Full Form of MRP – Maximum Retail Price
The maximum retail price is the full form of MRP. The manufacturer of a product calculates it, and it is the highest possible price that can actually be charged for that product from a customer, and it comprises of all the taxes that are levied on that product.
The objective of having a maximum retail price is to ensure that the customers are not charged anything beyond that amount. With MRP being printed on a product’s packaging, sellers’ scope to sell goods to customers at a higher price becomes negligible. It restricts the shopkeepers to fool the customers by charging anything above the printed price of the product.
Companies fix MRP so that they can very easily compete in the industry and, at the same time, earn sufficient profits to run their business operationsBusiness OperationsBusiness operations refer to all those activities that the employees undertake within an organizational setup daily to produce goods and services for accomplishing the company's goals like profit generation. smoothly. The maximum retail price ensures that commodities’ constancy is maintained for all the areas, and sellers don’t charge the buyers anything beyond the printed price. It ensures that the buyers are charged a maximum of the printed price only.
To summarize, it can be learned that the objective of the maximum retail price is to ensure that there is an utmost level of customer awareness concerning the price of commodities that they are willing to buy and to discourage sellers from selling commodities at unjust prices. With MRP being printed on products, it is difficult for a shopkeeper to fool its buyers by charging a price higher than the actual printed price. It also helps the government in eliminating the possibilities of tax evasionPossibilities Of Tax EvasionTax Evasion is an illegal act in which the taxpayers deliberately misreport their financial affairs to reduce or evade the actual tax liability. This includes using multiple financial ledgers, hiding or representing lesser income, gains, or profits than actually earned, overstating deductions, & failing to file returns. .
How does it Work?
Maximum retail price works by disallowing the vendors from overcharging the customers. It is the maximum price that a seller can quote his buyers, and anything charged beyond that would be illegal. Customers are now well aware of the role of the prices printed on a product, and they know that a seller cannot charge them anything beyond that, and they can always ask the latter to quote a price below the MRP.
Since MRP is inclusive of taxes, therefore, the customers will not have to bear tax implications for the products separately.
Who decides MRP?
The maximum retail price of a product is decided by its manufacturer only, and the government does not have any role to play in deciding the price of the same. The maximum retail price of a product is determined by the manufacturer based on various aspects such as cost of production, taxes, transportation costs, freight, commission paid to the dealers, advertisement costs, and the profit margin for the manufacturer, dealers, distributors, etc.
Why do we need to decide on MRP?
A maximum retail price is necessary to evaluate. In the absence of MRP mentioned for a product, there are many chances for the shopkeepers to fool the buyers by charging a higher and unreasonable amount for that product. MRP induces a higher level of customer awareness and discourages the sellers from misquoting unjust prices to the buyers.
With MRP, buyers can be assured that they are being charged a genuine amount and not bluffed by the sellers and retailers. This can also increase the customers’ faith in the products that have MRP and lay a strong foundation for the buyer-seller relationship.
Once the buyers develop faith in the suppliers, they also tend to have faith in the brand. So, this means with MRP. A buyer will develop a strong relationship with the seller as well as with the manufacturer too. With MRP, the government can also eliminate the probabilities of black marketing during product scarcity. This means MRP acts as a legal recourse in vulnerable situations.
- The advantages of maximum retail price could be enlisted as customer awareness, prevention of tax-evasion, elimination of the probabilities of the suppliers to deceive the buyers by charging unjust prices on commodities, no black-marketing, building customer’s trust, laying a strong foundation for a buyer-seller relationship, and so on. With the maximum retail price, it also becomes easier for the manufacturers to combat existing industry competition.
- Since MRP is the maximum retail price that can be charged for a product, therefore, it gives the scope to the suppliers to make profits over the same, and if they can sell goods at a little lower price than the other supplier, then he is more likely to drive more customers, more sales and better profit marginsProfit MarginsProfit Margin is a metric that the management, financial analysts, & investors use to measure the profitability of a business relative to its sales. It is determined as the ratio of Generated Profit Amount to the Generated Revenue Amount. for himself.
- The overall picture cannot ignore the disadvantages of the maximum retail price. The first thing to learn would be that since the government has a negligible role to play in deciding the MRP of a product, therefore, the manufacturers can determine an unjust amount as the MRP of that product.
- This will ultimately impact the purchasing power of customers and especially the ones who are not financially well off, and if such a product is a necessity, then the same would have a greater impact on an individual and the economy too.
- It can even create inefficiencies in the market. It also adds unnecessary complexities to the product’s overall supply chain. A maximum retail price is enforced in the country, and nobody can do anything about it. Since manufacturers decide the MRP for their products, therefore, they may quote way too high prices, which can ultimately impact a lot of retailers that are working on a small scale and thus, they can even lose their customer faith and base because of such things that they are beyond their control.
It is also known as the maximum retail price. This means that it is the maximum price that can be charged for a product, and a seller cannot charge even a penny beyond that. The seller can sell the product at a price lower than the actual printed price, i.e., MRP.
The manufacturer of a product determines the MRP after considering all the expenses and profit margins. The government has nothing to do with determining the MRP of a product.
This has been a guide to the Full Form of MRP and its definition. Here we learn the working and objective of MRP, Who decides MRP along with advantages and disadvantages. You may refer to the following articles to learn more about finance –