The Recommended Retail Price (RRP) is the price you fix for your goods or services in the market and the one communicated and displayed to the end user at the Point of Sales.
The RRP should be defined base on the product life cycle. The introduction price of a single product is usually the highest value in the whole product life cycle. Let’s say for example you are launching new product line into the market, the initial introduction RRP is 199 USD. Mainly the introduction RRP is linked to a motivation factor to drive the sales (Bundle, specific pre-booking promotion). Under the growth phase, the product will still be sold at 199 USD but without any bundle or promotion as you will try to maximize your profit. The price under the maturity level is usually dropped by 10% to 15% from the introduction price. The product price drop is important as we get the possibility to retail it to a wider range of consumers at a cheaper price while the technology introduced isn’t new to the market anymore.
Under the decline phase or what we call as well the product end of life, the RRP is dropped again to drain the inventory in the market and prepare the introduction of a new model. Some brands apply the rule of profit during the introduction, growth and maturity and a loss during the decline phase that will be compensated in the margin of the new product introduction.
By taking in consideration the landing cost or the cost of goods, we should carefully calculate the launch price as it must include the margin successive drops during the full product life cycle. Marketing contribution per unit is another cost that some brands includes in the price structure and helps calculate the final return on the investment per SKU. Your margin should include all channels and partners margin from your sell-in to the sell-out phase. Price drops within your retail segments are compensated by credit notes to your partners to guarantee the RRP execution in your market.