The Five and Dime

Recently I gave a presentation to the Fond du Lac Area Association of Commerce about writing your own marketing plan. During the presentation a question came up about pricing. Although pricing of products and services typically is part of the business plan, it can also be an important marketing strategy. Sometimes by raising your prices you can actually increase your business. As any marketer knows, it is all about perceptions and your higher pricing often helps convince of higher quality.

I then mentioned a strategy of “marking it up to mark it down.” The thought process in this strategy is that if you have a higher list price it allows you to mark it down (sales, coupons, etc.) and still get your margins. (Obviously this is more for a retail/consumer product environment than for a service or B2B account.) I then spoke briefly about the psychology of “getting a deal” and how consumers feel good about that process. Even if they could have purchased a competitor’s product of a better quality for less money, the idea of getting a deal trumps the comparison shopping.

Later, I received an email from Carol Smith at Just Fare Market (www.justfare.org). She asked an interesting question on whether the strategy “to mark it up to mark it down” was ethical. I asked her to elaborate:

I question the ethics of marking up to mark down because the practice of offering products marked down or on sale has become so pervasive a way of doing business that many consumers buy only when a product is on sale. Certainly many of these sales are the result of marking up to mark down. I believe that the “marked down mentality” has contributed to a downward spiral in the retail sector including offering lower quality products, less customer service, and moving production of goods from places where Americans could earn a living wage to third world countries where producers are treated in many unjust ways by foreign companies.

Further, raising the price to lower the price seems dangerously close to a practice that the Federal Trade Commission has defined as deceptive pricing. When offering a price reduction from a former price, the former price must be a bona fide price that was used on a regular basis for a reasonably substantial amount of time – otherwise this is against Federal Trade Commission rules.*

I buy Fair Trade products whenever such a product is available to me. In fact I am involved in developing a Fair Trade retail store in our community called the Just Fare Market. The price in Fair Trade is fair to the producer, wholesaler, retailer and consumer. Fair Trade bypasses typical middlemen who get an unfairly high cut in conventional trade. Raising the price to lower the price is not a marketing strategy we use. Everyday fair prices is part of the brand of Just Fare Market.

*FTC Guides against deceptive pricing: http://www.ftc.gov/bcp/guides/decptprc.htm

I’d like to thank Carol for taking the time to share her opinions on the subject. She certainly brings up some interesting thoughts which does affect all of us as marketers.

As a marketing consultant, this brings up a few interesting questions for me. If I believe something is unethical (assuming it is not illegal, just unethical), do I still present it as an option to my client? (With the thought that my ethical tipping point may be different than my clients?) If my client asks me to do something that I think is unethical (but once again, not illegal), do I do it? (I know my answer to these questions, but I would be interested in hearing what others say about it.)

I tell people in my seminars that I am a hypocrite in at least one area. I would have no problem if we passed laws making billboards illegal. I think that they detract from the beauty of our country (especially on scenic drives here in Wisconsin) and add to the noise and clutter in our world. Yet, I know that they work for my clients and I tell my clients that they work, and we have been involved in the design and media placement of numerous billboards over the years. So there is no doubt about it, I have a hypocritical stance on that subject.

People that have interviewed for positions with our ad agency will probably recall being asked a related question in their interviews. The question is, if the agency was asked to do work for a company that you disagreed with (ethical, political, whatever reason), what would you do? There is no right or wrong answer to this question. I can respect a point of view where the respondent claims that their moral compass simply would not allow them to work on certain accounts. At the same time, I also respect a position that as an employee, the job is to give 100% effort for every client, regardless of personal thoughts.

I guess it comes down to balance. I believe that as a marketer and marketing consultant, it is my job to help my clients in any way that I can to help them sell more of their products and services and be profitable. At the same time, we do have to maintain ethical standards. In fact, if you read our company brochure, we have an integrity statement in place that pertains to our company, our clients and our vendors. (And this has been in print for some time, we didn’t just add it for convenience for this blog post.) Does your company have an integrity/ethics policy?

The golden rule still makes a good business rule: treat others the way you want to be treated.

Tags: Ethics, Seminar, Truth in Advertising

This entry was posted on Tuesday, August 24th, 2010 at 10:28 am and is filed under Business, Opinion. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.