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.
