Pricing Ethics?

San Francisco State University asked me to speak about pricing ethics.  My first thought was, what’s ethical about pricing?

After a lot more thought, I realized this is hard.  It really depends on how you want to define “ethical.”

First, there are several pricing strategies that are clearly unethical and thankfully pricing experts rarely do:  explicit price collusion, price gouging during catastrophes, predatory prices and segmentation based on race.

It is harder to identify ethical pricing behaviors, mostly because companies and consumers have different perceptions of ethical.  So I considered something ethical based on how hard it would probably be to convince a consumer we aren’t cheating them after they learn what we do.  My list of ethical behaviors are:  pricing psychology, implicit collusion, price segmentation, loss leaders and value based pricing.

Of course, the interesting areas are the ones that are controversial.

One possibly ethical behavior is price segmentation based on gender.  I recently blogged about that and boy was there some “feedback”.  Feel free to go back to read more on that.

The one ethical topic I can’t get my arms around is the amount of lying that goes on during negotiations.  This just does not feel ethical.

I have dealt with many professional purchasing agents.  Most seem to think it is fine to say whatever is necessary to get a lower price.  They will lie about who we are competing against.  They will lie about our competitors prices.  They will lie about how many they will buy.  Whatever it takes.

It’s no better on the sellers side.  I’ve too often heard the words “let’s tell them …” followed by something that isn’t factual.  The truth seems to be irrelevant.  In my opinion, this is all unethical.

In case you don’t relate to the above examples, here’s an example you have probably experienced.  Think about the last time you bought a car from a dealership.  Remember when the salesman said he had to go talk to his manager to get you a lower price?  That’s all a game.  Did you feel justified in telling your own lie to the salesman?  We all do it, or are at least tempted.

Here’s an old joke:  Do you know how to tell when a salesman is lying ?    His lips are moving.  We seem to accept this as a fact.  Worse yet, as acceptable.

In summary, the obviously unethical pricing behaviors are rare.  Most of what pricing professionals do is ethical.  However, if consumers truly understood what we do, they wouldn’t think most of it is fair until it is explained to them.  The one obvious area where we “may be” unethical is during negotiations.  Maybe we can just blame that on our salespeople.  🙂

What do you think?  What have I missed?

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Mark Stiving, Ph.D. – Pricing Expert, Speaker, Author

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