| "Price gouging" is an emotional, inflammatory term. | | | | citizens. Nobody seems to think to blame the use of a |
| Everyone is against it, but only buyers, angry over | | | | list price.List prices are some of the best fiction ever |
| excessive profit-taking, proclaim it. As a seller, how can | | | | written.Should We Sell Over List?Some routinely call |
| you reap the profit rewards you deserve without being | | | | the selling of a product at more than list price "gouging," |
| accused of price gouging?From a marketer's | | | | and consider it unethical and even immoral.Buyers feel |
| perspective, attaching a price tag to a product or | | | | gouged when it appears that sellers are taking |
| service is always an agonizing experience. What is the | | | | advantage of the buyer's condition with a commodity |
| right price? This question is hotly debated in meeting | | | | product. I'll loosely define commodity as any product or |
| rooms around the world every day. The search for | | | | service that has a fairly consistent price in most selling |
| the perfect price may be the Holy Grail of | | | | environments. When the buyer sees an inflated price |
| marketing.Pricing is like sunblock. No matter how you | | | | for the commodity and has no other competitive |
| decide to apply it, the question always lingers; how | | | | alternatives due to the situation they're in, the buyer |
| much is enough? How can you avoid leaving money | | | | feels gouged.For example, I would expect a hot dog |
| on the table without being burned by claims of price | | | | and a Coke at most locations to be 4 or 5 US dollars. |
| gouging?While everyone certainly wants win-win | | | | When I was watching the Atlanta Braves play |
| relationships, the buyer and seller are adversaries | | | | baseball at Turner Field and got hungry, the hot dog |
| where pricing is concerned. The seller wants to get the | | | | and Coke I found cost closer to $10. To find any food |
| most money possible for their offering, because each | | | | that I considered reasonably priced, I would have to |
| additional dollar gained is pure profit. From the buyer's | | | | leave the stadium environment. I felt gouged.As a |
| perspective, less is better and free is best.The List | | | | boater, I routinely pay 30-40% more at the dock for a |
| Price ObstacleMost claims of price gouging are based | | | | gallon of gas than I would when I take my car to the |
| on comparisons of asking price to published list price. | | | | pumps. Same gas, different environment. I feel |
| From the buyer's perspective, list price is the ceiling, the | | | | gouged.Price gouging occurs when no alternatives are |
| most they should have to pay for a seller's offering. | | | | available for purchase. In our free market society, that |
| More importantly, list price becomes the basis from | | | | rarely happens. When it does, we need to be |
| which discounts are taken.The idea of establishing a list | | | | especially careful. Where there is demand, there is |
| price for a product is actually a fairly new invention. As | | | | usually -- but not always -- competition.A Controversial |
| recent as the middle Middle agesAges, prices were | | | | SolutionAn opportunistic sales force that I once |
| based on perceived ability to pay versus being tied to | | | | worked with faced a pricing dilemma. Buyers in this |
| some intrinsic worth of the product itself. For example, | | | | industry routinely expected a 15-20% discount, making |
| when a nobleman was purchasing a commodity such | | | | it nearly impossible to hold list price. The solution came |
| as food, they would routinely pay several multiples | | | | to be known as "New York Pricing" -- invented by the |
| over what a peasant farmer would pay for the same | | | | New York district office -- which simply involved |
| product. Why? Because they could. The seller would | | | | marking up list price by 15% before presenting it to the |
| have no trouble asking the nobleman for the higher | | | | prospective buyer. After ardent negotiations, the buyer |
| price, and the nobleman would have no problem | | | | might receive their 15-20% discount, resulting in a sale |
| paying. In those days, gouging only referred to activities | | | | at or near list price for company. Because |
| having to do with battles and body parts.For most of | | | | headquarters couldn't come up with a better solution, |
| us, we believe prices can only go down from list price. | | | | "New York Pricing" was widely practiced by the sales |
| When buying a car, for example, nobody expects to | | | | team although not officially endorsed by |
| pay "sticker". In fact, many car buyers believe that list | | | | management.Gouging is in the Eye of the |
| price shouldn't be the basis of pricing discussions at all. | | | | BeholderWhile we might like the market to set the |
| Instead, they focus on working from the dealer's | | | | price, we can't all engage in an auction environment. At |
| invoice price. How shocked these same buyers are | | | | some point during a buyer-seller interaction, the seller is |
| when they're asked to pay over sticker! This has | | | | going to offer a price. This is perceived by the buyer |
| happened when anticipation for a new model creates | | | | as list price, and we expect to go down from |
| high demand though the product is in short supply. | | | | there.Price gouging is not about charging more than list |
| Examples include the original releases of the Mazda | | | | price. It's about the seller taking advantage of the |
| Miata, Dodge Viper, Nissan Xterra, the reintroduced | | | | environment to require people to pay more than the |
| Volkswagen Beetle, and the 2005 Mustang.When | | | | offering is worth. Selling over list price is fine if the |
| sellers ask for more than list price, buyers deem it | | | | market is willing to bid up the price despite the |
| "unfair", "outrageous" and -- of course --price gouging. | | | | presence of alternatives. That's what happens with hot |
| Now it's time to play the blame game. We can blame | | | | new cars. If the buyer believes they are getting value |
| manufacturing for not producing enough vehicles to | | | | well in excess of the list price, both parties can feel |
| meet demand. We can blame marketing for creating | | | | good about the transaction.© 2005 Paul Johnson. |
| too much interest in a product they couldn't supply. We | | | | All rights reserved.Note: This article is available for |
| can blame the greedy capitalists who are exploiting the | | | | reprint at no charge. |