ethics in pricing

7/28/2019 Ethics in Pricing

1/29

ETHICS

IN

PRICING

PRESENTED BY:


2/29

INTRODUCTION In today's environment, every business must be as

competitive as possible in order to gain new customersand keep their existing customers.

Some are choosing to offer more value than ever beforeto their customers, and some choose to benefitthemselves rather than their customers when consumershave a hard time differentiating them from theircompetitors. Brings up the ethics of pricing


3/29

ETHICAL PRICING STRATEGYA business operating in today's competitive

environment might be tempted to try a variety ofunethical pricing strategies to increase market shareand profits.

Pricing Ethics

Pricing ethics involves examining what constraintsare needed on the pursuit of market share andprofits when the actions of a company affect othersadversely.


4/29

Examples of Unethical Pricing Strategies

Price gouging is an example of an unethical pricingstrategy. A company may raise prices of items that aretemporarily in high demand. This is sometimes seen inthe wake of emergency situations when the price ofplywood jumps after a flood, even though there is enoughplywood to repair houses.

High Pressure Pricing Strategies

Vulnerable consumer groups sometimes take the brunt ofunethical pricing strategies.


5/29

Developing an Ethical Pricing Strategy

Companies issue statements of ethical practice in regardto their dealings with customers. This includes pricingand should include statements about when the companycan raise prices and by how much


6/29

PRICING STRATEGY ETHICS ISSUES

Pricing: More ethics than legality There is a general consensus that marketing strategies must not

infringe on values like honesty, transparency, and autonomy. Assuch, the main crux of pricing ethics concerns the establishment

of a balance of power (through information) between theproducer and the consumer.


7/29

1. Price fixing: Collusion at its worse Price fixing involves the an agreement between a group

of people on the same side of a market to buy or sell agood or service at a fixed price. Typically, competition

between these participants for consumers drives downprices for goods.


8/29

Bid rigging: FavoritismThis practice hurts consumers considerably,

because the best producer doesnt receive the

work necessarily.

Even if you know a guy

keep the bidding processhonest on both sides.Everyone will end upbetter off.


9/29

Price discrimination: Anti-favoritism Price discrimination is the strategy of selling the same product at

different prices to different groups of consumers, usually based onthe maximum they are willing to pay.

Price skimming: Discriminating through time Price skimming is when the price for a product is first sold at a very

high price and then gradually lowered.


10/29

This strategy is most commonly seen in the tech industry, as someconsumers are willing to pay a premium price for the newest gadgets.

Apple is a prime example, as prices drop within months of a release andnew iterations happen within six to 12 months.

Find ways to lower prices to new tranches of customers discreetly.

Supra competitive pricing: Monopoly gouging

Sometimes the value that consumers place on a good is much greater thanthe cost of producing that good. In such cases, there is controversy aboutwhether the corporation is justified in charging a much higher price andmatches the perceived value.

This is a common sense scenario, but a good litmus is to ask yourself if thepricing change hinders an individuals necessities.


11/29

ETHICS OF PRICING PRACTICES

Companies have a whole range of techniques to set, orshall we say, manipulate prices. Some may verge on fraudor anti-competitive practices whilst other techniques willseek to exploit opportunities in the market place.

Trust - or lack of it Any company that engages in fraud, bribery, predatory pricing etc. is

hopefully going to get discovered. And if the regulators fines dont

bankrupt them, then lose of customerstrust probably will. In the UK, there are companies such as the Co-op, The Body Shop

and Fair Trade. These companies are building solid businessesbased on trust and fair dealing.


12/29

Life's a Continuum

The fair trade movement does give more to the growersbut everyone else along the supply chain seems to take

their (unfair?) cut of the much higher retail prices. Giving deep discounts provides customer benefits, but it

can also put competitors out of business.


13/29

Upside Down Thinking

The widening use of information technology is providingbusiness with new opportunities for changing their pricingpractices.

YM, airlines offer extremely discounted prices to earlybookers. Then as demand rises and the plane becomesfull the ticket price rises.

