Full Form of MRP – Maximum Retail Price
The maximum retail price is the full form of MRP. It is calculated by the manufacturer of a product 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, the scope for sellers 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 operations smoothly. Maximum retail price ensures that the constancy of commodities 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 with respect to the price of commodities that they are willing to buy and discouraging sellers from selling commodities on 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 evasion.
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 that is played by 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 of the same 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 MRP?
A maximum retail price is necessary to evaluate. In the absence of MRP mentioned for a product, there are a considerable amount of 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 being bluffed by the sellers and retailers. This can also increase the customers’ faith in the products that have MRP and also lay a strong foundation of the buyer-seller relationship.
Once the buyers develop faith in the suppliers, they also tend to have faith in the brand as well. 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 competition in the industry.
- 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 are able to 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 margins for himself.
- The disadvantages of the maximum retail price cannot be ignored by the overall picture. 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, it may happen that the manufacturers 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, it may happen that they quote way too expensive 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 taking all the expenses and profit margins into consideration. 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 –