What drives people mad about companies is injustice. Employees within a company resent inequities in salaries among people doing similar jobs. Customers will quickly find another supplier if the quality of the product they buy doesn't meet expectations. And something nobody can tolerate is a company that rips them off.
We believe there is nothing wrong with charging an appropriate price for the value a product or service provides. However, the value people place on a product or service must be carefully assessed. Recently, there has been considerable anger over Ticketmaster’s price gouging for tickets to the Oasis tour. It was reported that the price advertised before a customer patiently waited online had doubled by the time they were able to make a purchase, several hours later. With little time to make a decision, and after investing so much time waiting, many customers felt pressured into paying significantly more for a ticket than they thought it was worth.
Price gouging is common among insurance companies. Just the other day, we were notified by Ensure, a company that provides building insurance, that our annual premium had increased from £334 to £433—an increase far beyond inflation, with no changes to the building’s risk. A quick search on a comparison site found an alternative premium from a reputable insurance company for just £200. It was hard not to feel that insurance companies were taking advantage of automatic renewals and the hope that other distractions in our lives would prevent us from noticing the increase.
Price gouging also happens when customers are under pressure. During COVID, there were reports of companies charging vastly inflated prices for cleaning products, handwash, baby formula, and sanitary items. It is not uncommon for the price of umbrellas to rise when it starts raining.
Of course, prices need to change when costs rise. Honesty matters to customers. So, how should this be communicated? It is better to be straightforward and call it a price increase rather than use a euphemism like “price adjustment.” It also helps to explain the reasons for the price hike. Ensure might have had difficulty justifying why the building insurance increased by 100% when neither the building nor its risk had changed. At the end of the day, customers want to feel that the price they are paying is justified. A price increase should be accompanied by a compelling explanation. If the reasons are genuine and communicated transparently, a company can hope that, while the increase isn’t welcome news, customers will see that their interests were always top of mind.
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