DIFFICULT MORAL QUESTIONS

Question 135: Is it fair to price substantially similar products very differently?

I am a middle manager in the marketing division of a major supplier of home products and toiletries. The company has been consistently profitable, and usually has done better than its major competitors.

Among other things, I participate in setting the wholesale prices for our products. Costs seldom bear much relationship to prices in this business. For example, we manufacture a liquid detergent that does a good job dissolving grease without being hard on people’s skin. It can be used for many purposes—bathing the baby, shampooing hair, hand washing dishes. We market it for those purposes and several others, and there is absolutely no difference among the apparently diverse products except colors, perfumes, and, of course, packaging. The different colors and perfumes do not significantly differ in cost, but different packages do, especially since we do not package the different items in the same range of sizes, and packaging five gallons of detergent for institutional use in hand-washing dispensers is a lot more efficient than packaging eight ounces for bathing the baby. That difference, however, only accounts for a small part of the difference in wholesale prices. For example, using for comparison the wholesale price of this product as a hand dish-washing detergent and assuming other factors affecting price remain the same, its wholesale price as a shampoo for women is 114 percent more, as a shampoo for men 157 percent more, and as a baby bath 343 percent more.

Not only that, in packaging this detergent and other products as house brands for large retail chains, we price them at forty to sixty percent less than when we package and distribute them as our own brands. (My wife buys it in the largest size of a house brand packaged for hand washing dishes, and we and our children use it for everything.)

There is nothing illegal about this pricing. Effective marketing of a product requires promoting its use for various specific purposes, and features that make it suitable for those different purposes must be advertised. Once the product is differentiated, prices are largely determined by consumers’ perceptions of value and different levels of competition in the marketplace. Thus, the shampoo for men has less competition than that for women. And when we began selling the detergent for bathing babies, market tests at several price levels showed it sold better if priced above rather than below competing brands, and nearly as well (and far more profitably) if priced above than if priced about the same.³³⁷

Our advertising includes no false statements. Our products are as good as any on the market. Similar pricing practices prevail throughout the industry. Still, if I were not in the business and found out how we price products, I am sure I would feel cheated. At the same time, it would be futile for me to criticize our pricing strategy without having a viable alternative to propose.

Analysis:

This inquiry includes two questions: about the fairness of the employer’s marketing strategy and about the acceptability of the questioner’s participation in it. Businesses should cooperate with their customers, and cooperation presupposes candid communication. The questioner’s employer is not communicating candidly; it withholds information its customers could use and deliberately gives an illusory value to is products. Therefore, its marketing strategy is unjust. The questioner’s own application of the Golden Rule identifies this injustice, and he formally cooperates in it by intending the success of the market strategy. The amount unfairly taken by this strategy is cumulatively substantial, and so the injustice is grave. Therefore, unless his employer is willing to change, the questioner must give up his present job. He also owes appropriate restitution, which he can make by giving alms for the spiritual benefit of customers and by doing what he can to expose and overcome the injustice.

The reply could be along the following lines:

The moral issue you raise usually is not recognized and acknowledged. As you say, differences in the costs of packaging do justify some differences in price among essentially similar products. Your advertising and rebate costs in marketing your own brands perhaps warrant charging more for them than for the same products packaged as house brands. Moreover, marketing various products with different profit margins and marketing the same products with changing prices under different conditions, as permitted and required by competition in the marketplace, may be necessary to maintain a reasonable level of profit on the whole, and is not unfair in itself (see q. 146, below). At the retail level, handling and transaction costs also help account for price differences.

Still, even taking various justifications for price differentials into account, when the price of a small package seems disproportionately high by comparison with a larger size of the very same product, one suspects sellers are taking advantage of customers who need only a small amount or are too poor to shop economically. Moreover, advertising, often using lust, acquisitiveness, and status seeking as motives, can establish brand differentiation, especially for luxury products, so that one brand may be sold at a far higher price than others from which it has no discernible difference at all. Your question, therefore, points to only some of the closely related features of ethically questionable marketing strategies.³³⁸

A business should organize economic cooperation among several groups. One of these is its customers. But cooperation presupposes candid communication and a mutual commitment to further one another’s true interests by working together for a common good. By this standard, your company’s marketing strategy is unethical. It would be in the true interests of many people to know that they could use a large-sized container of your detergent to meet a variety of needs, but you do not provide this helpful information.

Of course, pricing strategies such as yours are not entirely secret. People can learn about them by studying the publications of consumer organizations, books that criticize advertising, and so on. Such well-informed people can experiment with available products, identify those that meet their needs more efficiently, and make better-informed buying decisions according to their own interests. Someone therefore might argue that consumers are deceived due to their own negligence, and you have no obligation to give them more information. But the entire culture of consumerism, to which contemporary marketing techniques have greatly contributed, has weakened many people’s critical capacity and motivation in making judgments and decisions about spending their money, so that any relevant negligence of theirs is less their fault than the fault of companies like yours. Moreover, people differ greatly in ability. Those who are better educated, with time to read and study, can and should become prudent consumers, seldom needing to depend on advertising when comparing the value of products. But many people lack either the ability, the time, or both to develop such skill. Your marketing strategy, directed toward the public at large, takes unfair advantage of them.

