A Fair Price and Your Price What is the right price to pay for something and should we all pay the same price? Is it fair for a business to charge some people more for a product or service than they charge others? Questions like these are interesting, and worthy of discussion according to the ethical issues raised. For example, if a pharmaceutical company invests millions in developing a life-saving drug, and then start producing the drug for a cost 200/= per dose, they might in theory make a marginal profit at a wholesale cost of 300/=, except that they have to recover those millions spent on research too. One way they can do this is to charge people in wealthier countries a lot more than those who live in poor countries. Charging according to what people can afford seems like an ethical arrangement which generates the revenue necessary to recover initial investments and provide a decent profit. But what if the point is to simply charge each customer as much as possible using any techniques available? Is that fair? It is a tough question, but it is also a practical challenge for companies, and thus we have what is sometimes called dynamic pricing. Most people have not heard the term, but many of the largest retailers have been using this kind of pricing for years now. Its also called price discrimination, which is very much known and taught in schools, and in some ways its the holy grail of pricing strategies for businesses. Its a way to get the most profit for a product or service by charging different amounts according to how much each customer is willing to pay at any given time in any particular circumstance. Goods at a price that changes according to the level of demand, the type of customer, or the state of the weather. Yes, umbrellas can be sold for more during a patch of rainy weather as you see on Kampala streets on rainy days, but the concept goes much, much beyond simple examples like this. Dynamic pricing has been around for a long time in various forms. For example, the typical happy hour at places where people gather to drink is based on this concept. Later in the evening, when a pub is full and has people waiting at the door there is no reason to charge low prices for drinks. A frugal customer is simply taking space that would otherwise be occupied by someone willing to pay more for drinks and food. But during slower times it makes sense to try to attract those frugal people by lowering prices. It would be wonderful (for businesses) if there was always a way to get people to pay as much as they are willing to pay for what they buy, but over the years it has been a difficult idea to implement in most industries.
Posted on: Sat, 16 Nov 2013 12:34:12 +0000
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