Based on the knowledge acquired studying Business Ethics, I have come to the realization that certain key factors contribute to determining whether prices of goods or services are fair or not. Also, I now understand circumstances that can give rise to unfair pricing.
Some of the factors that should be considered in determining fair prices includes:
Value – People are attracted to some products because such products resonate with their lifestyle. A typical example is a diabetic patient who finds a product appealing because of its low sugar content. Similarly, a hypertensive patient will find decaffeinated tea products appealing because of the absence of caffeine. Their decision to purchase these products solely lies on their healthy lifestyle, which they place value on. Therefore, we can say that consumers in the categories described above will place more value on the quality of product being offered to them. To these set of customers value of the product should be a key consideration in pricing.
Cost – The cost of producing a product or providing a service should be considered in setting a fair price. In such situation, a fair price can be said to be cost of production plus a margin of 20% -25%, while unfair prices can be anything over 50% margin for retail products.
Alternative – The availability or non-availability of substitute product should also be considered in setting fair prices, however, care must be exercised not to take undue advantage of customers.
Circumstances That Can Give Rise to Unfair Pricing
Unfair pricing arises when there is monopoly in the market and the demand for the product is high.
Also, in special circumstances such as medical emergencies, cases of unfair medical billings have been reported in Nigeria.
Furthermore, in situations where the consumer lacks adequate information about the going rate of a product, unfair pricing situation may arise. An example is when a consumer lacks information about the price of a product or commodity, probably due to being the first time of buy such product. I remember buying a spare part at Ladipo market for the first time in 2004, only to get back to my auto electrician, there, I realized I could have bought the part N3,000 less of the price I paid.
In my opinion, I feel that pricing should not be based on cost alone. This is largely due to the following:
- The perceived value ascribed to the use or functionality of the product or service should be considered in setting prices. Certain products are considered high-end products and therefore will be appealing to the category of people who have very high taste. A “Hawes and Curtis” shirt will attract an individual with a very high taste as against a “M & S” shirt. Though both shirts are cotton, the former is considered a high-end product.
- Proximity to market or alternative product should also come to play in pricing, however, care must be taken not to take undue advantage of the customers/clients.
- Also, prices should be set within the requirement of regulation or trade union, for example; vulcanizer association in Lagos – regardless of how low the cost incurred in servicing a customer is, they cannot charge below the threshold price.