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Does Ethics Require Standard Pricing?

DILEMMA:

I am the CEO of a small services company. We bill our clients for services on an hourly rate basis, at a gross profit margin of about 50 percent. The standard rates we set are based upon market conditions, but to some extent that is determined by how much our clients are willing to pay. We do find that with certain clients, the rates they pay are higher than our standard rates. Is it fair to charge clients who are willing to pay more the higher rates? The clients that are willing to pay more are both large and small organizations.

Wanting to Play Fair and Make a Profit

RESPONSE:

On the surface, I don’t see an ethical problem with your practices. In a market-based economy, prices are set by the forces of supply and demand. Demand is reflected by customer ability and willingness to pay for a good or service. Examples of these forces at work can be seen in almost all sectors of the economy. Airlines charge different prices for seats. When financial aid is factored in, universities effectively charge different tuition rates. Service providers of all kinds (contractors, computer programmers, consultants) may charge different prices depending upon the client’s willingness and ability to negotiate. An interesting point to note is that the practice of negotiating the final price is a fairly standard practice outside of the United States.

Taking a deeper look, there may be some ethical concerns around price-setting practices. For example, if there is deception (such as falsely stating “this is our best price”) involved this “fair play” would be violated.

Setting aside ethics for the moment, there may be some strategic issues to consider. Information travels swiftly and efficiently these days, so you should consider what might happen if one of your better paying clients found out they were paying more than necessary. While variable-pricing practices such as those used by airlines may be ethically acceptable, no one likes the feeling of paying more than the person in the next seat.

Kenman Wong
Professor of Ethics, School of Business and Economics
Seattle Pacific University

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