To effectively manage, track, and optimize a P&L, it’s useful to understand the four key types of prices for a SKU.

1. Manufacturer’s Recommended Selling Price (MRSP) or Recommended Retail Price (RRP)

This is the suggested retail price set by the manufacturer. However, manufacturers have no authority to dictate the final in-store price, as retailers ultimately decide what the consumer pays.

• MRSPs are determined based on category pricing and competitive positioning.  I don’t recommend doing cost plus pricing to arrive at the invoice price and then building up to reach an MRSP, because the consumer doesn’t care about your costs.

• Some companies set different MRSPs for different channels (e.g., discounters, superstores, convenience, online), but having a unified MRSP simplifies operations.

• When negotiating invoice price with my buyers, I would use MRSP to tell them how much margin they would make, to which I often got the stern reply “MRSPs are irrelevant”. What they meant is that it is the current instore pricing in the category that is to serve as the benchmark, not some notional number that I as a mere manufacturer put on paper. But the truth is MRSPs have a great impact on anchoring the retailer when they are deciding how to price the product, especially if you are entering a new needstate. In a market like UK, if the retailer ends up pricing the product instore at the MRSP, it’s a job well done. But when the retailers are engaged in a price war, often the in-store price lands slightly below the MRSP, which is also fine. You just have to watchout that if set too low, retailers may price the product higher than the MRSP, indicating that you underestimated the pricing potential.

2. In-Store Price (Including and Excluding Sales Tax)

The in-store price is the amount a shopper pays at checkout, set by the retailer based on competitive dynamics, cost structures, and perceived value.

• The largest retailers, benefiting from economies of scale, often set pricing trends that others follow. But interestingly, Tesco in the UK, adopted price-matching strategies against discounters like Aldi, which are much smaller, but have a more superior price perception.

• The in-store price excluding sales tax is relevant for retailer P&Ls, especially in markets where different categories have different tax rates.

3. List Price (Gross Price)

The list price is an internal, standardized price for selling to retailers. It took me a while before I understood the true utility of List price. It serves as a benchmark for tracking the discounts offered to different accounts.

• The list price should remain consistent across all retailers.

• Some retailers may receive discounts based on their size and purchasing power, making it crucial to track deviations from the list price.

• If the list price is set too low, it can distort discount calculations, misleading investment comparisons across SKUs.

• A common approach is to link the list price to the MRSP using a predetermined factor (e.g., 1.1x or 1.2x MRSP).

4. Invoice Price

This is the final price charged to a retailer for a given SKU, factoring in negotiated discounts, promotions, and trade spend agreements.

• The invoice price directly affects both the supplier’s revenue and the retailer’s cost of goods sold.

The interplay between these price types highlights the intricate nature of FMCG pricing. Whether setting a compelling MRSP or negotiating favourable invoice prices, every pricing decision shapes profitability, market competitiveness, and retailer relationships.