|Price gouging is usually about a situation where someone is in a position to do so without having to worry about a healthy competitive market that would likely self-correct the situation. If you attempt consistent price gouging in a competitive market, it is likely (but not guaranteed) that the action, since it is short-sighted, will indeed produce short-term windfalls, but in the end compromise your business. Even if you price gouge short term, and then correct your pricing to be more competitive, you will probably experience some business losses anyway related to customer fall-off. You know, a variation on the old 1 person will tell ten people about the bad thing, only this time you've got way more than one person possible to spread the news of your gouging. Customers find out about gouging, one way or another. |
Price gouging is not a mythological concept; it is bad business practice. Price gouging is different than having to raise prices to keep your margins where they need to be.
If you are in a one horse (or one gas station) town with a price gouger, there are only so many things that you can do about it outside of going somewhere else. If you can't go somewhere else, you are fucked.
Price gouging can work off of fixed prices (everybody gets gouged), or in sales where each transaction can be negotiated. If it occurs in one-on-one negotiating, it is less likely to be true price gouging, but poor negotiating skills at fault. If negotiating is available (real negotiating), it could be the result of just poor negotiating skills on the customer side, or the customer having to negotiate from a compromised position. The latter is a what-the market-will-bear negotiation: you know that you're going to get your ass shot up more than usual, it's just a matter of doing your best to minimize the damage.
There are situations in sales where you can gouge a very susceptible person (as in hit him for 200 more points on the deal than the guy that just walked out). Smart salespeople do not do this. Predatory-style selling does indeed teach "gouging." Predatory selling is shortsighted and stupid, and while it will never go away, it is fairly easy to beat. It also doesn't fair well in the sunlight. It's main fault is that it focuses on a single transaction, and is not mindful of the fact that the customer is exposed to the market in between purchases. Single-transaction high-margin selling is appropriate for very specific types of deals. Most businesses tend to rely more on customer retention, while trying to maintain healthy yet competitive margins.
(Edited by Rich Engle on 9/03, 12:41pm)
(Edited by Rich Engle on 9/03, 12:47pm)
(Edited by Rich Engle on 9/03, 12:53pm)