It also relies on giving an illusory value to its products. Unless informed otherwise, people suppose they get what they pay for. They think, for example, that the detergent marketed for bathing babies is a formula especially suited to the purpose, whose costly ingredients justify its high price. Thus, even if your advertising includes no false statements, it is deceptive. It leads the public to think the differences among essentially similar products are more significant than they are.

Is there a viable alternative? The alternative is to stop misleading the public, provide potential customers with the information they need to make decisions in their own true interests, and market products in ways calculated to meet the needs of prudent customers. You might, for example, make the basic detergent available without added color or scent, frankly advertise that it is substantially the same product you have been marketing for a variety of uses, and assure customers that for all those uses the basic detergent will be just as safe and effective as its colored and scented versions. The detergent could be packaged as simply as possible in various sizes, including small, easy-to-use, refillable containers and large containers with reusable spouts or taps designed for convenience in refilling the small ones. The product could be promoted for its environmental and health advantages: no dyes and perfumes that waste resources and trigger allergies in some people; less packaging which saves scarce resources and reduces trash disposal; and reduced environmental impact in manufacturing the product and packaging it.

I expect your superiors and colleagues will say that even if the detergent were marketed in this way, many people still would prefer the familiar and higher priced products. Probably so, but being candid with the public, the company could justly make meeting the ongoing demand for those products part of its alternative strategy. Thus understood, is the alternative viable? If it were viable from the point of view of the industry’s policy makers, presumably the practice you describe would not prevail. Yet being more candid with consumers than any of your competitors might well gain new credibility and good will for your company, and increase your market share sufficiently to make the new strategy viable.

If your employer is unwilling to change, what is your moral responsibility? You yourself have applied the Golden Rule: If you were not in the business and you found out how your products are priced, you are sure you would feel cheated. In my judgment, that feeling is reasonable, and the marketing strategy of which the pricing policy is an integral part is unfair to customers. In implementing this unfair strategy, you collaborate with others in your firm to make it succeed. Since you would not be doing your job satisfactorily if the strategy failed, in helping implement it you cannot avoid intending that customers be deceived and cheated. Though the amount unjustly taken by each retail sale is small, those of you who collaborate in implementing the strategy also make every effort to retain buyers’ loyalty to your brands, and so intend that the company profit not simply on each sale individually but on the whole set of sales to each and every customer over time. The amount involved in the injustice is cumulatively substantial, and the matter therefore is grave; if you continue doing your job as you have in the past while acknowledging the injustice, you will be committing a grave sin. Consequently, if you accept this conclusion, you must at once either transfer to a job that does not require you to intend that customers be deceived and cheated, or resign from the company.

Moreover, if you now acknowledge that you have been helping to perpetrate a serious injustice, you should not only end your complicity in it but make restitution to its victims. Plainly you cannot do that by repaying your fair share of what the many buyers of your company’s products have paid in excess of what would have been fair prices. However, within limits set by your other responsibilities, you could give alms for the spiritual benefit of customers. You also could help them, at least by confidentially supplying information about the industry’s practices to consumer groups and/or anonymously writing and publishing a detailed exposé of the practices that, as you say, prevail throughout the industry. If you must resign, you might try developing a career as a consumer advocate and industry critic, working for laws that would regulate marketing so that advertising would have to provide the information potential consumers need to make intelligent choices among competing products (see q. 149, below).

In thinking through your question and responding, I have been aware of the severe hardship you and your family are likely to experience if you accept the conclusion and act on it. The industry’s marketing strategy has been shaped over many years by the practices of people less morally sensitive than you—people more interested in maximizing profits than in cooperating with customers. You have been working within an unjust social structure that no doubt seemed to you something given and permanent. Though your moral sensitivity led you to question what you have been doing, you probably never expected the preceding reply. While in many cases people working within such a structure need not intend any injustice and can avoid personal guilt, your role, unfortunately, has required you to intend that customers be deceived and cheated. To free yourself from continuing slavery to the corrupt world, you must deny yourself radically. To gather the courage to take up your cross, remember that “we will reap at harvest-time, if we do not give up” (Gal 6.9).

337. The explanation for this paradoxical situation is that most people fear using inferior products for their babies. So, if most baby bath products sell for, say, two dollars, and a new product priced about the same is purchased by ten people, pricing it at one dollar may reduce sales to five, while pricing it at three dollars may reduce sales only to eight. If the cost of supply is fifty cents per package, pricing at one dollar yields a profit of $2.50, pricing at the competitors’ price yields a profit of $15.00, and pricing at three dollars a profit of $20.00. (This example deliberately simplifies by omitting many costs that affect retail prices.)

338. For a detailed description of methods of pricing to maximize profits, see Thomas T. Nagle and Reed K. Holden, The Strategy and Tactics of Pricing: A Guide to Profitable Decision Making, 2nd ed. (Englewood Cliffs, N.J.: Prentice Hall, 1995).