Opportunism or Fair Play: Excessive Pricing During a Global Pandemic

26 May 2020. Thoughts in Featured, Industry by
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The intersection of essential goods pricing and brand perceptions 

As most of us know, a relationship faces its greatest challenge when the environment within which it exists is hit by tragedy and uncertainty. The current COVID-19 crisis is posing a challenge to your relationship with both your prospective and loyal customers. 2020 is most certainly the year that your brand promises and value propositions are being put to the test in an unprecedented way; your response is being carefully monitored. To the consumer, your company is more than a business; it is a brand, a personality—a corporate citizen whose behaviours are under public surveillance and scrutiny. As we navigate this corona-era and come to terms with this “new normal”, how brands behave will determine how consumers perceive them now and beyond. In South Africa, there have been a number of complaints regarding excessive pricing on essential goods; is it fair business practice or opportunism?

The nexus between the law and consumer interests

On the 18th of March 2020, President Ramaphosa declared a state of national disaster. Thereafter, on the 19th, Dr Nkosazana Dlamini-Zuma, Minister of Co-operative Governance and Traditional Affairs, issued Disaster Management Regulations. The regulations outline that which is necessary to “minimise, contain and alleviate the effects” of COVID-19. Moreover, they allow the Minister of Trade, Industry and Competition to “issue directions protecting consumers during this period against excessive, unfair, unreasonable or unjust pricing of goods and services” (Tamara Dini, 2020). The Disaster Management Regulations prohibit dominant companies from selling essential goods and services at exorbitant prices during the COVID-19 crisis. 

At the intersection of essential goods pricing and brand perceptions, we find government regulations that have been put in place to protect the interests of consumers. In the event that a company contravenes regulations set out in the Disaster Management Act, Consumer Protection Act and Competition Act, it is referred to the Competition Tribunal by the Competition Commission. The Tribunal “promotes competition for the benefit of consumers,” while the Commission “investigates, controls and evaluates restrictive business practices, abuse of dominant positions…in order to achieve equity and efficiency in the South African economy.”

There have been several cases against firms that are charging excess prices on essential goods, and the complaints were brought forward by the public to the Competition Commission. One such firm is Dischem, against which there is a case for excessive pricing on face masks. It was found that Dis-Chem inflated their surgical face mask blue 50PC from R43.47 (excl VAT) per unit (50 masks) in February 2020 to R156.95 (excl VAT) per unit (50 masks) in March 2020, a price increase of 261%. The surgical face masks 5PC, the average price increased from R13.27 (excl VAT) per unit (5 masks) in February 2020 to R19.03 (excl VAT) per unit (5 masks) in March 2020, a price increase of 43%. The case was heard by the Tribunal on the 4th of May 2020. 

Loyal Dischem customers were displeased with the price increases and many took to social media to complain about the perceived unfairness, betrayal of trust, and the exploitation of a national state of disaster and global pandemic. The interests of the consumer, in this case, were not prioritised. As expressed by Tembinkosi Bonakele, Commissioner of the Competition Commission, “People who sell these essential products ought to appreciate that these are literally life-saving items right now. They shouldn’t be exploitative and take advantage of cash strapped consumers during the worst time in our history.” 

The issue at hand is not the price increase itself; what is problematic is the percentage of the price increase, the timing of the increase (between February and March 2020), and the context within which prices are being increased (COVID-19). We are currently in a crisis and unless a business can prove that the price increases are due to higher production costs, consumers should not be charged excessively on essential goods during a national disaster; the existing regulations prohibit such practices. While price regulations in a time of crisis can be tricky, there are processes of ascertaining what is an unfair business practice, and it is against these processes that dominant companies such as Dischem are investigated.   

To have and to hold: Maintaining your relationship with consumers during COVID-19

Between you and the consumer, there exists a tacit agreement and, according to Legal Wise, the agreement is thus: “A consumer buys or uses goods, or receives services from a supplier. The supplier sells goods, renders services, and/or advertises his/her goods or services to the consumer.” This highlights the fact that there is an expectation from the consumer that you will deliver on your promises and honour the agreement. What this all boils down is trust. Increasing prices on essential goods, during COVID, is perceived as a betrayal of the trust of your loyal customers and affects the likelihood of them being advocates of your brand.  

COVID-19 and the lockdown have adversely impacted the economy and, subsequently, consumer behaviour, particularly their spending; what they buy, how much they buy and where they buy it. According to Borderless Access, “consumers are expecting more from their brands than ever before.” Consumers expect you to be conscientious; they expect you not to exploit their current fears and needs; to contribute to uplifting underprivileged communities; and to invest in the health and safety of your staff. 

The major concerns of many South African consumers, particularly during this time, are their healthcare and safety, income, and the availability of food and other essentials. Now, this is where your value proposition, in which you state how your product or service solves your customer’s problem, is put to the test. Your value proposition is the vow that you make to your consumers. In this time of crisis, how serious are you about prioritising the needs of the consumer? How you respond to consumer needs in this time will, in the long term, determine how they perceive your brand. What kind of lasting impression do you want to have?  

References:

Borderless Access (2020).  Covid-19 – How brands can support South African consumers. Retrieved from https://www.bizcommunity.com/Article/196/19/203351.html 

Borderless Access (2020). COVID-19: Top Concerns For South African Consumers. Retrieved from https://blog.borderlessaccess.com/covid-19-top-concerns-for-south-african-consumers

Competition Tribunal (2020). About Us. Retrieved from https://www.comptrib.co.za/about-us/ 

Dini, T. (2020). COVID-19 Excessive Pricing – The Cases Pursued By The Competition Commission, South Africa. Retrieved from https://www.bowmanslaw.com/insights/competition/covid-19-excessive-pricing-the-cases-pursued-by-the-competition-commission-south-africa/ 

Hughes, M. (2020). What long-term impacts will COVID-19 have on food brand perceptions? Retrieved from https://www.newfoodmagazine.com/article/108341/what-long-term-impacts-will-covid-19-have-on-food-brand-perceptions/   

Legal Wise (2020). What is the Consumer Protection Act about? Retrieved from https://www.legalwise.co.za/help-yourself/quicklaw-guides/about-consumer-protection-act-cpa 

Moeng, P. (2019). Understanding the Actual Impact of Branding Part 1. Retrieved from https://www.kaitomacreatives.co.za/thinking/understanding-the-actual-impact-of-branding-part-1/

Motta, M. (2020). Price Regulation in Times of Crisis Can Be Tricky. Retrieved from https://www.dailymaverick.co.za/opinionista/2020-04-22-price-regulation-in-times-of-crisis-can-be-tricky/ 

PR Newswire (2020). Consumers Say Brand Actions Through COVID-19 Impact Perception. Retrieved from https://www.prnewswire.com/news-releases/consumers-say-brand-actions-through-covid-19-impact-perception-301040351.html 

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