| |
| |
|
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:
Google News |
|
|
|
RELATED ARTICLES
The Easiest Small Business Direct Marketing Tip You'll Ever Get This really and truly is the easiest (and most profitable) small business direct marketing tip you'll ever get. And when I say easy? I really mean EASY. Four Keys For Successful Foundation and Corporate Fundraising Earlier in my career, I worked for a training and technical assistance service provider with significant revenue from foundations and corporations. What was the key to success? It was targeted fundraising based on the needs of the donors. Stretch Your Marketing Reach One of the most cost effective marketing strategies you can utilize is an online newsletter, also referred to as an E-Zine.You can provide valuable content to your customers and potential customers with an E-Zine. The Value of a Good Sales Letter! Regardless of how many forms of promotional material you create, the simple yet very important sales letter never goes out of style. As a matter of fact a good sales letter should definitely be included as part of your marketing strategy for it can be the most effective tool over any other promotional material. Mortgage Broker Marketing - Sell Problems, Not Solutions Are your marketing messages to Realtors® guilty of these promises?- To render great customer service? - To close loans on time? - To offer the best competitive rates? - To help them make more money? - To deliver referrals or free leads? - To co-market services? - To qualify all buyers through a diversity of programs?Guess what?Realtors® have heard this before. So much so, that they've become immune to listening. Have You Tried Cause Marketing? To help promote your small business or professional practice, consider tearing a page out of the corporate marketing playbook. For years big companies have partnered with nonprofits to co-promote their brands. Consumer Thinking And Search Marketing 12/20/04According to a recent article by ComScore Networks, about three-quarters of all consumer product research is initiated through a generic search term, such as "televisions" or "Adoption Services". The report goes on to say that in subsequent research efforts consumers tend to re-initiate the search with generic search terms. 5 Steps to Success: A Surefire Way to Achieve Your Goals No doubt you started this year with some big ideas about what you wanted to accomplish. I know I did!Maybe it was how many new clients you wanted to get, or how much money you wanted to make, or how many products you wanted to sell. Are You Losing Business? As a small business owner, you are grateful for all of your clients or customers. But did you know that small business lose over 62% of sales because they don't follow up? You are caught up in the business of running your business you don't take the time to follow up with your clients. 25 Ways To Get More Business Special Requirements for Reprint: we ask only that you include Pauls name and resource box, and keep all hyperlinks as live links. Complete Article with Resource Box at end: Need more business? Who doesnt? Thankfully, new business is pretty easy to get, but you do have to do something to get it. What The Heck Is An Eponym, And What Does It Mean For Your Brand? Today I've decided to share with you a new word that recently made a special appearance in my daily life: eponym. It is pronounced (EP-uh-nim) and I have to be frank, but I was somewhat at a loss when I saw it. Systems - Marketing Your Business Successfully Business Systems that work for anyone, are a fundamental necessity for any networking venture. While most people rely upon their own company business system or plan for success, there is always a different option. What Your Customers Want Your customers don't know what they want. And to assume otherwise is folly. Educating Your Customers One of the biggest marketing mistakes businesses make today is failing to educate their prospects and customers about the unique advantages that are being offered to them. The cornerstone of any marketing plan should be to educate your customers. Words that Sell We all know the English language contains hundreds of thousands of words. But did you know that only 21 of them can easily sell your clients? Yes! It's true. Collecting Customer Data The Easy Way Market research is a critical component of any marketing strategy. There are many expensive sources of customer information available today. Time for A Marketing Tune-up If you have been in business any length of time, I can assure you that habits, not conscious thought, are guiding your marketing actions. Many business people are great optimists, or they probably wouldn't have gotten into the game to begin with. Is Your 4X4 Trail Rated? "Traction. Articulation. Attracting Clients With Ease Whether you are already running your own business, or still thinking about starting your own business, I suspect that deep down you know you have gifts and talents that can really make a difference to others. In an ideal world, you'd spend the majority of time doing the work you love to do, with a steady stream of clients knocking at your door as and when you want them. Open Doors by Building Relationships "You can make more friends in two months by becoming interested in other people than you can in two years by trying to get others interested in you." - Dale Carnegie -"The same could be said for increasing your professional network.
|
| home | site map |
| © 2006 |
