Recommended price
Also known as: manufacturer's recommended price(MRP)
The recommended retail price is the regular price set by the manufacturer or official importer for a product. Legally, retailers cannot be obliged to adhere to this recommended price. However, together with the purchase prices used, the recommended retail price often at least directs the amount for which an item will appear on the shelves.
Resource to control price level
The recommended price serves as a reference price. In principle, sellers are free to use a lower or higher price.
Although not formally permitted, some official sales channels restrict retailers from setting their own prices. Lower prices, for example, are only allowed if they are temporary offers. If a retailer does not comply, a distributor can stop supplying in extreme cases.
Producers with multiple outlets aim with an active skimming policy mainly to protect their reputation and the position of established stores vis-à-vis Web stores and price-fighters, which can often operate with lower margins. One way to circumvent the conditions of authorized distribution channels is gray imports.
Consulting prices in marketing
Recommended prices also play a prominent role in calculating and communicating the benefit of offers. The discount is calculated as the difference between the current selling price and the recommended price. On the one hand, this gives the customer an overview. On the other hand, the benefit actually obtained may be lower if the regular price outside of a temporary promotion is lower than the official recommended retail price anyway.
The fuel market is an example of an industry where advisory prices are widely used. These are regularly adjusted to developments in the oil market. Because of the strong price competition between gas stations, the recommended retail prices are hardly ever used anymore. The possibility to display the amount of discount compared to the recommended retail price seems to be an important motivation for not structurally adjusting the high recommended retail prices to the average retail price in the market.
