Full Form of MRP

The full form of MRP is Maximum Retail Price, which refers to the cost of products and services determined by the manufacturer itself. This price is the highest possible price that can be quoted for an item. This pricing system includes all taxes levied on that product and is common in nations like India and Bangladesh.

MRP is the price that the manufacturer calculates and then ships the items to the retailers. Hence, it is inclusive of all taxes and other charges involved. The aim is to ensure no retailers have a chance to ask for a higher price or an additional charge in any manner.

The full form of MRP is the Maximum Retail Price that 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.

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.

MRP ensures 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.

MRP, however, has faced a lot of criticism, given the varied conditions that the products and items are manufactured in. For example, if a product is manufactured in a rural region, the transportation costs, and extra charges, which may be applicable to urban goods, are not valid for rural areas.

In such a scenario, product A and product B of the same product category coming from rural and urban areas, respectively, would have different prices, the latter charging higher.

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 operations 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 evasion.

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.

The mathematical equation that helps manufacturers calculate MRP is as follows:

Maximum Retail Price = Manufacturing Cost + Packaging Cost + margin of profit + CnF(Cost and Freight) Margin + Stock Margin + Retail Margin + GST + Shipping + Marketing or Advertising Expenses + Other Reasonable Expenses

Let us consider the following examples to understand the concept and how it works:

Example 1

Suppose Manufacturer X manufactures a bicycle, the price of which includes the cost of making ($2,000) and manufacturing ($5,000) along with the shipment costs ($750) that are to be involved in the later stage, plus miscellaneous costs ($1,500). Keeping into consideration all the costs involved, it fixes the price of the bicycle at $9,250 (i.e., 2000+5000+750+1500).

This determined the maximum price that the retailer could ask for from customers. Anything beyond that would be unacceptable in the market, thereby refuted by the customers. This is how the concept of MRP works.

Example 2

Let’s say a seller has two manufacturing units A and B located in a rural region and an urban area, respectively. Both the units are into making the same product, i.e., television sets. While every other cost involved in manufacturing these sets was the same, the cost of transportation involved highly varied. The seller, based on the conditions, calculated an average price for the TV set for it to sell in the market. This, in turn, proved to be a bad deal for the seller as the profit gained was not up to the mark. It only seemed to cover up for the loss it incurred by selling the urban-manufactured TV sets at a lower cost.

Marking the products and items at an MRP makes sure that the sellers do not have a chance to charge a higher price from customers in the market as the MRP reveals the maximum price for that item. Besides this, there are multiple other benefits that calculating MRP offers.

Let us have a look at them below:

• 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 margins for himself.

Despite advantages, there are some limitations as well that calculating MRP impose. Some of them have been mentioned below:

• 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.

This article has been a Guide to what is the Full Form of MRP. Here, we explain it with its objective, reason, formula, example, advantages & disadvantages. You may refer to the following articles to learn more about finance:-

• Full Form of CMA
• Full Form of CIP
• Offering Price
• Full-Form of KPI
• Market Penetration