Modern market relations require the introduction of various instruments in trade. One of them is the recommended retail price. So what is an RRC in trade and how is it used in practice in the framework of regulating market mechanisms?
The concept
RRC - what is it? This concept represents the price that the manufacturer considers optimal for the sale of their products in the retail network. It is selected for each of the goods individually.
A feature of the manufacturer’s RRC is that it is only a recommendation. But if a specific agreement is concluded, then the sale of any product below the specified value is impossible. So, earlier on each book it was possible to detect its value. This was the recommended retail price indicated by the manufacturer. And book sellers had no right to set a lower price.
It is precisely because of this feature that the RRC is often also called the price from the manufacturer.
RRC as a tool
Understanding this issue, it is important to pay attention that this is only the recommended amount, which should be set at the stage of sale of a product to its final consumer. This is especially convenient in GBU RRC. Here, pricing can be controlled by the state.
Due to the presence of the RRC, 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 retail distributor.
Prices higher or lower
Of course, many who are at the stage of retail sale of goods would like to additionally overestimate the recommended figures. But this can be a very dangerous step - such a decision can be made only with good knowledge of the market and its trends, together with an assessment of the flexibility of demand for goods of a particular category. Otherwise, there is a high probability of a sharp decline in demand for products, which will affect all participants in the trade chain, from the manufacturer to the retailer itself.
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 sales turnover of products and even squeeze 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 provoke only the so-called collapse of the market.
In other words, the final price should always be correlated with the RRP of the goods you purchase - this is one of the basic laws of the modern market. If it decreases or increases relative to the recommended values, the consequences will be unfavorable. If in one case such actions are fraught with a decrease in demand, then in the other, the total gross profit will be an order of magnitude lower than with sales taking into account the RRC.
Features
When decoding the RRC, 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 the RRC, what it is and how this indicator is formed.
Retailers within the modern market mainly adhere to the recommended prices themselves. Many more of them carefully evaluate the observance of a similar pricing policy with their direct competitors.
Often, a manufacturer can stop cooperating with those distributors who are substantially, on an ongoing basis, engaged in understating recommended prices.
Adjustment
It is important to note that the RRC is an indicator that needs regular adjustment. This is explained by the fact that the market itself is not static. It is changing dynamically, so manufacturers and sellers have to adapt to changes in its conditions.
If necessary, some changes in the value of the RRP begins the negotiation process between the manufacturer and the seller. Moreover, in some areas, the function of evaluating RRCs is assigned to individual employees who also specialize in their timely and correct adjustment.
The main thing is to choose retail prices that provide a fairly high rate of product turnover.
To achieve real retail price adjustments, many manufacturers also conduct special events. So, to evaluate the RRP of Moscow and other cities, its value is first estimated. If the total cost is excessively high, the employees of the manufacturing company offer appropriate arguments to reduce it. Of course, she will be fully focused on the needs of the client.
Retail price regulation
From the value of retail prices for any product directly depends on its turnover. It should not be too small for all market participants to make a profit. But overstating 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 in trade margins. Usually, the emphasis is on the fact that competitors have a similar product that is slightly cheaper (within the manufacturer's recommended price).
For cases when retail trade continues to set excessive 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 decline in sales and buyers begin to pay more attention to competitors, methods of exposure may be different. In some cases, direct deliveries are discontinued, sales visits to certain points of sale are reduced. In others, it even comes to the seizure of proprietary equipment previously provided for use.
RRC for selected products
Another important point boils down to the fact that the RRC is such a tool that not only producers and sellers of goods can use, but also the state. That is, for certain goods, the amount of recommended retail prices is established through state regulation. This is what many FSBI RRCs call (price regulation for federal-state institutions).
But in such cases, the concept of RRP is replaced by the maximum and minimum prices 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 concept of RRCs boils down to the fact that each of the partners of the manufacturer of products that is engaged in its implementation is required to set the final prices in 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 RRC, it becomes possible to control and evaluate the price level, taking into account the real characteristics of sales. Recommended values ​​are determined on the basis 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 focuses on the recommended prices, then they and the manufacturer can count on getting a stable profit, and any possible market fluctuations will have a minimal impact on its value.
Implementation
The mechanism for the practical use of the RRC has the following features:
- The RRC does not belong to the category of legal norms and prohibitions, but is of a recommendatory nature only. That is, the manufacturer cannot force the seller to change the final price. But he may, at his discretion, terminate cooperation with him as a partner, if no compromise is found.
- The function of the initial installation, correction and control is assigned to the manufacturer of the products, which owns a certain brand.
- Even when reselling products in the wholesale market, the main reference point should be the RRC.
- Ideally, each partner should rely on the value of the recommended price, regardless of the current conditions of cooperation and sales.
- A 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 trade chain.
RRP as a pricing strategy
In today's market, many product pricing strategies are applied. One of them involves focusing on the recommended retail price.
It is recommended by the manufacturer 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 significantly complicated by the uniqueness of products. But on average, the final values ​​for the prices of the main consumer goods are similar.
The advantage of the pricing strategy based on the RRC is its simplicity and convenience - in this case it is completely unnecessary to think about the value of the final price.
Along with advantages, this option also has drawbacks - if you blindly set the recommended retail price for the goods, this will significantly reduce the advantages in the context of competition in the market.
conclusions
From the foregoing, we can conclude:
- The need to follow the RRC is not determined by the terms of cooperation or the volume of purchases by the partner.
- Ideally, all deviations from the RRC should be coordinated with the manufacturer of the product to set optimal prices for the goods for the consumer.
- The nature of the recommended price is only advisory. But any manufacturer may, at its discretion, terminate cooperation with partners who regularly violate the recommended values ​​without coordination with him.
- The function of control, dynamic changes in the RRC lies with the special units of the trademark owner.
Thus, the current legislation does not provide for mandatory compliance with established RRCs. But this is being monitored by the producers themselves, as this is in their interests. Therefore, the bulk of the sellers seeks mutually beneficial cooperation, therefore, adheres to these recommendations or discusses the optimal price level individually.