Indiaretailing.com,15 Dec 2010

Payal Kapoor

The MRP, or the maximum retail price, of a product plays an important role in the customer's purchase decision. It tells them the maximum amount they need to spend to buy a product.

The rationale behind printing the MRP on products is to protect the consumer from being overcharged by retailers. No doubt, the MRP does its job well in informing consumers about the 'fair price' of a product, but it fails to give retailers the much-needed flexibility in determining the price based on various factors – services offered, location of the store, among many others – that determine the actual cost of a product for a retailer. So, is the concept of MRP still relevant? And, will withdrawing the MRP be beneficial for the stakeholders, mainly retailers and consumers?

In a poll question asked by IndiaRetailing – 'Should MRP be withdrawn from product categories to allow headroom pricing?' – 83.29 per cent of the respondents said “No”, while only 16.36 per cent said “Yes”. The remaining 0.35 per cent, however, opted for “Can't Say”.

But what do experts thinks about the MRP?

“The rationale behind the MRP being mentioned on the packaging [of a product] is to avoid consumers being fleeced by 'unscrupulous' retailers. I don’t see that rationale disappearing until there is much greater price transparency in the market, or more consolidation and structure,” says Devangshu Dutta, chief executive, Third Eyesight.

On whether the MRP affects the flexibility of a retailer to sell products at a price lower than the maximum retail price, Dutta's answer is a firm “No”. He reasons: “This doesn’t affect the flexibility of retailers to sell at prices lower than the MRP. If a retailer wants to work with dynamic pricing, for specific promotions, or to promote sales on a particular day or time, it has the freedom to do so by selling below the MRP. Obviously this flexibility will be more in private label merchandise, or with categories where there is enough margin play.”

Zahir Laliwala, CEO, SportXS, also supports the MRP and says, “It brings transparency in the system. The MRP needs to stay for the consumer's benefit.”

Siddharthan Sundaram, director - retailer services, The Nielsen Company, however, does not agree with Dutta or Laliwala. He says, “If the government withdraws the MRP, it will create competition among suppliers and manufacturers and this will ultimately help consumers to buy goods at a competitive price.”

Supporting the withdrawal of the MRP, Sundaram says, “I strongly believe it will help all stakeholders, particularly consumers.”

T S Ashwin, MD, Odyssey India Ltd, is of the opinion that the MRP makes it difficult for retailers to manage margins, “as they can't charge anything beyond the maximum retail price printed on the product”.

Explaining his stand, he says, “When we take up outlets in airports or five-star hotels, the cost of operation is much higher and internationally it is an accepted practice to charge more in such outlets. But in India, we cannot do so due to the MRP. This again impacts our margins.”

Giving the example of Odyssey, he says, “We are a category where over 80 per cent of products are with an MRP. Though there is VAT, the rates are different in each state for the same product. This makes it very difficult to manage margins, as we cannot charge anything beyond the MRP. Not always can we get the vendors to bear the additional cost due to differential tax rates. Also transferring stocks from one state to another becomes a problem due to the same issue. We lose on margins as well as the vendors don't reimburse.”

He further says, “With VAT coming in, the concept of MRP should be done away with and retailers be allowed to fix their prices based on the market demand, etc [and other factors].”

Clearly, there are strong arguments both in favour of and against the MRP. While some believe the MRP is necessary to protect the consumer, others strongly feel that 'flexi-pricing', where the power to decide the price of a product lies with the retailer, will help retailers offer a better deal to customers. Now, the big question is: can we try giving retailers a chance to fix the prices?