What is the Difference Between the RRP and the Discount Price?

When shopping, you’ve probably noticed that many products come with two different prices: the Recommended Retail Price (RRP) and a Discount Price. But what do these terms really mean, and how do they impact your purchasing decisions? This blog post will explore the key differences between RRP and discount pricing, explaining their purpose and impact on both consumers and businesses.

What is the Recommended Retail Price (RRP)?

The Recommended Retail Price (RRP) serves as a guideline for retailers to maintain price consistency in the market, ensuring consumers can purchase the same product at a similar price across different stores. However, since it is only a recommendation, retailers have the flexibility to price products higher or lower than the RRP.

The RRP is set by the manufacturer or brand owner and is influenced by:

Cost of production: Manufacturers and suppliers set the RRP to cover production costs while maintaining a reasonable profit margin.

Demand in the market: High demand for a product often allows manufacturers and retailers to maintain or increase prices, whereas low demand may lead to price reductions to encourage sales.

An example of RRP

If a new smartphone has an RRP of $999, this means that the manufacturer recommends that all retailers sell it at this price. While some retailers adhere to the RRP, others may adjust prices based on competition, demand, or promotional strategies.

What is the Discount Price?

The discount price is when the item is sold for lower than the original price set by the retailer. Retailers strategically apply discounts to attract customers, clear stock, or increase sales volume, but they must strike a balance to avoid profit losses or brand devaluation.

Why do retailers offer discounts?

Retailers can offer discounts for a multitude of reasons including:

Competitive advantage: A savvy consumer is likely to purchase from a retailer who has the product available at a discount.

Clearing out old stock: Storing old stock costs a business money, so applying a discount to these products encourages purchases, allowing space to be freed up for new stock.

Seasonal sales and promotions: Certain times of the year, such as holidays and shopping events, are more likely to feature sales and promotions. Most of these sales fall around holidays that have a gift giving component such as Mother’s Day, Father’s Day, and Christmas. Other examples include the rise of Black Friday and Cyber Monday sales in Australia, as well as End Of Financial Year sales.

Promotions on bulk purchases: Some retailers offer discount prices on orders that are over a certain cost, or if a consumer buys a lot of one thing. This encourages consumers to place larger orders and spend more money.

An example of discount price

Retailers often display discount prices prominently on websites, using larger fonts, bold colours, and 'On Sale' badges to highlight promotions and attract customers.

What Are the Key Differences Between RRP and Discount Price?

Here are five key differences between the Recommended Retail Price and a Discount Price:

1. Who sets it

The RRP is usually set by the manufacturer or brand of the product, whilst the retailer chooses to set a discount price.

2. The purpose of it

The purpose of an RRP is to standardise pricing and brand value, whilst discount prices offer competitive pricing and a sales boost to retailers.

3. Stability

The RRP is usually a fixed price, whilst a discount price can fluctuate based on what sales or promotions are being run.

4. Consumer Benefit

The RRP offers a benchmark to consumers of what they can expect to pay for a product, whilst the discount price offers cost savings.

5. Business Strategy

The advantage of RRP for a business is that it ensures brand positioning, whilst the advantage of a discount price is that it drives foot traffic and sales.

How Consumers Benefit from Understanding These Prices

If a consumer understands the difference between an RRP and a discount price they can make more informed purchasing decisions. By knowing the RRP, consumers can determine if a discount is genuine. Understanding seasonal pricing strategies also helps shoppers decide whether to wait for a sale or purchase immediately.

How Businesses Use Recommended Retail Price and Discount Pricing to Maximise Sales

Because consumers are more likely to make a purchase when they see something is on sale, businesses can create an urgency to purchase with a “Limited Time Offer” at a discounted price. The recommended retail price helps a business ensure that their costs are covered and they’re making a healthy profit per sale, whilst a discounted price has a smaller profit margin but encourages more sales overall. A retailer needs to strike the right balance between maintaining brand value, so consumers know what to expect from you, and offering attractive prices that are competitive within the market.

*****

The primary difference between an RRP and a discount price is that the RRP is set by the manufacturer as a suggested price for retailers, whereas the discount price is determined by retailers to offer savings below their usual selling price. They each have a different purpose, but both provide different benefits to both the retailer and consumer.