Many companies now offer discounted prices for internetpurchases, or conversely, a surcharge for telephone andpostal purchases. Banks and savings institutes similarlyoffer higher interest rates to internet based customers.


14/29

Own Unique [High/Low] Price

Just this month (Oct. 04) dabs.com stopped its loyalty pointsscheme and said they would offer lower prices by dynamicallychanging prices so they were the most competitive.

Uncontrolled, one can imagine retailers computer systemsautomatically fighting each other to the bitter death of zeroprofits!

War & Peace Other contentious pricing practices include immediately hiking

pricing when there are world events (think crude oil and war,despite there being millions of litres of fuel in the supplychain).


15/29

UNETHICAL SALES PRACTICES THAT DAMAGE ABRAND AND LEAD TO UNFAITHFUL CUSTOMERS Making promises and commitments to customers that your product

development team cannot fulfill.

Misrepresenting promotions or products to close a deal with a

prospective customer or up-sell a current customer. Leaving customers in the dark about promotion or pricing changes.

Skipping contract commitment disclosures. Customers hate to becaught off-guard and be tied to commitments that are contained inthe fine print of a deal.

Making sales final before a customer has had ample time to try-out aproduct.


16/29

By establishing reasonable customer expectations,being transparent about contractual issues andallowing customers to test-out products during atrial period or offering a 15 to 30 day refund policy,

your sales team will weed out bad customers andset your customer management and productmanagement teams up for success in building long-lasting customer relationships


17/29

ETHICAL ISSUES RAISED BY DUAL PRICING

Insurers have been in the spotlight recently in connection withdual pricing. This is when the same risk is priced differently fornew customers and existing customers.

Firstly, dual pricing relies on information asymmetry between

insurer and consumer: in other words, existing customers notknowing a) how the price for their policy was arrived at and b)what other customers are being charged for a comparable risk.

Clearly, it can sometimes be a challenge to achieve pricingconsistency across an insurers full range of brands, products anddistribution channels, so some pricing variations are to beexpected.


18/29

The second point thats worth highlighting is the knock oneffect dual pricing could have on trust in the insurancesector and the perceived value of what is being sold.

As a promise to pay, insurance relies a great deal upon thetrust consumers have in the sector.

To succeed, they will need to get their messaging much

more consistent.


19/29

KEY ETHICAL ISSUES IN B2B PRICING

Price fixing

principal ethical issues that arise in B2B pricing decisionsare anti-competitive pricing, price fixing, pricediscrimination, and predatory pricing or dumping.

Collusive tendering

collusive tendering, which occurs where there is an

exclusive agreement between competitors either not totender, or to tender in such a manner as not to becompetitive with one of the other tenderers.'


20/29

CASE STUDIES OF UNETHICAL ISSUES INPRICING

Case 1:

Fuel Pricing In India

Demand for the petroleum products is on an expected rise in thecountry. Considering this socio-economic ramifications, the

government has been substantially involved in the pricing andsupply of these petroleum products.

Country has to depend a lot on the imports of these products.The current import prices for India is 5.27$ per gallon as opposedto 3.27$ for USA

Governments responsibility to provide Middle Class section ofthe country with cooking fuel in subsidized prices as it cannot beafforded by them.


21/29

Judgment:

Key Recommendations from the Parikh Committee:

Domestic petroleum product prices have to reflect that of internationalprices. The government should allow pass-through of international oilprices to domestic users. This will enable the public sector OMCs andupstream oil companies to remain financially stable and solvent.

Conclusion:

The committee suggested that LPG and kerosene prices could beraised every year in step with the growth in per capital agricultural

GDP at nominal rates and per capita income respectively. Freeingpetrol and diesel prices would not only promote competition but alsolead to more equitable sharing of inflation burden, affecting mostlypeople who can pay.


22/29

Case 2 IPL BID RIGGING

IPL planned to increase the franchise teams from 8 to 10 for IPL4, 2011. The runaway success story of IPL had made IndianCricket Story an incredible one. IPL has unveiled a new business

segment in the Indian soil. IPL first season started with 8franchise teams and the base price was at USD 50 million each.

