Public Policy and Pricing — Transcript

Full transcript

1. 0:03This video I want to take a look at
2. 0:04public policy and pricing and some of
3. 0:07the rules and laws that we initiate uh
4. 0:10to to guard against uh some infractions
5. 0:13that marketers can commit.
6. 0:17So first of all, one of the core
7. 0:20elements of a capitalistic society and
8. 0:22the free market system is the idea of
9. 0:24price competition. We want businesses to
10. 0:27be able to have the freedom to set
11. 0:29whatever price they want and ideally to
12. 0:32compete on price as this is beneficial
13. 0:34for for customers.
14. 0:37However, there are rules when it comes
15. 0:39to setting these prices and it depends
16. 0:43where you are in the world in terms of
17. 0:45whether something crosses the line and
18. 0:47becomes illegal or is just frowned upon.
19. 0:50But I want to talk about some specific
20. 0:51things that uh are illegal in in Canada,
21. 0:54including deceptive pricing, price
22. 0:57fixing, which is also referred to as
23. 1:00price collusion, and predatory pricing.
24. 1:03Again, these are things that we should
25. 1:05avoid doing as marketers, uh because not
26. 1:07only are they unethical, uh they are
27. 1:09oftentimes illegal.
28. 1:13So, let's start with deceptive pricing.
29. 1:15This is pricing schemes that are going
30. 1:17to mislead buyers and impact their
31. 1:20purchasing. And deceptive pricing can
32. 1:23come in many different forms. So it
33. 1:25could come in the form of the bait and
34. 1:27switch model, which is where marketers
35. 1:29may advertise at a very attractive low
36. 1:32price to encourage customers to come to
37. 1:34the store or to visit their website,
38. 1:37whatever it is, to basically to draw in
39. 1:39customers. And then once the customer is
40. 1:41there, they say, "Oh, that deal is no
41. 1:44longer available." or uh we don't have
42. 1:46that uh that product available. All the
43. 1:49while knowing that the whole point was
44. 1:52basically just to draw the customer in
45. 1:54there to buy something else. This is
46. 1:56what we refer to as the bait and switch
47. 1:59model.
48. 2:00Deceptive pricing can also involve
49. 2:02simple scanner fraud. So if a customer
50. 2:05sees a deal at a store and they look at
51. 2:07the price tag and they say that makes
52. 2:09sense. I'd like to buy this. Then they
53. 2:11get up to the uh to pay for it at the
54. 2:12register and it gets scanned at a much
55. 2:15higher price. Sometimes this can be an
56. 2:17innocent accident. Uh but in other
57. 2:19cases, this is a true example of scanner
58. 2:22fraud where the company is taking
59. 2:24advantage of the customer and hoping
60. 2:26that they don't notice that they're
61. 2:28being charged a higher price than what
62. 2:29was listed on on the price tag. Again,
63. 2:33not something we want to participate in
64. 2:34as marketers.
65. 2:36There's also deceptive pricing.
66. 2:38oftentimes when we see uh deals or
67. 2:41sales. So two for one deals um can have
68. 2:45deceptive pricing or um
69. 2:48uh just regular sales can have deceptive
70. 2:50pricing. The way that this happens is
71. 2:53that uh the the price of the product the
72. 2:57stated uh normal price of the product is
73. 2:59inflated to make it look like the uh
74. 3:02discounted price is a significant deal.
75. 3:04So, for instance, if the price of a
76. 3:06product is, let's say, $60 and it
77. 3:08continues to be $60 for 60 months or or
78. 3:12for six months, and then the marketer
79. 3:14decides that they're going to have a a
80. 3:16sale on that item, but they state that
81. 3:18the regular price is $80 and they're
82. 3:20going to char charge $40, so it's a half
83. 3:24off uh deal. That's actually deceptive
84. 3:26pricing because the regular price is not
85. 3:28$80, it's $60. So again, deceptive
86. 3:31practicing or deceptive pricing can
87. 3:33happen uh in many different ways and we
88. 3:36want to avoid this as marketers.
89. 3:42Next up, we have price fixing. This is
90. 3:45an agreement between competitors to fix
91. 3:48a price uh to their mutual benefit or to
92. 3:50stabilize price by manipulating supply
93. 3:53and demand conditions. So this is known
94. 3:56as price collusion or tacet collusion.
95. 3:59And often times we see this in ol
96. 4:02oligopolic um market structures.
97. 4:04Whenever there's an oligopoly there's a
98. 4:07sometimes the opportunity for price
99. 4:09fixing. So uh many large players or
100. 4:12sorry a few large players in the market
101. 4:14dominate and they get together behind
102. 4:18closed doors and either agree to a
103. 4:20certain uh price for their for their
104. 4:22product or service or uh maybe lowering
105. 4:26the supply agreeing to lower the supply
106. 4:29which will then have the impact of of
107. 4:31raising prices. So anytime that
108. 4:34competitors come together in order to
109. 4:36fix the price uh this is illegal. And
110. 4:39the example of this over uh the last few
111. 4:41years uh British Airways a lot of the
112. 4:43airlines got together and uh were were
113. 4:48setting their uh fuel search charge
114. 4:50price at the same level. Um and when
115. 4:54that happens this this is illegal
116. 4:56because ideally they should be competing
117. 4:58against each other and looking for ways
118. 5:00to um uh lower that price. But what
119. 5:05customers were paying was an amount that
120. 5:08was the same across several different um
121. 5:11airlines and uh these airlines got got
122. 5:14charged with uh price fixing. Now this
123. 5:17is notoriously difficult to prove and
124. 5:19also takes a long time to litigate. So
125. 5:21it's only about a decade later where
126. 5:24some of these airlines are paying the
127. 5:25consequences for this uh price fixing.
128. 5:30Finally we have predatory pricing. This
129. 5:33is an example where uh a company is
130. 5:35going to deliberately sell their
131. 5:37products below costs in order to
132. 5:39undercut their competitors and drive
133. 5:41them out of business and once the
134. 5:43company is out of business then the firm
135. 5:46will then raise their prices to a higher
136. 5:48level. One of the most famous examples
137. 5:50of this is comes from Amazon a few years
138. 5:53ago who was competing with diapers.com
139. 5:56uh for the sale of uh direct to home uh
140. 6:00diapers. And what Amazon did because
141. 6:03Amazon is a much larger company is they
142. 6:06lowered the price uh of their diapers to
143. 6:08a point where they actually losing money
144. 6:10on every sale. uh which was obviously um
145. 6:14great for business because customers um
146. 6:16switched from diapers.com to to Amazon.
147. 6:19Diapers.com could not compete with that
148. 6:22price and because they were a much
149. 6:25smaller company, they were unable to
150. 6:28survive long term and they went out of
151. 6:30business. And of course, once they go
152. 6:32out of business, now Amazon is able to
153. 6:35uh raise their prices on their diapers
154. 6:37um back up to a higher level. This is
155. 6:40predatory pricing and is also uh
156. 6:43illegal. Now this may seem like a good
157. 6:45thing for customers and it may be in the
158. 6:47short term right the price comes down
159. 6:50that's a good thing for customers.
160. 6:51However in the long long term this is a
161. 6:54problem for customers because as we see
162. 6:56in this situation it eliminates
163. 6:58competition and and in any situation
164. 7:00where there's limited competition that's
165. 7:03a problem for customers. So, just like
166. 7:07price fixing, predatory pricing is
167. 7:09notoriously difficult to prove. Um, but
168. 7:12here's an example where u regulators
169. 7:15went after Amazon for predatory pricing.