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