Saturday, May 6, 2017

J for Jacking up Prices

Worldwide, it’s a common practice for Retailers to increase the “Selling Price” of products and then offer a huge discount to Customers. This works well in most countries where there is no MRP regime – Maximum Retail Price. MRP is fixed in certain countries like India and even has an Act passed by the Parliament. According to the MRP Act in India, any product that has been packed and sealed must carry an MRP – a price that’s the maximum fixed for that product. The manufacturer or the seller is free to fix the price but there are a lot of governance issues around this. For example, a product that has to be sealed must go through certain formalities with various Government Departments. Although prices keep fluctuating from time to time, especially for essential items such as Grocery, the Retailers can keep changing the price but after prior information to the concerned Government Authorities.


A packed product could mean a premium shirt from Louis Philippe or 1 kg of Rice or Atta and everything in between. This applies for Cars, Bikes, Consumer Durables, Alcohol, Packaged Drinking Water and almost everything that can be packed and sold. However, there are exceptions for Fruits & Vegetables, Meat, Flowers, etc. which are not covered under the MRP guidelines. Therefore it is quite common to see Organized Retailers playing around with the F&V category which is not only demand & supply dependent, but also on various other external factors such as a Traders strike or a Truckers strike.

Small Retailers, especially the semi organized ones do not follow the MRP guidelines strictly. I had an experience just yesterday at a premium Toy Shop in Chennai. Being summer time with holidays for kids, I visited the shop to pick some board games and toys for my kids. There were items which were pegged at high discounts – 30% - 50%. But most of these items didn’t have an MRP. It seemed most of these items were being imported by the Retailer directly from the Manufacturer or an International source. And therefore had the liberty to adjust the prices. Interestingly, the law allows Retailers to do so. The prices can be arbitrarily changed for most products (except alcohol which is governed by the State in TN) by the Retailers and hence the practice of “jacking up prices” is quite common during such times.


While there was no real discount to the customer, it was a sort of a “made-up” discount that the Customer is expected to perceive as a value offering. With the increasing availability of products, customers are quite aware of such malpractices and have taken the Retailer/Seller to the courts. One such recent example was how a consumer in Hyderabad won a case against INOX multiplex for selling Drinking Water above Market Prices although with a different price printed on it. The Court was of the view that the same product cannot be at different prices in different locations and the Customer won hands down.

So how does the Retailer manage to still offer huge discounts (especially to match online prices) and still be profitable? Indeed, it’s a tough call. With markets still in a limbo, it has been a challenge for Retailers to survive but they come up with various tactics such as product diversification or even a new format. Some have pulled down their shutters but the show goes on. 

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