C-19 Price Gouging
Over the past 40 years, 4 Noble-Prize winners have proven that our brains evolved with cognitive biases. These biases served Sapiens well in a hunter-gather context. But, they cue irrational decisions in our modern world.
The C-19 pandemic has, for example, sparked excessive, hoarding of staples. When demand exceeds supply, free-market prices rise. “Not fair!” is the common response.
Because our emotional, irrational perceptions do vote and bad-mouth “exploitive” suppliers, rational politicians and business managers must strike a “fair”, balanced position.
Relic Pricing by Used-Book Resellers
Case lesson: recently a family discovered that an ancestor wrote a book in 1929. A descendant checked Amazon to buy four copies from different resellers all for about $8 each. A month later, a cousin got the news and wanted a copy. But, only one copy was listed for $92. Is this “price gouging”? Or, a unique offer for the cousin to take or leave? (I lent them my copy.)
How to Price Your No-Pick, Museum SKUs?
I bought a specialty hardware distributor that had accumulated 20K+ SKUs of which 6000 had not had a pick in a year or more (some in over 5 years). My solution: classify these dust-collectors as “M” (as in museum) items. And, raise the prices 15% for every year the SKU had not had a pick.
Reaction: “We can’t do that! Customers will get angry if we gouge them.”
My response: “Tell them why and how we mark up the relics. Point out that our cumulative, carrying costs exceed our markups. We still are net-losing on these dogs. But, we hope that the customers appreciate the opportunity to be able to buy them to: fix a customer’s problem; bill labor; and pass the cost on. If they can find it elsewhere for less, do it.”
What happened? A general non-event. We got some extra juice to the profit line. And, customers who did question the “high price” generally laughed at our honest, transparent answer and were pleased.
Best Opportunity: “Strategic Pricing” for “Blind SKUs”
Distributors with scads of SKUs will find that infrequently bought SKUs are “blind price items”. The customer doesn’t know or care within limits what the price should be. Instead of applying a standard, cost-plus, mark-up, prices can be nudged higher. How much higher without being noticed? WayPoint Analytics recommends a SPARXiQ easy, algorithmic solution that typically adds another full- point-plus to profits. Get both relic and blind-item, SKU smart! Learn about it here.
And while you are planning your next moves, take a look at my: