Recommended Retail Price (RRP) in Australia: What It Means

What is a Recommended Retail Price (RRP)?

An RRP, sometimes known as a Manufacturer's Suggested Retail Price (MSRP), is a price point that a supplier suggests retailers charge for a particular product. It is inherently a recommendation, not a mandate. The fundamental principle enshrined in Australian competition law is that retailers must be free to set their own prices for goods and services they supply.

Suppliers often communicate an RRP to provide a benchmark for consumers and assist retailers in their pricing decisions. For consumers, an RRP can serve as a reference point for value, especially when comparing prices across different retailers. For retailers, it can be a guide, but critically, it should not dictate their pricing strategy.

Resale Price Maintenance: The Competition Law Proviso

The most significant legal constraint on RRPs in Australia is the prohibition against resale price maintenance (RPM). RPM occurs when a supplier prevents or attempts to prevent a reseller from selling goods or services below a specified minimum price. This practice is explicitly prohibited under Part IV, Division 2, Subdivision B of the Competition and Consumer Act 2010 (Cth) (CCA).

The Australian Competition and Consumer Commission (ACCC) views RPM very seriously because it is considered anti-competitive. It reduces price competition between retailers for the same product, which can lead to higher prices for consumers and limit their choice. Unlike some other anti-competitive practices, RPM is a 'per se' prohibition. This means that if RPM is established, it is illegal regardless of whether it actually harms competition in the market. No complex economic analysis of market impact is required; the act itself is sufficient to constitute a breach.

What constitutes Resale Price Maintenance?

RPM is not limited to overt contractual terms explicitly demanding a minimum price. The CCA outlines several behaviours that can amount to RPM, including:

• Inducing a minimum price: A supplier directly telling a retailer they must not sell below a certain price.
• Agreeing on a minimum price: A supplier and retailer formally or informally agreeing that the retailer will not sell below a particular price.
• Threatening to withhold supply: A supplier threatening to stop supplying products to a retailer because the retailer has sold, or proposes to sell, below the RRP or a specified minimum price.
• Refusing to supply: A supplier refusing to supply products to a retailer for the same reason.
• Discriminatory supply terms: A supplier offering less favourable terms of supply (e.g., higher prices, reduced credit, slower delivery) to a retailer who discounts below the RRP.
• Offering rebates or allowances conditional on pricing: A supplier offering a rebate, discount, or promotional allowance to a retailer on the condition that the retailer does not sell below a specified price.
• Threatening to terminate an agreement: A supplier terminating a business contract or distribution agreement because a retailer has not adhered to a specified minimum price.

It is important to note that a supplier can suggest an RRP and can state that goods or services should not be sold for more than a specified maximum price. The prohibition specifically targets attempts to control the minimum resale price.

Penalties for Resale Price Maintenance

Breaches of the RPM provisions can result in severe penalties. For corporations, the maximum pecuniary penalty for each contravention is the greater of:

• $50 million;
• if the court can determine the total value of the benefits obtained from the contravention, three times that total value; or
• if the court cannot determine the total value of the benefits, 30% of the company's adjusted turnover during the period in which the contravention occurred.

Individuals involved in RPM can also face substantial pecuniary penalties and disqualification from managing corporations. The ACCC actively investigates and prosecutes RPM conduct, highlighting the importance of compliance for all businesses involved in supply chains. More information on the ACCC's approach to anti-competitive conduct, including RPM, can be found on their website: ACCC - Anti-competitive behaviour.

Using RRPs Without Breaching Competition Law

Despite the strict prohibition against RPM, suppliers can still communicate and utilise RRPs legally. Key steps to ensure compliance include:

1. Clearly label RRPs as 'recommended': Any communication of an RRP should explicitly state that it is a suggestion only and that retailers are free to set their own prices. This often appears on price lists, invoices, or product packaging.
2. Avoid pressure or threats: Suppliers must not pressure, threaten, or penalise retailers for selling below the RRP. This includes any overt or subtle actions that could be perceived as discouraging discounting.
3. Do not tie supply or benefits to RRP adherence: Ensure that the availability of products, promotional support, rebates, or advantageous terms of supply are not contingent on retailers maintaining the RRP.
4. Train staff: Educate sales and marketing staff on the nuances of RPM. Uninformed comments or actions by an employee could inadvertently lead to a breach.
5. Review distribution agreements: Regularly review service agreements and distribution contracts to ensure they do not contain clauses that could be interpreted as imposing minimum resale prices.

The ACCC provides detailed guidance on RPM, particularly in its guide for small business: ACCC - Resale price maintenance.

Advertising RRPs: Avoiding Misleading Conduct under the ACL

Beyond competition law, the use of RRPs in advertising is also scrutinised under the Australian Consumer Law (ACL), contained within Schedule 2 of the CCA. Section 18 of the ACL broadly prohibits conduct that is misleading or deceptive, or likely to mislead or deceive, in trade or commerce.

This is particularly relevant for retailers who use RRPs in comparative pricing claims, such as "Was $X / Now $Y" or "RRP $X, Our Price $Y". If the reference price (the "Was $X" or "RRP $X") is not genuine, honest, or based on a reasonable and recent RRP, the advertising can be considered misleading. For example:

• Inflated RRP: Advertising an RRP that is artificially high and not genuinely recommended by the supplier to make the discount appear larger than it is.
• Outdated RRP: Using an RRP for a product that was recommended a long time ago and is no longer relevant to current market prices or supplier recommendations.
• Fictitious RRP: Advertising an RRP when no such price has ever been recommended by the supplier.
• No reasonable sales at RRP: Implying that the RRP is a price at which the goods are regularly sold when in fact, very few or no sales occurred at that price.

The ACCC and state/territory fair trading agencies actively monitor and enforce these provisions. Businesses must be able to substantiate any claims made about RRPs in their advertising. If a consumer could reasonably be misled by the advertised RRP comparison, a breach of the ACL may occur, leading to significant penalties, adverse publicity, and corrective advertising orders.

Consequences of Non-Compliance

Breaching competition or consumer law in relation to RRPs can have severe consequences for both suppliers and retailers:

• Financial Penalties: As noted, pecuniary penalties can be substantial, running into millions of dollars.
• Reputational Damage: Public enforcement actions by the ACCC or fair trading agencies can severely damage a brand's reputation and consumer trust.
• Loss of Goodwill: Retailers may be reluctant to deal with suppliers known for restrictive pricing practices.
• Legal Costs: Defending against such actions can be very expensive, regardless of the outcome.
• Injunctions and Orders: Courts can issue injunctions to stop prohibited conduct and require corrective advertising or other remedial actions.

Conclusion

RRPs, while a useful commercial tool, sit at an intersection of complex legal requirements in Australia. Suppliers must navigate the fine line between providing a recommendation and engaging in illegal resale price maintenance. Retailers must ensure that their use of RRPs in advertising is truthful and not misleading. Robust compliance frameworks, clear communication, and regular legal reviews of pricing strategies and distribution arrangements are essential for all businesses to avoid costly contraventions of Australian competition and consumer law.

This article contains general information only and does not constitute legal advice. Envision Legal accepts no liability for any loss arising from reliance on this content. You should seek independent legal advice tailored to your specific circumstances.