Marketing Information

How Price Gouging Can Hurt Your Business


"Price gouging" is an emotional, inflammatory term. Everyone is against it, but only buyers, angry over excessive profit-taking, proclaim it. As a seller, how can you reap the profit rewards you deserve without being accused of price gouging?

From a marketer's perspective, attaching a price tag to a product or service is always an agonizing experience. What is the right price? This question is hotly debated in meeting rooms around the world every day. The search for the perfect price may be the Holy Grail of marketing.

Pricing is like sunblock. No matter how you decide to apply it, the question always lingers; how much is enough? How can you avoid leaving money on the table without being burned by claims of price gouging?

While everyone certainly wants win-win relationships, the buyer and seller are adversaries where pricing is concerned. The seller wants to get the most money possible for their offering, because each additional dollar gained is pure profit. From the buyer's perspective, less is better and free is best.

The List Price Obstacle

Most claims of price gouging are based on comparisons of asking price to published list price. From the buyer's perspective, list price is the ceiling, the most they should have to pay for a seller's offering. More importantly, list price becomes the basis from which discounts are taken.

The idea of establishing a list price for a product is actually a fairly new invention. As recent as the middle Middle agesAges, prices were based on perceived ability to pay versus being tied to some intrinsic worth of the product itself. For example, when a nobleman was purchasing a commodity such as food, they would routinely pay several multiples over what a peasant farmer would pay for the same product. Why? Because they could. The seller would have no trouble asking the nobleman for the higher price, and the nobleman would have no problem paying. In those days, gouging only referred to activities having to do with battles and body parts.

For most of us, we believe prices can only go down from list price. When buying a car, for example, nobody expects to pay "sticker". In fact, many car buyers believe that list price shouldn't be the basis of pricing discussions at all. Instead, they focus on working from the dealer's invoice price. How shocked these same buyers are when they're asked to pay over sticker! This has happened when anticipation for a new model creates high demand though the product is in short supply. Examples include the original releases of the Mazda Miata, Dodge Viper, Nissan Xterra, the reintroduced Volkswagen Beetle, and the 2005 Mustang.

When sellers ask for more than list price, buyers deem it "unfair", "outrageous" and -- of course --price gouging. Now it's time to play the blame game. We can blame manufacturing for not producing enough vehicles to meet demand. We can blame marketing for creating too much interest in a product they couldn't supply. We can blame the greedy capitalists who are exploiting the citizens. Nobody seems to think to blame the use of a list price.

List prices are some of the best fiction ever written.

Should We Sell Over List?

Some routinely call the selling of a product at more than list price "gouging," and consider it unethical and even immoral.

Buyers feel gouged when it appears that sellers are taking advantage of the buyer's condition with a commodity product. I'll loosely define commodity as any product or service that has a fairly consistent price in most selling environments. When the buyer sees an inflated price for the commodity and has no other competitive alternatives due to the situation they're in, the buyer feels gouged.

For example, I would expect a hot dog and a Coke at most locations to be 4 or 5 US dollars. When I was watching the Atlanta Braves play baseball at Turner Field and got hungry, the hot dog and Coke I found cost closer to $10. To find any food that I considered reasonably priced, I would have to leave the stadium environment. I felt gouged.

As a boater, I routinely pay 30-40% more at the dock for a gallon of gas than I would when I take my car to the pumps. Same gas, different environment. I feel gouged.

Price gouging occurs when no alternatives are available for purchase. In our free market society, that rarely happens. When it does, we need to be especially careful. Where there is demand, there is usually -- but not always -- competition.

A Controversial Solution

An opportunistic sales force that I once worked with faced a pricing dilemma. Buyers in this industry routinely expected a 15-20% discount, making it nearly impossible to hold list price. The solution came to be known as "New York Pricing" -- invented by the New York district office -- which simply involved marking up list price by 15% before presenting it to the prospective buyer. After ardent negotiations, the buyer might receive their 15-20% discount, resulting in a sale at or near list price for company. Because headquarters couldn't come up with a better solution, "New York Pricing" was widely practiced by the sales team although not officially endorsed by management.

Gouging is in the Eye of the Beholder

While we might like the market to set the price, we can't all engage in an auction environment. At some point during a buyer-seller interaction, the seller is going to offer a price. This is perceived by the buyer as list price, and we expect to go down from there.

