This may be more efficient (most people use LEFT rather than RIGHT join, so I switched it to that):

SELECT l.value, p.productname

FROM dbo.ProductTable p

LEFT OUTER JOIN (

SELECT ID, value, ROW_NUMBER() OVER(PARTITION BY ID ORDER BY flag DESC) AS row_num

FROM dbo.lkpTable

) AS l ON l.ID = p.ID AND l.row_num = 1

GROUP BY l.value, p.productname