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 one can charge for that product from a customer. It comprises all the taxes levied on that product.

Objective

The objective of having a maximum retail price is to ensure that the customers are not charged anything beyond that amount. Moreover, with MRP printed on a product’s packaging, sellers’ scope to sell goods to customers at a higher price becomes negligible. Therefore, it restricts the shopkeepers from fooling the customers by charging anything above the product’s printed price.

Companies fix MRP so they can 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.read more smoothly. The maximum retail price ensures that commodities’ constancy maintains for all the areas, and sellers don’t charge the buyers anything beyond the printed price. Moreover, it ensures that the buyers only charge a maximum of the printed price.

To summarize, one can learn 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 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 eliminate 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. read more.

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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 includes taxes, 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 the same price. The manufacturer determines the maximum retail price of a product 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. The shopkeepers will likely fool the buyers by charging a higher and unreasonable amount for a product without the MRP mentioned. MRP induces a higher level of customer awareness and discourages the sellers from misquoting unjust prices to the buyers.

With MRP, buyers assure that they are being charged an actual amount and not bluffed by the sellers and retailers. It 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 probability of black marketing during product scarcity. It means MRP acts as a legal recourse in vulnerable situations.

Advantages

  • The advantages of maximum retail price one can enlist as customer awareness, prevention of tax evasion, elimination of the probability of the suppliers deceiving the buyers by charging unjust prices on commodities, no black-marketing, building customer’s trust, laying a strong foundation for a buyer-seller relationship, etc. Furthermore, with the maximum retail price, it also becomes easier for the manufacturers to combat existing industry competition.Since MRP is the maximum retail price one can charge for a product, it gives the scope to the suppliers to make profits over the same. If they can sell goods at a little lower price than the other supplier, 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. read more for himself.

Disadvantages

  • 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 minor role in deciding a product’s MRP, the manufacturers can determine an unjust amount as the MRP of that product.It will ultimately impact customers’ purchasing power, especially those not financially well off. If such a product is necessary, the same would have a greater impact on an individual and the economy.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. As manufacturers decide on the MRP for their products, they may quote way too high prices, which can ultimately impact many retailers working on a small scale. Thus, they can even lose customer faith and base because of things beyond their control.

Conclusion

It is also known as the maximum retail price. It means one can charge the maximum price for a product, and a seller cannot even charge a penny beyond that. The seller can sell the product at a price lower than the actual printed price, i.e., MRP.

A product manufacturer 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 article guides 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:-

  • Full Form of CMAFull Form of CIPOffering PriceFull-Form of KPIMarket Penetration