Price gouging is not about charging more than list price. It's about the seller taking advantage of the environment to require people to pay more than the offering is worth. Selling over list price is fine if the market is willing to bid up the price despite the presence of alternatives. That's what happens with hot new cars. If the buyer believes they are getting value well in excess of the list price, both parties can feel good about the transaction.

© 2005 Paul Johnson. All rights reserved.

Note: This article is available for reprint at no charge. We only ask that you include our copyright notice in your reprint, along with the About the Author (byline) information we provide at the end of the article.

Paul Johnson of Panache and Systems LLC consults and speaks on business strategy for systematically boosting sales performance using Shortcuts to Yes?. Check out more salesforce development tips at http://panache-yes.com/tips.html Call Paul direct in Atlanta, Georgia, USA at (770) 271-7719.


MORE RESOURCES:
Business:Marketing Articles from EzineArticles.com
12/17/2018 11:35 AM
Marketing Examples For An In-Home Care Services Company
When marketing an in-home care service, it's important to reach the family members of those who will be paying for the service on an emotional level. One should use various mediums to do this; Radio talk shows, podcasts, YouTube videos, blog posts, websites, etc. Below are some examples that might help you put together an award winning level marketing strategy.
12/12/2018 02:20 PM
Pay Close Attention to Your Competitors
The analysis of your competitors is critical to your success. You will want to keep in mind that you can learn a lot from your competition and they are an essential part of your professional success. Understanding your competitors' strengths and weaknesses will help you to understand what you need to do with your own business.
11/28/2018 03:18 PM
Marketers Need to Know: Where Are They? Where Are They Not?
When I was a student, I must admit I thought it really didn't relate to my (limited) worldview. Since then, I've found how important geography can be for business use, and the many practical uses of this subject are just as relevant as they were when you and I were in school. Be assured that, in the world of growing a business, geography is very practical as a tool for marketing tasks, delivery and scheduling decisions, and optimizing staffing levels.
11/26/2018 01:25 PM
This Truth About Your Impact May Surprise You
Entrepreneurs and leaders are often depicted as rugged individualists. That depiction doesn't reveal the truth about what it takes for you to have real impact.
11/19/2018 02:14 PM
Breaking Down Sales and Marketing
All too commonly, organizations have made the assumption that all salespeople are skilled at marketing and that all marketers are skilled at sales. As a result, they've treated their talent as "multi-purpose" employees, often combining sales and marketing departments in a futile attempt to conserve resources. Surprisingly, this still happens today. Let's take a look at why this is a foolish practice and how businesses are selling themselves short.
11/19/2018 01:00 PM
10 Reasons Why Impact Is Your Competitive Edge
Even if you have a unique product or service, it's inevitable that your company will be joined by others. Your decision to focus on impact provides a unique value proposition.
10/26/2018 12:15 PM
Some Straight Talk on Affiliate Marketing
My wife and daughter are out of town today so I was going to get caught up on my favorite TV shows: Supergirl, Flash, Supernatural and Legion. I definitely like the superhero shows. I grew up watching Christopher Reeve's Superman films and reading comics.
10/26/2018 10:24 AM
Here Are 6 Simple (Not Easy) Steps to Profitable Internet Marketing
I'm feeling rested because I took the week off from working out. My body has gone through some rigorous training the last couple of months and I just felt exhausted. That's usually a sure sign to just take it easy.
10/26/2018 10:24 AM
7 Powerful Strategies to Implement Before You Start Internet Marketing
My wife, daughter and I were just watching World of Dance when a community warning interrupted our relaxation time. There were toxins released into the water, which freaked out my wife. I wasn't worried, of course, but my wife was getting ready to have me take the 30-minute commute to Eugene and have me buy as much water as I could carry!
10/26/2018 10:23 AM
Here's A Quick and Dirty Guide for Selling On eBay
This week I've made it a goal to sell stuff around the house that I don't use. I have an X-Box 360 that's been sitting in a box for over 2 years along with 4 controllers and a bunch of video games. I also have boxes of books I haven't opened in a while.
10/24/2018 11:19 AM
Components of a B2B or B2C MarTech Stack
