The retail price of an item is the final price for an end user – customer – to buy a particular product for their own use, rather than someone purchasing to sell it on.
The retail price reflects the manufacturers price (including their own production costs and profit), plus any other margins that have been added by other parties in the chain, such as a wholesaler or distributor. This breakdown of costs is not visible to the end customer, who will only see the final retail price.
A manufacturer will often set an RRP (recommended retail price) to guide the retailer. This RRP helps the manufacturer to position their product in the market versus their competitors or other comparable products. The RRP is often a key consideration in the retailer’s marketing strategy for the product and determining their target audience and positioning.
When setting a recommended retail price, it is important for the manufacturer to look at other products on the market and evaluate how their own product offers value for money or a distinctive point of difference which can justify a higher price point. Setting a retail price which is too low reduces margins and relies on a higher volume of sales to return a healthy profit. However, setting a price which is too high may reduce sales by deterring more budget-conscious shoppers.
A brand’s position in the market and the value of their brand is another key factor in determining price. A brand which is seen as more ‘premium’ may be able to justify a higher RRP than a comparable item from a less premium brand.
The intention of an RRP is to help achieve consistency of the sales price for that product. However, retailers may choose to discount the retail price, by reducing their own margin. Some retailers may heavily discount popular items to act as ‘lost leaders’ encouraging more customers to their store in the hope that they will purchase other items.
The discount that a retailer may offer can also depend on the sales channel. Physical stores with higher overheads such as rent and staff may not have the flexibility to discount as heavily as online-only stores with lower costs.
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