The Ethics of Pricing
I’m taking a break from the pricing process this week to take a look at the ethics of pricing. Is it moral to charge higher prices?
You will know by now that I talk to many business audiences and directly help businesses to improve their prices.
As a consumer, this might upset you. Surely the last thing you need is to pay higher prices. It’s hard enough making ends meet without some evil marketing wizard teaching companies tricks to part you from yet more of your money.
I have a different view (obviously - or I wouldn’t be doing this).
Let’s look at some data first.
In the UK, The Office for National Statistics publishes data on business births and deaths - and yes, that’s how they describe them.
In 2018, 336,000 business failed. If you’re in the transport and storage industry, then I admire you - you had the highest rate of business deaths (16.5% of all business in the sector failed in 2018), but hope springs eternal so you also had the highest rate of business births at 17.8%. Everyone loves a tryer.
Frighteningly, the rate of business survival over 5 years (from 2013 to 2018) was 42.4%; so 57.6% of business fail in their first 5 years.
It’s not just the UK. USA statistics for 5 year business survival is 51.4% (48.6% failure), and Europe has a similar picture with only half of businesses surviving around 5 years.
Entrepreneurs put time and usually money into starting those businesses. Sometimes they mortgage their homes to fulfil their dreams. As businesses grow they employ people, who rely on that income to live. Strong businesses can invest in innovation, they can develop new markets, they can train their team.
I want to see good businesses who deliver a quality product or service charge a price which means they can survive longer than 5 years and can continue to employ their teams. Too often businesses end up barely making any money, and then it only needs one shock - the loss of a large customer, a downturn in the economy, the entry of another competitor who takes market share - and suddenly that business has joined the statistics of business deaths.
One of the reasons that transport and storage has such a high business failure rate is because they operate on famously small margins.
Right now, due to Covid-19, the economy is shutting down. If you have been making a reasonable profit then you probably have some money in the bank, something to help you through tough times. You can afford to lose some sales and still stay afloat. If, like a £20m business I spent some time with recently, your net margin is 1%, then the current situation is a nightmare.
None of what I have said is meant to sound like support for price gouging. Amazon, quite rightly, has cracked down on companies charging outrageous prices for face masks or hand sanitiser. The Sun recently called out a supermarket which was selling toilet rolls with a £2.50 price on the packaging for £4.00.
It’s really very simple. If you deliver genuine value for your customers, you should get a fair price for what you do, a price which allows you to reinvest in the business and your team, and which allows you to build up a buffer for tough times.