Google AdWords is a popular advertising service. In fact a lot of contenders of the Stackies 2018 had Google AdWords in their martech stacks. The right advertising campaign or goals will promote your business and so using the right advertising technology is important for your martech stack.
10/15/2018 10:07 AM
3 Things to Consider While Selecting Your Marketing Automation Tools
Marketing automation is a great approachto connecting with your customers in a highly personalized mannerand to increasing your marketing and sales qualified leads. Before you select the right one for your company, figure out what processes work for you and what's holding you back. If you need help in figuring out what marketing automation tools would be ideal for your business, feel free to give us a call or shoot us a mail, and our senior consultants will be happy guide you
10/03/2018 12:47 PM
Congratulations - You're a Life Coach! Now What?
Starting your own business is exciting; especially entering the field of life coaching. You have recognized your ability to inspire others and have committed to bringing your gift to those who need your help.
09/27/2018 12:40 PM
Features and Benefits - Why Understanding the Difference Is Crucial for Your Business
To say that marketing your company has changed from even ten years ago feels a bit like a clich?. We all know that the marketing landscape has changed - I prefer to look at it as "enhanced" because many traditional marketing channels remain powerful (word of mouth for example).
09/24/2018 10:09 AM
5 Surefire Ways To Optimize Your Book's Sell Sheet
In order to become, or remain, financially successful as a self-publisher, you must be able to quickly and effectively get your marketing message to your book-buying audience. Your book's sell sheet is an excellent tool to do this. The sell sheet is a perfect marketing tool for offline AND online marketing - because it's simple to understand, and gets directly to the point. So, here is a short discussion of five certain ways to make your sell sheet a very powerful marketing tool.
09/13/2018 11:14 AM
Back to School - Back to Business!
I don't know about you, but my social media feed has been filled with back to school photos from family and friends. My kids are older, and back to school has lost the fun it used to have, but I love seeing my friends reach the milestones I did!
08/23/2018 10:56 AM
Jump In! How Creating Content Is Like Swimming
I just dropped my daughter off for swim practice at 6:45am! She is starting high school and has never done competitive swimming before, but she signed up for the swim team in order to meet some people and get some great physical activity. Honestly, I am incredibly proud of her for doing this.
08/22/2018 02:46 PM
How to Sell More to the Clients You Already Have
Generating new leads is tough - you need to be out there hustling, networking, creating, and following up every day. There are amazing tools, such as lead magnets, that can work for you with minimal effort once created.
08/17/2018 12:06 PM
What Is an SSL Certificate and Why Is It Important for Your Business?
SSL stands for Secure Sockets Layer and is essential to the security of your website, as it allows a secure connection between your server and a browser. This connection permits the secure transmission of information, between your website and your client as an example.
08/01/2018 08:17 AM
How Do I Find Out Who My Customers Are?
No matter of how good your products or services might be, they won't appeal to everybody. If you try to get your messages to a wide untargeted audience, you'll spend money that you don't really need to spend, and you won't even get a lot back from it either.
07/30/2018 03:19 PM
Defining Your Market
Defining your target market is critical if you plan on any measure of success in your business. A solid foundation for your business requires that one of the first things - if not THE first thing you need to do is to - DEFINE YOUR TARGET MARKET!
07/29/2018 05:16 PM
How Can We Do Neuromarketing?
Neuromarketing techniques are based on scientific principles about how humans really think and decide, which involves brain processes that our conscious minds aren't aware of. When combined with sound experimental designs and procedures, these new techniques provide insights into consumer decisions and actions that are invisible to traditional market research methodologies.
07/25/2018 12:26 PM
Affiliate Marketing - Building Strong Relationships
The internet has no borders, affiliate marketing is a worldwide business. Anyone can enter the online industry, the only requirement is to have a good internet connection. An essential part of business success is having a strong network.
07/24/2018 11:56 AM
5 Important Questions to Ask Your Trade Show Organiser Before Exhibiting
Exhibiting at a trade show event involves a lot of planning, investment and efforts. To make the most of your exhibiting experience, it is necessary to ask for information about the trade show and cross-check the facts before your book the space. In this blog post, we've compiled a list of 5 important questions that you must ask your trade show organiser before exhibiting to get maximum ROI.
