes more difficult for other sellers to compete. We have to lower the price. But it is not profitable. For sellers who cannot afford to play the long game, it is better if the supplier monitors the compliance of RRP by all partners.
Remember: dumping – this is the way to nowhere!
For online stores, and especially for dropshippers, it is better to follow the RRP.
It is important to understand that the RRP is not calculated in an empty space, but is determined analytically, from such components as:
- Rent (or subscription fee for using hosting and other services);
- Marketing expenses;
- Profit rate.
When one seller lowers his price, some other competing sellers will also lower their prices. The chase down eventually leads to a situation where buyers are no longer willing to buy at a higher price, and at the same time the remaining sellers are unwilling to sell at a small margin. As a result, the supplier stops delivering this product. All market players are at a loss!
Who is dumping – spoils the entire market, and he himself doesn't benefit from this for long time!
RRP in the context of dropshipping
Some dropshipping providers require compliance with the RRP rule and some do not. But, even if the RRP is not required, but simply indicated, then it is better to focus on that price. After all, selling with a small percentage of markup, you can not recoup even advertising costs.
It is especially difficult when there is a large player that imports the goods and sells them at retail.
So, on some sites you can find a retail price that is equal to your supplier's drop price. In such cases, these products can be left on the site, but advertise other products with which you will be more competitive.
But, if you have the opportunity to play the long game, then you should know the following: it is more profitable to sell not with the help of advertising, but by mailing to the existing customer base. So you can take the price-cutting game if are willing to do the marketing. Then you are more interested in not just getting one sale, but getting buyer contacts for further marketing activities. And then you can send the buyer other offers that will pay off your small "loss". Also in the case of such a game, you have to constantly look for goods that seem to be from your theme, but you will not be sorry if they stop being sold. You will also need to find a supplier that does not requires the following of the RRP. You can even create a product category specifically for this purpose and add some junk to the site, so that later, when it loses its relevance, it would not hurt to remove it.
By the way, if you open an online store on our e-commerce website maker LetMe.Shop, you can set the markup percentage you want and it will all be calculated automatically when you import the XML file.
It is also worth remembering that the price — is not the only parameter by which the seller is chosen.
It is important to work on the reputation of your online store, so that in the end people do not search for products of your subject on Google, but immediately go to the site they already know well.
RRP is rather good if all market players adhere to it. This is possible only if there is one supplier. But if there are several suppliers of the same products for online stores, this is more difficult. You need to look for something new.