High price or price-gouging?

Those who know me, know that I've written about the ethics in pricing before. The ethics in pricing means the companies should not take undue advantage from a strong market position or an actual or de facto monopoly to price-gouge their customers. I've taken the position that even in a situation where customers have no or few purchase options, prices can be high, but should still be "within reason" and that there is a line between high price and price-gouging. After all, much of my business is to help companies increase prices, but advising companies on price increases in such a way that their customers are more than happy to pay the higher prices. Price-gouging under certain circumstances is illegal, but also when it is perfectly legal, it may well have negative implications for the company. 

My posts on the topic have been related to lifesaving drugs, but it also applies to other products. Here is today's story:

Yesterday I needed ink to my printer and that line between "high price but within reason" and price-gouging were crossed. I was charged almost $200 for a set of printer ink cartridges. I don't mind the printer vendor making money, after all, much of that is reinvested into better products, in the end giving me a better product. However, $200 for what could be less than a dollar worth of ink and plastic cartridges is just too much. 

I'm probably not the only buyer who has a similar reaction, and that leads me to the point of this article. When buyers feel that a vendor takes undue advantage of their defacto monopoly, buyers will look for alternatives. For me, it means that by the time this set of ink cartridges are about to run out, I will not buy another set, but merely buy another printer from a vendor where the ink itself is still "high price but within reason." The printer vendor has lost me as an ongoing, loyal, customer. 

That is one reason why setting prices without knowing precisely the "right price," is dangerous. To know how high the price can be, and still be within reason. To know at what price existing customers can be retained and not chased away. Because, as we all know, to keep a returning customer is far cheaper than finding new customers all the time.

Per Sjofors, Founder, Atenga Insights. #