07/24/2018 09:09 AM
Create Your Own Olive Oil Line Through Private Labelling
As media spurs news about the so-called super food, more and more people are becoming aware of its capacity when it comes to cooking and health. Aside from the fact that it smells good and tastes delicious, olive oil has a lot of notable health benefits. For one thing, it has anti-inflammatory properties, prevents stroke, and is rich in antioxidants. It can even alleviate the onset of chronic diseases like cancer, diabetes and prevents heart failures.
07/22/2018 10:48 AM
Confused About Customer Segmentation? Read This
If you are anything like the rest of the world, then you know what it's like to be confronted with terminology for a specific field or industry and have absolutely no clue what is being said. On the whole, this doesn't seem so bad, but if you're in business, you can't simply walk away from industry jargon, especially when it is as important as customer segmentation.
07/22/2018 10:33 AM
Is Your Message Strong Enough?
If you believe that what you offer will help people, how can you keep it from them? Be heard above the din of many marketing messages with your strong message.
07/15/2018 10:42 AM
3 Reasons Why the Amish Were Right About Marketing
If I say the word "Amish" to you, what are the images that come to mind? Perhaps your mind goes to thoughts of horse-drawn carriages, a close-knit community that stays within itself, or no use of modern comforts like electricity or photography. Maybe you think of the clothes Amish people wear or the long hours that they spend working.
07/09/2018 08:09 AM
Eliminate the Ick From Networking
Networking doesn't have to be icky. Here's what to focus on when you attend an event or gathering.
07/06/2018 09:22 AM
Persuading With Emotion
The 7 Secrets Of Persuasion by James C. Crimmins, PhD. has it all. Well, almost all. Crimmins steps through all the rules, or "secrets," of persuading your target audience. It turns out the one big overarching secret is to use emotion, not facts. But what he doesn't quite do is step through the process of putting together your very own persuasive marketing message.
07/05/2018 03:01 PM
How an Outside Event Planner Can Save Your Business Money
When it's time to plan a marketing event for your business, which is the more cost-effective option; hiring an outside event manager or using your internal marketing team? Your first instinct might be to choose the internal marketing team. This article outlines why you may want to think again!
07/05/2018 03:00 PM
How to Qualify Leads at Your Events
A marketing event is an ideal way to interact one-on-one with current and potential customers. In a world saturated by digital, a marketing event creates a valuable personal relationship between your business and your ideal client. In this article, you will find a few tips on deciphering between the types of leads you acquire at your events.
07/05/2018 10:55 AM
Automate EVERYTHING Humanly Possible
Marketing Auotmation is the creme de la creme of everything we do in marketing. And if you don't learn automation, you will...
07/05/2018 10:51 AM
7 Small Business Marketing Trends You Need to Follow in 2018
The way marketing works are essentially changing day by day because of the absolute volume of people using the internet and the depends on new technologies as well. Keeping in mind, here I would like to share the 7 Marketing Trends You Need to Follow in 2018 for your small businesses.
06/27/2018 03:38 PM
Analytics Marketing - Monitoring Your Traffic and Keep Ahead Of The Competition
Are you confused on how Analytics work? With our expertise, we can easily offer you a number of helpful tips that can help you get on top of your game and understand exactly how the world of Analytics and traffic management works.
06/27/2018 03:31 PM
Marketing - 5 Ways to Lower Your Marketing Budget and Still Get Your Business Out There
It's a big wide world of marketing, and getting your business out there can prove to be difficult. With these top tips, you can get ahead of the competition.
06/27/2018 10:43 AM
The Number 1 Split Testing Mistake
This article will show the #1 mistake most marketers make when doing split testing. And also how to correct it.
06/21/2018 12:09 PM
The Philippines Is The Right Country To Outsource Your Company's Business Marketing Projects
High Overhead Costs? Are you paying high overhead costs to maintain an internet marketing group, i.e. salaries, OTs, benefits, perks?
06/21/2018 09:17 AM
7 Ways to Get Maximum Marketing Results at Any Time
There are no guarantees when it comes to marketing and advertising. However, here are seven ways you can maximize your budget when promoting your offers - during a recession or at the peak of our economy.
06/19/2018 11:46 AM
Analytics and Big Enterprises Success
