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Pricing and the Reform of Barbadian Corporate Governance Part 1

Oct 10, 2021

Last Updated on December 2, 2021 10:07 pm by Editor

Article by Dr. Aldon D. Tull

We have been forewarned to expect price increases in Barbados as a result of the persistence of the covid-19 pandemic.  Fair enough. But it is also an appropriate time to ventilate some of the long-standing issues regarding pricing.

We will not get into the hypothesis that the party  in power tends to awaken the pricing demon in the business sector.  To draw such a conclusion requires some systematic study and hard data, rather than the emotive term “price gouging”.  

That is why the Barbados private sector can easily come out and argue – as it has on every occasion- that there is no price gouging in Barbados. People suspect but cannot “prove” anything.   

However, if there is anyone out there with hard evidence supporting such a hypothesis we are quite willing to publish it after due diligence.  

What we want to discuss briefly in this article is the unethical use of pricing to extract greater profit in a time of speculation of price increases.

Our main thesis in this short series of articles is that business leaders conveniently abuse and exploit quantitative techniques such as cost-plus pricing and the theory of supply and demand to their advantage.

These practices are not restricted to “big business”; even the small man is apt to “juk out” your eye with the statement: “Dey price gone up”  meaning the price from the supplier.

Price is an economic issue but much more so, a Marketing issue.  Those who have studied Marketing know three key things about pricing: (1) price is one of the four elements of the so-called marketing mix (2) it is the most flexible (changeable) element of the marketing mix and (3) there are multiple bases upon which a price can be set. Two of those bases are cost and demand.  We shall treat to the first in this article.

The Abuse of Cost-Plus Pricing

The most common cost-based pricing technique is called cost-plus pricing.  It is used partly because of its simplicity; you just add a mark up or percentage of the cost to the cost itself to determine the price. 

Such an approach to pricing makes sense because one is sure to cover the cost of the item.  Different vendors will use different mark-ups to cover not only the cost of the item itself but their overheads such as utilities, labour etc.

The difference in mark-ups is one way in which we get competition in pricing. We will use a running example to develop our captioned proposition about this pricing technique.  

Let’s suppose we are a hardware and that we have in stock an item that costs us $60.  Our policy is to use a 40% MU (mark up) on this item. When we apply that policy to this item we get a price of  $84 [$60+($60×40%)]. In other words, the profit is $24.

A problem arises however, when vendors raise the selling prices of current, on-display-stock in speculation of increased costs of future stock purchases.   

Suppose we learn that the item we have in stock that cost us $60 will now be sourced in the next month or two at the higher price of $72.   That is an increase in cost of 20% [$72 – $60)/$60 x 100).

If overnight, the company adds the full 20% to the price of the item currently in stock, the price facing buyers the next day will become $100.80 instead of $84.00.  

The reader can ascertain by calculation that the same result is obtained if the company’s $40% MU (markup) is added to the FUTURE buy in cost of $72.

Given that the original cost of the item was $60, selling the old stock at the revised price of $100.80 gives the company an accounting gross profit of $40.80 ($100.80 – $60.00) which is $16.80 MORE than at the old price.

I do not think that “price gouging” is the appropriate term for this kind of behaviour. Unethical is more like it. Perhaps diabolical is a better word. It is all part and parcel of the unsavoury nature of Barbadian society that we do not wish to admit.

But business in this country will always get away with these unethical practices because the mainstream media either does not have enough trained staff to make these sorts of analyses or because they choose not to “offend” their possible sources of advertising or both.

Price Hiding

As evidence that what we are saying is on target, we notice that the websites of some companies are now “hiding” the prices of certain items, for example, plywood. 

A source close to the construction industry has indicated that supplies of plywood were shipped into Barbados in June / July this year.  You do not buy in plywood as regularly as perishables such as vegetables!  Therefore, raising the prices of goods already in stock is iniquitous!

We contend that in most cases some of these items e.g. some drugs and medicines, have been in stock for some time. Moreover, some items have been in the distribution channel (i.e. warehouses  of LOCAL distributors) even if not in the warehouses of the retailers.

CTA

Barbadians must use their considerable veto power as consumers to frustrate, if not halt these diabolical practices. It is not beyond our achievement but regrettably the effort to do so is not in our DNA.   So I know just what the average Bajan will say:

“But yuh can’ eat dey money!”

That being the case, all we can say is:

“So shut up and stop complaining!”


Dr. Aldon Tull is retired educator who holds a Master of Science in International Marketing and the Doctor of Education. 


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8 thoughts on “Pricing and the Reform of Barbadian Corporate Governance Part 1”
  1. Bim’s prices for electrical items for eg. a computer is 3 x the cost of computers in the UK. Flat screen TVs are expensive in Bim, in fact most things are over-priced when you work out what the same item costs in another country and the salary of a good majority in Barbados.

    Supermarkets in Bim have begun deals of buy 1 get 1 free/half price and SHOULD be able to pass on savings to customers because they buy in bulk but there’s rarely any deals in the Supermarkets or in High Street sales.

    In having one price for Tourists and another for the locals is “unbalanced”….Tourists can afford to visit and pay the same price as locals or vice-versa but no customer should pay more for an item than another….thats discrimination. Does this happen all over the caribbean because it doesnt in Europe.

  2. I agree 100 %, one of the biggest problems here is the size of the market everybody know each other and the market is small so there is not really any competition you had to pay the price or live with out and it doesn’t matter what kind of product we are talking.

    1. So true Dr Tull,but we can only voice our concern and hope one day that the people will understand and talk positive steps to address this very inportant issue

  3. I agree 100 %, one of the biggest problems here is the size of the market everybody know each other and the market is small so there is not really any competition you had to pay the price or live with out and it doesn’t matter what kind of product we are talking.

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