Question

You represent a large U.S. mail-order clothing firm that is interested in lightweight cotton shirts of good quality made at a highly competitive price. You are sent to investigate possible suppliers in various parts of the world. From an ethical point of view, what considerations should be taken into account? When it comes to negotiating terms, what are some of the ethical constraints you should keep in mind? Please explain your answers in great detail, and provide examples to support your response.

Answer 1

Ethics are the moral principle to conduct a activity. In moral philosophy is a branch of philosophy that involves systematizing, defending, and recommending concepts of right and wrong conduct. Business ethics (also known as corporate ethics) is a form of applied ethics or professional ethics, that examines ethical principles and moral or ethical problems that can arise in a business environment. They help those businesses maintain a better connection with their stakeholders.

Pricing Strategy Ethics Issues

Some ethical issues are extremely easy to understand: don’t steal, treat others with respect. However, when it comes to the market, the concept of what is right and wrong is a bit blurrier. Of course you can’t exploit children for a labour force, but Is it a business’s right to price however they want?

Well, not exactly. Over the years, governments have put laws on the books for the most heinous of fraudulent pricing strategies, but even then some tactics are considered quite unethical, and you may be committing these missteps without even knowing.

Pricing: More ethics than legality

There is a general consensus that marketing strategies must not infringe on values like honesty, transparency, and autonomy. As such, the main crux of pricing ethics concerns the establishment of a balance of power (through information) between the producer and the consumer. In a completely free market, producers often have the upper hand because they are in control of their products and processes. This potentially lead to unethical practices (using cheap or harmful materials, lying about benefits, etc.), which are deemed harmful for society as a whole.

Interestingly enough though, even with this possibility only a handful of pricing practices are regulated by the government, mainly because you’re not really sure someone had broken a pricing law until you see results. For example, while predatory pricing, aka pricing extremely low to drive competitors out the market, is illegal, it’s difficult to prove that the price decreases had such an intention and were not simply the result of competitor based pricing. It’s like telling a child that he can have a cookie only if he finishes his vegetables, but with no way to discern if the kid ate the peas or if they were slipped to the dog. Essentially, most laws blindly attempt to curb motivations for doing things, rather than results.

As a result, pricing ethics and legality sit in a grey area, constantly ebbing and flowing between right and wrong. To better protect you and your business, here are some of the most common pricing practices that sit on a razor’s edge of ethics and legality.

1. Price fixing: Collusion at its worse

Price fixing involves the an agreement between a group of people on the same side of a market to buy or sell a good or service at a fixed price. Typically, competition between these participants for consumers drives down prices for goods. Yet, imagine a world where every ice cream shop in America vowed that all single scoops were now $15. Consumers would lost out, because we’d find alternatives or shell out an exorbitant amount of cash, as we couldn’t go to another neighbourhood joint to battle the high prices/low quality offering of another.

The potential blow to consumers is why horizontal price fixing is illegal, which means corporations on the same level of the supply chain cannot agree on a target, maximum, or minimum price (among other things). This form of fraud can be prosecuted under the Sherman Anti-Trust Act. The Supreme Court did rule, however, that vertical price fixing is allowed. For example, wholesale companies can limit how much retailers charge for clothes.

The bottom line: Look at your competitors to understand the market, but don’t get in a room with them and try to take advantage of consumers.

2. Bid rigging: Favoritism

This one’s more for the proposal crows, but bid rigging involves promising a commercial contract to one group, even though you make it look like multiple parties had the opportunity to submit a bid. Not only is this a moral no no, but it’s also one of the few the government follows up on, especially within their own ranks, because of the number of bids and contracts the government deals with on a yearly bases. This practice hurts consumers considerably, because the best producer doesn’t receive the work necessarily.There are many variations of this offense, and all include some pre-determined agreements between corporations involved in securing a contract.

The bottom line: Even if “you know a guy” keep the bidding process honest on both sides. Everyone will end up better off.

3. Price discrimination: Anti-favouritism

Price discrimination is the strategy of selling the same product at different prices to different groups of consumers, usually based on the maximum they are willing to pay. The practice also surfaces in hiding lower priced items from customers who have a higher willingness to pay. This one is a little tricky, because it is socially accepted in some cases, yet rejected in others. For example, very few people would complain that the 80 year old man and his 2 year old great-granddaughter pay $10 less to enter the carnival. Yet, only showing the more expensive hotels to more affluent customers caused an enormous amount of PR backlash for travel site Orbitz.

