The Ethical Minefield of Pricing

The Ethical Minefield of Pricing

Pricing is an area of business that has advanced hugely over the last 10 years, particularly in the online space. Companies now have access to huge amounts of customer data on which to base their pricing strategies. Using this data to maximise value or achieve the business’ aims is normally seen as a positive thing, however sometimes this data can cause a PR backlash where the line between what is ethical and what is not appears to have been breached.

The main crux of pricing ethics is about establishing the balance of power between the producer and the consumer. People will say that if the price is too high then people will not pay, however that isn’t always the case. Look at the sports industry, where businesses prey on brand loyalty to charge higher and higher prices (have you tried to purchase an Arsenal ticket recently?). However, it is a difficult area to legislate against considering it is very challenging to prove when a price is “too high” or a business’ pricing strategy is “predatory” so it often comes down to practising self-regulated ethics.

At the forefront of online pricing strategy is the concept of dynamic pricing and within this, price discrimination. The concept is simple – an identical product offered at different prices for different consumers aimed at finding the maximum that a consumer is willing to pay. But why should one person pay more for a seat to a concert than another for the exact same seat? The customer data available may suggest that this person may be able to afford to pay a higher price than another person, however is it right to charge them more because of it? Especially when the product is still exactly the same?

This is an interesting area to explore. Relying on customer data to decide which consumers pay more than others is based on the premise that the business knows exactly what the consumer can afford and that the data is 100% accurate. For example, someone with a lower income may indicate that they earn a higher salary in online questionnaires or through recent spending habits, which may increase the price they have to pay for a product, when in reality this is not the case.

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