In India, all packaged goods must indicate the Maximum Retail Price (MRP) on the packet. This was introduced in 1976 (during the Emergency), and the price excluded the local taxes. The retailers were cheating the customers by arbitrarily hiking the printed MRP in the name of Local Taxes. Consequently, the rule was modified in 1990, and the MRP was to include all the applicable local taxes.  As of today, the packages carry the information M. R. P. (Incl. all taxes): xx.yy.

The MRP comprises the manufacturer’s cost of production, including all taxes and transportation, the manufacturer’s profit margin, and the retailer’s profit margin.  All that the MRP message says is that the retailer cannot charge even a single paisa more than the printed value. To be competitive, the retailer may forego a part of the profit and sell at a price less than the MRP. Here is the catch. The customer will not be able to know the profit margin of the retailer. In addition, there is no statutory guideline concerning the retailer’s profit margin. This aspect is the major concern of the current article.

Today I purchased about twelve household commodities from a mega supermarket. The total cost was Rs. 1,668. The cash bill contained a message “saved Rs. 780.00 on MRP”.  That means that if I were charged on the  MRP basis, the bill would have been Rs. 2,448. If all the items were sold at MRP, I would have paid about 47 percent more. More importantly, if the items were purchased in an outlet smaller than that supermarket, I would have paid anywhere between 1668 and 2448. In any outlet outside the urban limits, the total cost would almost certainly have been 2,448.

In that supermarket, I randomly noted down the MRP and selling prices of a few items. The data is presented in the Table below.

By paying at MRP, the customer would have paid more at percentages varying from 33 to nearly 200 percent. The inference is that the manufacturers do not adhere to any norm while arriving at the “maximum retail price”. The basis is purely arbitrary. The losers are the customers who may not have access to mega supermarkets.  The same is true concerning online shopping outlets like Amazon.

Is there a limit that the manufacturer should not cross? There doesn’t appear to be one. The sky is the limit, it appears, as can be learned from the following information.

I got this beautiful decorative piece known as an LED SHIMMER TREE by way of online shopping.

I paid Rs. 800 for the piece. The printed MRP was, believe it or not, Rs. 4,999.

TO SUM UP

We note that the manufacturer is not doing anything illegal. The retailer is not doing anything illegal either. What transpires between the manufacturer and the retailer is unethical in cases where the MRP is unreasonably high in comparison to the cost of manufacture. The losers are the customers. In my opinion, a retailer’s profit margin in the range of 15 to 30 per cent is reasonable. Anything more than that should be discouraged.  Can anything be done to achieve ethical and reasonable business practices concerning “Maximum Retail Price”?