But, IPL aimed high with its 2 new teams and has proposed strictbid rules. Each new IPL team is base priced at USD 225 million(~ Rs. 1040 crores ). Bidder networth should be over $1 Billion (~

Rs. 4500 crores). Also, interested parties should submit a bankguarantee of Rs. 460 crores to participate in the bidding process.


23/29

CASE:

The entire case started soon after Rendezvous Sports World (RSW)won the Kochi IPL team 10 year rights for $333.33 Million, Lalit Modi,Commissioner of IPL expressed his doubt on share holding patternof the Kochi IPL Team Owners RSW which he made public in histweet.

Conclusion:

This is a classic example of complications in restrictive tradepractices issues and corporate dispute. Bone of contention chiefly

revolves around the issues of bid rigging on one side and issue ofsweat equity shares flouting the provisions of Companies Act andSweat Equity Rules, on the other side. Closer scrutiny by CentralGovernment and Competition Commission are essential so as tobring the complicated issues at rest.


24/29

Case 3

HOARDING & MANIPULATION TO PUSH UP SUGAR

PRICES DURING JANUARY 2010

During January 2010, the retail prices of Sugar reached Rs. 50per kg. & was expected to rise further because of Holi where thedemands of sweet would increase thereby increasing thedemand of sugar. So the sugar price was expected to reachRs.60 just before the festival of Holi.

This price hike was a result of HOARDING of sugar by the

various wholesalers & retailers. Some other factors contributingto this price hike was bulk purchase by industry &MANIPULATION of market sentiments by the private mills.


25/29

THE ESSENTIAL COMMODITIES ACT (ECA), 1955:-

The Essential Commodities Act, 1955 was enacted to ensure the easyavailability of essential commodities to consumers and to protect them fromexploitation by unscrupulous traders.

THE PREVENTION OF BLACK-MARKETING AND MAINTENANCE OFSUPPLIES OF ESSENTIAL COMMODITIES ACT:-

The Prevention of Black-marketing and Maintenance of Supplies of EssentialCommodities Act, 1980 is being implemented by the State Governments/UTAdministrations for the prevention of unethical trade practices like hoarding

and black-marketing. The Act empowers the Central and State Governmentsto detain persons whose activities are found to be prejudicial to themaintenance of supplies of commodities essential to the community.


26/29

Case 4

Dumping of Sport Shoes in India by China

The authority considered imposing an amount of duty equal to the levelof dumping to remove the unfair advantage to the Chinese exporterswhile keeping the level of competition in the domestic market the same.Hence, they imposed the anti-dumping duty such that, the minimum

price charged for unbranded and low end branded shoes will be 6.277$per pair, and that for the branded category which includes Nike, Reebokand Adidas will be 18.44$ per pair. Thus, the anti-dumping duty will bethe difference between the import price and the minimum selling price asgiven above.

Thus, the unfair edge gained by the Chinese exporters was eliminated,and the competitiveness of the markets was also sustained. There wasno restriction on imports of shoes from China, which did not affect theavailability of goods for the consumers.


27/29

CONCLUSION

A series of major financial scandals involving Enron, TycoInternational, HealthSouth, Adelphia Communications,WorldCom, Global Crossing, Rite Aid, and other companieshave raised deep concerns about ethics in business

Pricing ethics involves examining what constraints areneeded on the pursuit of market share and profits when theactions of a company affect others adversely.


28/29

A company may raise prices of items that are temporarily inhigh demand.

The potential blow to consumers is why horizontal price

fixing is illegal, which means corporations on the same levelof the supply chain cannot agree on a target, maximum, orminimum price

Sometimes the value that consumers place on a good ismuch greater than the cost of producing that good. In suchcases, there is controversy about whether the corporation is

justified in charging a much higher price and matches theperceived value


29/29

THANK

YOU

ethics in pricing

Documents