Posted by Minna Boyle on 13 February 2019
Australian businesses are generally free to set their own prices for goods based on their business needs.
That said, there are limitations to setting prices.
The main reason for having pricing regulations is to maintain fair competition in the market. As we explore in this article, there can be serious consequences if businesses don’t follow these regulations.
So when it comes to setting prices, it helps to know what the rules are.
Some businesses may refer to the ‘Recommended Retail Price’, or ‘RRP’, when choosing prices for their products.
Do you ever wonder what RRP actually means? And whether you actually need to follow it?
RRP: The Need To Knows
RRP is a price set by the supplier, as a recommendation to the retailer.
It’s just what it sounds like: a recommendation.
There are some suppliers who try and enforce a minimum retail price by threatening to withdraw distribution unless a reseller sells at a certain price – but this is against the law.
It’s illegal for suppliers to enforce a minimum retail price.
Whether you’re a supplier or a reseller, make sure you understand the limitations of RRP.
Okay so bottom line, RRP is just a recommendation – let’s consider the other laws around setting prices.
Sometimes you’ll see companies that advertise a huge discount from the RRP.
It looks something like: “RRP $300 down to $100 at our store!”
Another similar comparison is: “Originally $500, now only $250!”
This is not always illegal – but it will be if it’s not true, or is misleading.
For example, you can’t advertise a product at $500 for 10 minutes just for the purposes of the ad, and then put the price down to $250.
As a retailer, you could be done for misleading and deceptive conduct if you use this kind of comparative pricing.
Find out more about misleading and deceptive conduct in this article.
It’s not illegal to sell products for below cost price.
However, it is illegal to sell products for below cost price if the goal is to eliminate or damage a competitor.
This is called predatory pricing.
This type of anti-competitive pricing is against the law, as it can lead to a lack of competitive options for consumers.
Another type of anti-competitive pricing behaviour is price fixing.
It’s illegal for competitors to get together and agree on set prices.
This doesn’t have to be a formal agreement – even a verbal understanding is enough to breach the law.
We all make mistakes, it’s part of getting better.
But you also have to accept the consequences.
If you advertise more than one price for a product – even if it was by accident – you have to sell it for the lower price.
The other alternative is to stop selling the product until the price is corrected.
What to Take Away…
There are some other regulations around pricing, so it’s important to be aware of what applies to your business.
If you are a reseller, be careful that you’re not being misleading or deceptive in how you advertise your prices.
If you are a supplier, make sure you don’t impose your RRP on your resellers.
And whether you’re a reseller or supplier, you need to avoid anti-competitive behaviour like predatory pricing or price fixing.
If you’re unsure about the regulations that impact your prices, feel free to get in touch with us at Sprintlaw and our team of experienced lawyers will be able to advise you on your options.
At the end of the day, it’s better to make sure you’re setting your prices in a way that’s good for your business AND in line with pricing regulations.
Getting caught on the wrong side of the law is a price your business shouldn’t have to worry about!