What are RRP and MSRP? What these terms mean for South African Brands and Retailers looking to sell and source wholesale
Introduction:
Navigating pricing strategies in the retail landscape can be challenging. However, it’s crucial to understand these terms and the fundamentals around them to succeed in the wholesale supply and sourcing of products. In this guide, we'll discuss RRP (Recommended Retail Price) and MSRP (Manufacturer's Suggested Retail Price), shedding light on how these terms influence pricing decisions and business growth in the local market.
RRP and MSRP Defined
RRP, or Recommended Retail Price, serves as a benchmark for pricing a product at the retail level. It represents the manufacturer's suggested price, providing guidance to retailers on setting prices that maintain profitability while remaining competitive in the market. MSRP, or Manufacturer's Suggested Retail Price, is often used interchangeably with RRP and similarly refers to a recommended price by the manufacturer or maker of the product when selling their product to end consumers. Other names for the concept include: list price, sticker price, or suggested retail price (SRP).
Why is MSRP so important:
In the realm of B2B wholesale, MSRP acts as a point of reference for manufacturers and retailers, ensuring fair and profitable pricing agreements for all stakeholders involved – manufacturers, wholesalers, and retailers.
For retailers, the MSRP allows them to gauge product profitability.
The idea is that retailers will have sufficient margin in the MSRP to cover their overhead costs and earn a profit. The margin refers to the difference between the wholesale price the retailer pays for the product and the MSRP the retailer sells the product for (looking for more info on wholesale pricing? Check out our blog post here).
For brands, the MSRP allows them to signal product profitability to retailers.
A brand looking to sell their products wholesale will have costs incurred to produce their product. These costs include any distributors, or marketplace commissions. To arrive at their wholesale price, they take these costs into account and add on a markup so that they can make a profit.
Once this wholesale price is determined, brands are able to compare it to their MSRP and adjust either their wholesale pricing or MSRP to ensure both they as the brand and the retailer can enjoy a profit. It’s an iterative process of pricing that the brand must use to ensure success at wholesale.
So what is a suitable margin for retailers?
While we typically recommend a keystone pricing model with the wholesale price at 50% of the retail price, this is just a general guideline. So for example, if you have a bath product which retails for R200, the retailer will generally expect to pay around R100 for it wholesale. This represents a margin of 50% for the retailer, or a markup of 100%. Within this R100, you need to cover your own costs and generate a profit.
However, this is just an example, your strategy will really differ depending on your product category, how differentiated you are, branding, competition, your costs, and your order quantities. We recommend brands research their category, and not be afraid to try a pricing approach and adjust if it is not working for them.
MSRP in Action: Impact on Retailers and Brands
On Hivve Wholesale, MSRP serves as a pricing guideline, fostering transparency and consistency across retail channels. Retailers may choose to adhere to MSRP or adjust prices based on factors like inventory management, market conditions, and promotional strategies. Similarly, local brands can leverage MSRP to maintain brand equity and competitiveness, enhancing their appeal to retailers and consumers alike. For example, a brand targeting consumers with higher Living Standards Measure (LSM) scores (LSM is a measure of income levels and standard of living), would typically have a higher MSRP. This higher MSRP may not only be related to the higher quality of the product, but also the brand equity and high-end perception of the product.
Do retailers have to charge end consumers the MSRP?
No. In South Africa, the MSRP or RRP are not mandatory, they simply reflect the price suggested by the producer. While the MSRP provides a reference point, retailers retain autonomy in setting prices. This flexibility enables adaptation to market dynamics and consumer demands, essential for thriving in the competitive retail landscape.
Challenges and Opportunities:
While MSRP offers a structured approach to pricing, challenges may arise, such as artificially inflating the MSRP. However, savvy retailers and brands can navigate these hurdles by embracing transparency, ethical pricing practices, and leveraging MSRP as a tool to foster mutually beneficial partnerships on platforms like Hivve Wholesale.
Unlocking Potential: Strategies for Success
To maximize the benefits of MSRP optimization on Hivve Wholesale, retailers and brands can:
Embrace Transparency: Clearly communicate pricing strategies and rationale to build trust with retailers, consumers and fellow stakeholders.
Flexibility in Pricing: While MSRP provides guidance, remain adaptable to market fluctuations and consumer preferences to stay competitive.
Strategic Negotiation: Utilize MSRP as a starting point for understanding, seek win-win outcomes that support long-term growth and profitability.
Ethical Pricing Practices: Uphold integrity in pricing decisions, steering clear of deceptive practices to foster a sustainable retail ecosystem.
FAQ:
1. How is retailer Markup calculated?
Retailer Markup = (MSRP – wholesale price)/wholesale price x 100
2. How is retailer Margin calculated?
Retailer Margin = (MSRP – wholesale price)/MSRP x 100
Try out our margin and markup calculator to get a feel for the numbers.
Conclusion:
MSRP plays a pivotal role in shaping pricing strategies and fostering growth opportunities for retailers and brands in the wholesale space. By understanding the nuances of MSRP, local retailers and brands can chart a course towards sustainable success, enriching the retail ecosystem and enhancing the value chain for all stakeholders in South Africa.
Published on May 02, 2024 by Hivve Wholesale
