As SaaS leaders, we make pricing decisions that impact revenue, customer relationships, and our brand’s reputation. But what happens when extraordinary circumstances arise? When does strategic pricing cross the line into exploitation?
I recently sat down with fellow pricing expert and founder of Unsurvey, Alex David, to unpack the ethics of pricing during emergencies. Our conversation went far beyond simplistic “greedy business” narratives to explore the complex interplay of economics, ethics, law, and social responsibility.
Watch our full conversation in the video below, or read on for a recap of our discussion on this complex topic.
What “Price Gouging” Actually Means (And Why It Matters)
One core insight from our discussion: “price gouging” has a specific legal definition, not just whatever feels expensive to consumers. As I explained in our conversation, price gouging generally involves three elements:
- A price deemed unfairly high
- An emergency or difficult situation
- A product or service useful in responding to the emergency
Importantly, these definitions vary across jurisdictions. Some states define specific thresholds (like “no more than 10% above pre-emergency prices”), while others use vague terms like “unconscionable increases” – leaving businesses guessing about compliance.
For SaaS executives, this highlights why getting precise about pricing terminology matters. Our language shapes how stakeholders perceive our pricing decisions, and misapplied labels can create unnecessary controversy.
Multiple Frameworks, Multiple “Right” Answers
Perhaps the most valuable takeaway from our discussion was recognizing how different analytical frameworks lead reasonable people to entirely different conclusions – even when working from identical facts.
Consider how these frameworks approach the same pricing scenario:
Economic framework: Prices serve as information signals that allocate scarce resources and incentivize increased supply. Artificially capping prices can create shortages by preventing these market mechanisms from working.
Legal framework: Specific statutes may prohibit certain pricing practices during declared emergencies, regardless of economic efficiency.
Ethical framework: What obligations do businesses have to communities during crisis? Does maximizing shareholder value justify charging what the market will bear, or do we owe greater consideration to vulnerable customers?
As I noted during our conversation, “It’s easy to devolve into Red Team/Blue Team political framing, but that’s the wrong lens. The right level of analysis involves considering economic arguments alongside ethical and moral views.”
Real-World Applications: From Uber to Natural Disasters
Uber’s Surge Pricing
Our discussion examined how Uber’s surge pricing demonstrates the tension between these frameworks:
- Economic view: Surge pricing attracts more drivers during high demand and allocates rides to those who value them most.
- Consumer perception: Many view significant price increases as exploitative, especially when they occur suddenly.
- Regulatory response: In New York, after controversy during emergency weather events, Uber agreed to cap surge pricing during declared emergencies.
Alex made a key distinction: “High demand does not equal an emergency situation. New Year’s Eve surge pricing is pure economics, not price gouging.”
LA Wildfires and Housing Prices
Recent wildfires in Los Angeles sparked controversy when some rental properties dramatically increased prices. This raised questions about:
- The ethics of profiting from others’ misfortune
- Whether those with financial resources should have priority access to limited housing
- The role of social reputation as a check on business behavior
As Alex observed: “If all the business you did was only in the community that you lived in and you had to face the people that you did business with every day, you would be more ethical in how you did business.”
Price Controls: Short vs. Long-Term Considerations
The duration of emergencies emerged as a critical factor in our analysis. Alex noted that temporary price controls might make sense in the immediate aftermath of disasters, but extended price caps become problematic:
“If it’s going to be only a very short amount of time, you’re not going to expect someone to create a whole new manufacturing facility. If this disaster is going to last for six months, maybe. That’s what we saw with the hand sanitizer situation – liquor companies adjusted their manufacturing lines.”
A Framework for Ethical Pricing Decisions
Drawing from Tom Nagle’s excellent book The Strategy and Tactics of Pricing, I’d suggest SaaS executives consider these five levels of ethical transactions when making pricing decisions:
- Basic voluntary exchange – Parties freely agree to terms (caveat emptor)
- Equal information – Both parties have access to the same information
- No exploitation of essential needs – Pricing doesn’t prevent access to necessities
- Cost justification – Prices reflect actual costs plus reasonable profit
- Equal access regardless of ability to pay – The most restrictive standard
Most price gouging laws operate at level 3, prohibiting exploitation of essential needs during emergencies, while allowing market forces to work normally in other contexts.
Alternative Approaches Worth Considering
Our conversation explored creative solutions beyond simple price caps. For instance, when discussing government intervention in emergencies, Alex suggested:
“If the Engineering Corps comes in and sets up temporary housing that they even charged rent for – setting a threshold where you could go to this hotel charging a thousand dollars a night, or you can go to the FEMA location at a hundred bucks a night – that limits how much hotels can charge because you’ve created supply.”
This approach preserves market mechanisms while ensuring access to essential services – potentially more effective than blunt price controls.
The Bottom Line for SaaS Leaders
The next time pricing discussions arise within your organization, particularly during challenging circumstances:
- Be precise about terminology and frameworks
- Consider multiple perspectives beyond pure economic efficiency
- Recognize that short-term pricing decisions have long-term reputational impacts
- Balance shareholder interests with broader social responsibilities
The most sophisticated pricing strategies consider not just what you can charge, but what you should charge – creating sustainable value for both your business and the communities you serve.