What to do with ever-growing volumes of (particularly unstructured) data and the benefits of slice-and-dicing data to gain insight have been on the business radar for some time. What have differed in this time are the solutions that have been pitched to solve the problem. Ten years ago, business intelligence was the panacea to the data analytics debate.
06/19/2018 11:20 AM
How Start Ups Will Be Benefited From Data Analytics
In order to stay competitive in the dynamic business world, startups need to have an unconventional wisdom of marketing. Already struggling with a limited budget for marketing, startups must achieve a high consumer conversion rate. The key differentiator between two startups is pace. Things need to be done at a faster pace for startups to be competitive against large companies. And, in order to react to market conditions and changing consumer trends, startups today rely heavily on data analytics. The power of being able to gather, identify, understand and execute upon patterns of data is critical for long-term success of companies as well as for advancement of humanity. Any organization can leverage the exponential data growth but size is on the side of smaller businesses that are perfectly suited to act on data-derived insights with speed and efficiency, unlike large organizations that are often less nimble and hindered by clunky, legacy IT infrastructure. All that's required is somebody in the business that understands two key fundamentals: data analytics and data science.
06/13/2018 09:51 AM
Colouring Variants to Meet Diverse Market Needs
Colours and their various shades form an important aspect of domestic, commercial and industrial world. It is colours that enhance the aesthetic appeal of clothes, homes, food, offices, automobiles, cosmetics, waxes, paints, etc.
06/11/2018 12:31 PM
What You Need to Know About B2B Versus B2C Marketing
There many different types of businesses, some of them B2B and some of them B2C. B2B and B2C business are unique and face unique challenges. It is important to remember that one distinct difference between the two types of businesses is that one is looking for value (on a broad scale) while the other is looking for a human/emtotional connection.
06/06/2018 11:43 AM
Phantom Burglars Rob Me of Sleep
My alarm was set to go off at 4am this morning, yet I it was 3:08 am and I was wide awake. Why? My dog kept getting up, running to the living room and barking at the top of his canine lungs.
06/05/2018 03:11 PM
Trump's Sonic Boom Method to Attract Readers Who Never Read Your Email
President Trump is quite the character. No matter what your opinion of him is, you can't deny that the man is always saying shocking things. These startling ways of his are always getting him media attention.
06/05/2018 06:28 AM
Where Can High School Graduates Find A Marketing Internship?
One career path that is often overlooked is marketing. There are always lots of jobs in marketing. If the economy is slowing down, companies work to get more sales. When the economy is moving forward, companies are expanding and they need marketing, and it gets hard to find marketing experienced professionals when job markets are tight. A student that wants a job in marketing won't have to look far for an entry level marketing job. Companies are always hiring telemarketing - both, out bound and inbound telemarketers. Retailing companies always need help with their online marketing.
06/04/2018 10:03 AM
Writing to Sell in Eight Steps
This article discusses how to write an effective sales brochure, web page, sales letter, or presentation. A structure is provided to help the writer cover key elements of the sales document.
06/03/2018 06:02 PM
Marketing MiniSeries Part 3: How You Can Turn One Blog Post Into 11 Fresh Content Pieces
You know all that stuff you're supposed to be putting online to promote your business? It seems like a lot of work, doesn't it? Truth: it is!
05/30/2018 04:13 PM
Is Your Site GDPR Compliant?
Normally at the end of the month, we do a wrap up of the past few weeks of blogs, this month however we're changing it up a bit. The biggest news to hit online marketers in a LONG time is the General Data Protection Regulation (aka GDPR); in fact on May 25 (the deadline to be compliant) I was in the airport and miscellaneous strangers were wishing each other a happy GDPR day.
05/29/2018 12:33 PM
Small And Midsized Company Marketing And Marketing Communications - A Lesson From Large Agencies
Over the past few years, rapidly developing technologies have changed the way marketers think about marketing and marketing communications strategies, plans and tactics. However, somewhat quietly but perhaps more importantly, a significant change has occurred with the world's largest communications companies - the dramatic growth of consulting companies at the expense of traditional advertising agencies. Why is this change happening and what can small and midsized marketers learn from it?


home | site map |