The bottom line: Charge different types of customers differently through product differentiation, bundling, and the like, but be exceptionally careful about communicating differences in price. Sometimes a PR backlash can hurt much more than a legal one. Check out more on communicating price changes (article is a bit tangential, but educational).

4. Price skimming: Discriminating through time

Once again, another shady area. Price skimming is when the price for a product is first sold at a very high price and then gradually lowered. The goal here is pretty obvious, producers want to capture each step on the demand curve; consumers who are willing to pay more buy the product first, and then a new groups’ purchases are triggered with each decrease in price.

This strategy is most commonly seen in the tech industry, as some consumers are willing to pay a premium price for the newest gadgets. Apple is a prime example, as prices drop within months of a release and new iterations happen within six to 12 months. Like price discrimination, this practice isn’t illegal, but if too obvious and not tested enough, it can trigger an unfortunate PR backlash. Apple received a lot of flack for cutting their production cycle on the latest iPad, instantly lowering the prices of the older models.

The bottom line: Find ways to lower prices to new tranches of customers discreetly. Coupons, promotions, and lightweight versions of a product are all exceptionally effective while keeping the same number on the page.

5. Supra competitive pricing: Monopoly gouging

Sometimes the value that consumers place on a good is much greater than the cost of producing that good. In such cases, there is controversy about whether the corporation is justified in charging a much higher price and matches the perceived value. This situation can take place during a shortage, such as the price of food or fresh water after a hurricane, or when a certain product is the only one of its kind available. Pharmaceuticals and the patents that surround them are a great example.

The bottom line: This is a common sense scenario, but a good litmus is to ask yourself if the pricing change hinders an individuals’ necessities. Software products are phenomenal for improving efficiency, but if the Internet blew up tomorrow, we’d still need food and water.

In summary, Don’t do anything illegal when setting or changing your prices, but even with the questionable practices, always step back and think about what the price looks like from a customer’s perspective. You’re not building a quick sale business. You’re building something sustainable, so make sure to avoid any and all pricing disasters.

Learned from The Germany Industry

When we launched our menswear label, Lazlo, we (perhaps naively) set up an ambitious framework for ethical sourcing that strives to encompass the following:

• Sustainability. Eliminating toxins from our supply chain helps to ensure safe working conditions and minimize our environmental footprint.
• Fair. Everyone deserves access to living wage jobs; at Lazlo that includes populations trapped in a cycle of poverty and recidivism.
• Quality. The most sustainable products we can make are items that don’t need to be replaced.
• Transparency. Transparency encourages accountability and builds authenticity.
• Local. Supporting local economies fits hand-in-hand with our interest in transparency and sustainability.

Meeting any one of these standards moves the needle towards change, and it can feel exponentially more difficult to prioritize all of these values at once. However, these issues are so complex and intertwined that is nearly impossible to move towards systemic change without considering all of these factors when sourcing materials.The price of a product or service plays a large part in how well it sells. Producers and retailers practice ethical pricing strategies to earn profits without defrauding competitors or consumers. Despite that, competitor's prices, convenience, availability and other factors affect consumer impressions of fair pricing.

Cost analysis in garment Manufacturing, as the topic implies, deals with the work of costing a garment which involves the expenses for fabric, trims, cuttings, labor, overhead, sales commission, manufacturer’s profit & transportation. The production cost of the garment must be determined in order to set the wholesale price, the price that retailers’ pay for goods that they purchase from manufacturers.There are two types of costing. The first one is pre cost. Pre cost is the estimate of the garment before it is adopted into the line. The designs must keep the fabric, trim and the labor cost for each garment within the limit set by the company for a particular line price range. Another method is Final cost. It is the exact calculation by the costing or import department using actual figures for materials and labor. The costing Department uses the designer’s worksheet or a prototype garment and the production pattern to analyze material and construction step by step. The designers may be consulted for information or to recommend more practical or cheaper ways to make the garment. Labor Cost may be calculated by time study. In this Case engineer’s time operation such as closing a seam or how long it takes to make an entire garment or a prototype may be sent to a contractor for costing. Cost is varying on quality, style and reliability p[lace to place.