TheM Ministry of Civil Supplies, Department of Legal Metrology, introduced the maximum retail price (MRP) that is printed on all packaged commodities that consumers purchase in 1990 by amending the Standards of Weights and Measures Act (Packaged Commodities’ Rules) (1976). Its goal was to prevent tax evasion and safeguard consumers from store profiteering. Earlier, manufacturers used to print either the maximum retail price (including all taxes) or the retail price, which was followed before the amendment (local taxes extra). When producers chose the latter method, it was discovered that retailers frequently charged more than the local taxes. As a result, an amendment was proposed to mandate the printing of MRP on all packaged goods.
In today’s world, the prices of consumer goods traded on the open market are usually set arbitrarily by the manufacturers. Even though it is obvious that in a market where various products have varying tax rates within the same city, it is extremely difficult for customers to determine whether retailers are charging the correct amount of local taxes on the products they sell. As a result, buyers are naturally confused about the price of items, while manufacturers benefit handsomely because the actual manufacturing cost is quite low. Consumers are forced to buy items at greater prices because manufacturers unilaterally set the price.
Factors Determining Fixation Of MRP
- Cost Production: The fundamental component of the price is the cost of production. No corporation may sell its goods or services for less than what it costs to make them. As a result, before deciding on a price, data on the cost of production must be compiled and kept in mind. There are two types of costs: one is financial and the other is non-financial.
- Fixed Price (e.g., Rent of building, Salary of permanent staff, etc.)
- Cost Variable (e.g., Material, Labour, etc.)
At the very least, the pricing should be able to recover the variable cost, given the fixed cost is incurred regardless of whether or not manufacturing occurs.
- Demand for Products: Before deciding on pricing, a thorough assessment of market demand for products and services should be conducted. Higher prices can be fixed if demand is greater than supply.
- Price of Competing Firms: Before deciding on pricing, it is vital to analyze the prices of other firms’ products. When there is fierce competition, it is preferable to keep prices low.
- Purchasing Power of the Customer: What is the customer’s purchasing power, and how much and at what price can they buy? It should be taken into account as well.
- Government Regulation: It should also be considered whether the price of the item and services is to be set according to government regulations.
- Objective: A specific amount of profit is usually added to the cost of manufacturing at the time of price fixation. If the company’s goal is to make more money, it may increase the amount of money it invests.
- Marketing Method Used: Price is also determined by the company’s marketing strategy; for example, commission paid to middlemen for the selling of items is factored into the price. Similarly, if consumers are to be supplied with “after-sale service,” those costs are included in the price.
Originally published here.