Price is one of the most important Ps in the Marketing Mix. With the rising competition in the industry, determining the price of products becomes vital. There are specific price strategies that retailers follow in the market. These define parameters and price limits for the products sold. Among them, we have MRP, MOP, and SRP. In this article, we’ll discuss significant facts about MRP.
The complete MRP full form is Maximum Retail Price. Have you noticed the price printed on products? That is MRP, and it states that it’s the highest price at which retailers can sell the product. It is mandatory by law to print the price on every product. Manufacturers and brands determine this pricing system of the products, which is followed or applied by the retailers.
Origin of the Term MRP:
MRP or maximum retail price is a concept shared between India and Bangladesh. MRP was introduced in India, over three decades ago, in 1990 by the Ministry of Civil Supplies, Department of Legal Metrology. It was an amendment to the Standards of Weights and Measures Act (Packaged Commodities Rules) (1976).
The Aim of Introducing the Concept of MRP:
Before introducing this amendment, manufacturers could print the MRP, inclusive of all taxes, or print the retail price with extra local taxes. Whenever the manufacturers opted to print the retail price, retailers had the liberty to charge an additional price that was usually higher than the locally applicable taxes.
The unfair practise made it necessary for authorities to strictly introduce the amendment of printing the MRP on all packaged commodities. The objective was to protect consumers and curb retailer tax evasion, and it is equally important to protect the interests of the retail business owners as it levels the markets and does not allow a few players to monopolize it.
Still, the pro-consumer move has mainly been criticized for being incompatible with the free market system. In this system, manufacturers have the power to decide the profit margins for retailers. Moreover, a few players in India have found a way out of this system by charging ‘service’ costs. For instance, cold drinks and chilled mineral water incur extra cooling charges in many parts of India.
Note: MRPs are not mandatory for selling non-packaged commodities like services or essentials sold loosely. Even packaged foods sold in movie theatres, tourist destinations, etc., usually do not mention the MRP on the product.
How is the Maximum Retail Price Calculated?
In a retail setup, several factors contribute to the product’s price. The manufacturer cannot consider the Manufacturing Cost to determine the MRP. Therefore, to determine a fair and fixed price of the product, factors like the packaging and presentation cost are to be calculated. The Profit Margin, CnF Margin, and the Stockist Margin must be considered along with the Retailers Margin. The profit earned by the retailer must involve the cost of retail merchandising and advertising too. Examine and include the cost of Marketing the product on various channels in the MRP. GST, Transportation, and other miscellaneous expenses also need to be involved in the MRP.
Well, missing out on any factor in the final MRP will result in a loss for the business. Thus, it is crucial to determine the MRP accurately by considering the overall cost of raw materials, production, and post-production activities.