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