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RRP stands for ‘recommended retail price’. It acts as a guide from the manufacturer of a product on what the retail sale price should be. Businesses often display RRP on their items to show customers that they are getting a good deal on the product. The Australian Consumer Law (ACL) has strict guidelines on how to display the price on your products. Failure to comply with these regulations could result in hefty penalties. This article will outline the considerations you need to make when displaying RRP on your products.

Can I Display RRP on My Products?

When displaying the price of a good or service, you must include the total price, including all: 

  • charges;
  • taxes;
  • duties;
  • levies; or
  • fees.

For example, it is common when buying tickets to an event that the booking platform will charge a booking fee. The booking platform will need to display the booking fee alongside the price of the ticket, e.g. $150 + $10 booking fee. 

It is also common for businesses to compare the RRP to the resale price. The ACL allows for two price advertising, but you need to avoid doing this in a way that misleads customers. When displaying a sale or RRP price, you need to ensure the:

  • higher price has been offered previously for a reasonable period prior to the sale;
  • business must have previously sold the product or service at RRP;
  • sale price must be temporary; and 
  • RRP must reflect the current market price.

Even if you did not intend to mislead the customer, you are still in breach of ACL if you violate these principles. This could result in sanctions.

Can the Manufacturer Impose a Minimum or Maximum Resale Price?

Maximum Resale Price

Under ACL, manufacturers can enforce a maximum resale price. You should agree to the maximum resale price during negotiations when entering into a new contract with the supplier. If you are unsure if there is a maximum resale price for a previous arrangement, check the terms of the agreement you signed. 

If you were to sell at a price higher than the maximum resale price, you would be in breach of your contract. Here, the manufacturer may be able to terminate the agreement.     

Minimum Resale Price

Unlike the maximum resale price, a manufacturer cannot impose a minimum resale price. This is known as retail price maintenance which is prohibited by law. The manufacturer cannot enforce retail price maintenance either in the distribution agreement or in practice. Retail price maintenance is commonly seen by: 

  • pressuring the reseller to sell at a specific price;
  • refusing to supply the product unless you agree to sell at a minimum resale price;
  • offering incentives to encourage you to resell the goods for a specific price;
  • providing a price on the product that does not clearly state ‘recommended’;
  • only allowing a particular discount to be applied, or not allowing any discount at all; and
  • refusing supply if you are going to be selling to a third party who will sell below a minimum sale price.

A supplier can undoubtedly provide recommended retail pricing as long as it is a guide only and not a condition of supply.

Predatory Pricing

Despite being within your rights as a reseller to price below RRP, if you price your products too low, you may be committing predatory pricing. This practice is where a business sells its products at a sufficiently low level to damage their competitors. Generally, this occurs when the company is a market leader and can afford to suffer a loss on one product to promote their business or generate traffic towards their other products. This is known as misuse of market power.

Predatory pricing is illegal, and the Competition and Consumer Act 2010 (Cth) prohibits business misusing their commercial advantage. If you commit predatory pricing, manufacturers are within their rights to withhold supply from you.

Predatory pricing does not apply to genuine sales and promotions.

Example 1: A retail store decides to have an end of year financial sale. They reduce the price of their fitness watch by 10% to encourage customers to make a purchase. The store previously sold the watch at a higher price for a reasonable period and the sale will last for one week. This example likely shows a genuine promotion.

Example 2: A well-known retail store reduces the price they sell their fitness watches by a significant amount that is well under the cost of production. They can maintain these prices as they have high market power and can afford to take a loss due to the sales of their other products. Competitors in the fitness watch industry are now unable to compete with the low prices and go out of business, thus causing the original retail store to gain a monopoly. This example likely shows predatory pricing.

Key Takeaways

RRP is a common way to advertise a sale of your product. Business owners should make sure this sale is genuine and not misleading or committing predatory pricing. Suppliers giving RRP to their resellers need to ensure they are not engaging in retail price maintenance. If you are unsure of your responsibilities as a business owner, contact LegalVision’s business lawyers on 1300 544 755 or fill out the form on this page.

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