As a business consultant, this may not be an easy subject to write about. A business consultant’s primary role with their clients is to help them achieve profitability in their chosen business.
However, there seems to be a thin line between pursuing legitimate profitability and profiteering. Although the two words may have the same etymological base, they are still different.
Profitability is achieving the purpose of setting up a business in the first instance. On the other hand, profiteering is taking undue advantage of people and circumstances.
Hoarding, for example, to create artificial scarcity to increase prices is profiteering.
To avoid any confusion, I will replace the two similar words with smartness and greed without sounding unnecessarily judgmental.
Smartness is positioning your business by exploiting the 4Ps (place, product, pricing and promotion) to gain visibility and maximize advantages that ultimately result in profitability.
Greed without recourse to the 4Ps is taking a ‘killer’s” approach to exploiting unwary customers in a seemingly helpless situation. It is taking undue advantage of the customers. For instance, selling an inferior product at a price probably higher than the quality variant of the same product is nothing but greed.
Basic economics tells us that the lower the supply, the higher the price, and all things are equal. So, in periods of scarcity, genuine or artificial, passing off inferior products as ‘original’ is greedy and criminal. How on earth should a customer pay higher than usual for a product that may not even meet their needs but has no choice but to buy?
As it is often said on the streets, “If it is not Panadol, it can never be Panadol.” This is when a product is forced on the customer that is not actually what the customer intended to buy.
Every transaction between a buyer and a seller is an exchange of values. There is expected to be some correlation between the values being exchanged. If a seller capitalized on the ignorance, scarcity and desperation of a willing buyer to charge more than expected, that is greed.
On the other hand, there may be instances where products are genuinely scarce; it may be regarded as smartness on the part of a seller to take advantage of the favourable situation to make extra little cash. These may expand the bottom line or help recover from previous uncontrollable losses. Of course, there are times when sellers lose money due to sudden shocks in the market dynamics. In that case, a favourable condition may compensate for the past losses. Even in such situations, selling fake, imitation or inferior products will not qualify as a brilliant exploration of the situation.
How DoWe Differentiate Between The Two?
It is not always easy to differentiate between the two.
However, it may be reasonable to assume that a seller willingly selling an inferior product at a price higher than the genuine one is deliberately greedy and has crossed the line of supposed smartness.
It is also not unusual to hear such sellers boast that it was business sense and acumen to respond to the market situation in such a manner.
What if The Product is Genuine?
When the product sold is genuine and satisfies the quality criteria but is very scarce at a particular time, it becomes difficult to determine whether the selling price represents a brilliant response to scarcity or a killer’s instinct at the specific time.
For the sake of argument, let us say the normal margin is 20% of the costs of sales; what do we consider a reasonable addition during scarcity? 10% or 15%, in addition to the standard margin, may fall within the realm of smartness, but anything in the region of 25% and above may amount to greed.
Admittedly, the above represents the rules of the thumb and can hardly be scientifically explained or considered a standard to be followed by any seller. So, what happens to the gap between 16% and 24%? Do we regard those as grey areas?
The implication is that if a seller adds 24% to the previous margin during scarcity, he is not entirely greedy or is still considered a borderline greedy person. What if 18%, 20% or 22%? It is neither here nor there.
It is ‘expected’ that even when there is acute scarcity, the smartness of the seller should not be excruciatingly injurious to the buyers. A reasonable addition may be considered reasonably ethical.
What is ethical is challenging to define!
Also, price topping occurs when excess demands exist, especially during festive periods. This is ironic because people’s disposable income is often narrowed during festive periods.
A case of imperfect markets?
It is pretty easy to blame such on imperfect markets, but the hidden truth may likely be of psychological understanding of such times and seasons.
How do we resolve the impasse?
It isn’t easy, as economics hardly responds to morality.
Just know there is a thinning line between being wise and greedy when you consider taking advantage of buyers in situations where the buyers seem helpless or have no choice. A moment in the sellers’ market may result in smartness or greediness.
What are your thoughts?
Please feel free to share your perspectives with me ©TheVillageBoy.
