Not too long ago I sat down with a prospective client and a member of his staff at a coffee shop for one of my complimentary one-hour consultations.
At the end of the meeting he asked me for a dollar figure on what it would cost to make a website for his company. Now, I had just done a similar site for another customer so I had a very good idea as to what it would take to complete the project.
That said, I quoted this guy exactly $1,000 more than the other site, even though it was essentially the same service.
My question to you is:
Was it ethical of me to do that?
And my special bonus question is:
Have YOU ever charged one person one price for a product or service, then charged somebody else a different price for exactly the same product or service?
Before you answer the first question, you’d probably want to know what was my reasoning for charging the second guy so much more than the first guy?
Easy answer: The second guy was a jerk.
I didn’t like the way he spoke down to his staff member. He was condescending to the waitress, and most importantly: I KNEW he would be a problematic client. I would likely be spending quite a bit more time catering to his whims and desires than I had to with the first client.
We won’t even discuss his personal hygiene.
He ended up not doing business with me. Did he find out about my price differential? I don’t know. Do I care? Not particularly.
Later on I asked a University professor pal of mine if what I did was kosher. He was a good guy to ask, as he was a business consultant dude for several years. His response was an unequivocal “YES, it’s ok.” In fact, he told me, the practice is so common, they have a name for it: “Price Discrimination.”
Actually, they have several other names for it as well: targeted pricing, flexible pricing, tailored pricing, and of course, “a**hole pricing.” My university professor pal made it clear that it’s just common business sense to offer different prices to different people. He explained that if you know somebody is likely going to burn up extra time, energy, and patience, there needs to be a premium added the to the price.
But is it legal? Yes. Except when it’s not. A salesman I knew once confided that if someone of a specific nationality came into his store, he’d automatically raise the price for that person 25%. He explained the rationale thusly: (I’m paraphrasing)
“There are a couple of cultures that are known for being the best traders and shrewdest negotiators in the world. They EXPECT to negotiate on a price. If you raise the initial ‘starting price’ then they can negotiate you down to the real price you charge everybody else.”
Uhm, what if he agrees to the initial inflated price, Salesman Guy? Do you immediately drop it? Regardless, adjusting pricing based on race is illegal, both in Canada and the United States. Besides being illegal, if any of the customers in question had gotten wind of it, the resulting word of mouth could have decimated the company the Salesman worked for.
If you think about it, you’ve probably seen instances of price discrimination at least three times today alone. Seniors get a discount at the movies. Their buttocks take up the same seat as a younger person’s buttocks, so isn’t that discrimination? It doesn’t stop there of course: Businesses routinely offer students special rates, and openly give discounts to locals that tourists do not get to enjoy. Two different guys can buy exactly the same car with the same options at the same car dealership and pay significantly differently prices depending on their knowledge of cars and their negotiating skills.
This type of pricing is getting more and more sophisticated, especially in the online world. Website tracking “cookies” allow businesses to monitor your past purchases and price accordingly. They know if you look at an item but wait till it goes on sale before you actually purchase it. Online merchants can actually customize a personalized sale, just for you. I wouldn’t be surprised if our generation sees some sort of advanced GPS tracking technology to set prices. As you walk down the aisle, you’d see digital price tags in lieu of the normal cardboard ones. One guy will see one price, and another guy a few minutes later will see a completely different price.
But forget about science fiction-y speculation. What about RIGHT NOW?
As business owners, the decision you have to make when offering flexible pricing is how to do it in such a way to get the best possible price for your service without angering potential customers. For example most people will not take umbrage at a seniors’ discount as they know they will one day qualify. The key, I think, is transparency. If you clearly and concisely offer the different pricing for all to see, people are much less likely to feel cheated. If your prices appear to fluctuate on a whim, this could result in angry customers, and lost business.
As consumers, we can take advantage of flexible pricing by keeping informed, developing negotiation skills, and not being perceived as a pain the ass.