What is RRP? RRP refers to the Recommended Retail Price a manufacturer proposes a business to sell their goods at, at retail level. The RRP is only a suggested or recommended price, therefore businesses are not obliged to set it at that price. Business may either increase or decrease from the RRP, as long as it does not breach any regulations. Read on to find out more information on RRP’s and the rules that accompany the guide.
What is RRP?
Recommended Retail Price (RRP) is a guide set out by the manufacturer suggesting how much a product should be priced on retail sale. RRP is set for resellers so they have a fair view or idea on the value of an item, based on a standardised cost across a number of sales. Often, businesses display the recommended retail price on products in order to show customers that are coming across a good deal, which at times, could be used as a marketing tactic. However, this does not mean that businesses have to enforce this, and RRP is simply a suggested price offered by the manufacturer.
Why is an RRP implemented?
RRP is implemented by the manufacturer, as they are generally aware of the various price fluctuations in the market. Manufacturer’s implement RRP in an effort to keep the price under control in the current market and keep it competitive between businesses. The RRP acts as a standardised benchmark for products to prevent businesses from setting prices either too high or too low, and attempts to control market fluctuation.
Usually set by law, price ceilings are mandated by the government in order for the price of a product to not be set too high. Price ceilings set out the maximum amount businesses are able to charge for a specific product, to be still considered ‘under control’. Price ceilings are often implemented where businesses are allowed to charge a reasonable price above the RRP on products, on scarce essential items at times.
A price floor, on the other hand, is the limit set by the government regarding how low a business can set their prices for specific products. This is set in order by the government to control prices within the industry, so that the price doesn’t fall too low to a level that would threaten the financial situation of various businesses and producers.
What are the regulations surrounding RRP ?
When setting out the RRP of a product, there are numerous factors businesses must consider when pricing their products accordingly. These regulations on price include:
- Comparative pricing
- This is when businesses price their product against the RRP provided to them by manufacturers. In this instance, on the physical product there would be a “before” and “after” price displayed to assist the consumer in believing they are receiving a good deal. This is allowed, however, the scope is narrow and any form of false or misleading advertising may be a breach of the Competition and Consumer Act 2010.
- Predatory pricing
- This is when larger businesses cut product prices drastically in order to create awareness and drive traffic to their own business. This pricing method is normally engaged with the intent to push smaller businesses out of competition. It is not illegal to cut prices and sell products below RRP, but it becomes an ethical issue when smaller businesses can not compete. This may be identified as the misuse of power by larger commercial businesses, as they can easily bear the small cost of the price cut.
- Price Fixing
- Price fixing is when two or more competitors come to an agreement of reducing prices to drive awareness to their businesses. This behaviour is illegal due to the fact that it promotes anti-competitive behaviour. Businesses should not engage in any discussions (verbal or written) about pricing in order to eliminate other competitors, as this is already a breach of an ACCC regulation.
- Multiple Pricing
- Products may, at times, have multiple prices displayed on them by accident. If this is the case, the business will have to honour the price that’s lower.
What happens if any of these regulations are breached?
If any of the above regulations have been breached, the business has also contravened the Competition and Consumer Act (2010). This may result in a fine or a pecuniary penalty.
A fine, by definition, is a monetary penalty imposed by courts in criminal proceedings. In contrast, a pecuniary penalty is a monetary penalty imposed and collected by civil courts. The Crimes Act (Cth) 1914 is what determines the appropriate fine or level of penalty, as the monetary amount is calculated based on the ‘penalty unit’. Criminal offences increased from $210 to $222 per penalty unit on the 1st July 2020. Factors contributing to the breach will be analysed, and penalty units will be assigned based on the extent of the breach.
It is essential that you comply with Australian Consumer Law as a business, and do not engage in unlawful pricing strategies. If you have any queries, or are unsure about any instance of RRP, you should seek legal advice.. Our Legal Kitz business specialists can assist with ensuring that your concerns are addressed, and can provide you with advice that is tailored to your situation. You can book a free 30-minute consultation via our website now.