Pricing is a sensitive issue to both the buyer and the seller. Perhaps it is in this context that the wise of old coined the saying â€˜one manâ€™s meat, is another manâ€™s poison.â€™
This is evidenced in reactions to price adjustments in our daily lives. For example, when prices go up, naturally, consumers cry foul whereas sellers tend to celebrate, so to speak. It was no different two weeks ago after the Malawi Energy Regulatory Authority (Mera) reduced pump prices of fuel. Some fuel retailers lived in denial and maintained old prices while some swiftly adopted the new prices.
In my entry last week, I argued that fuel retailers have no case to cry foul on the basis that the price review took them by surprise. The ratailers accused Mera of employing dictatorial tactics and lacking transparency regarding the price review. They said they should have been given notice.
In line with the new automatic pricing mechanism for fuel, which entails upward or downward adjustment of pump prices depending on variables such as international oil prices, exchange rate fluctuation, among others, Mera passed on the benefits of low oil prices on the world market to local consumers on July 6 2012. Pump prices for petrol went down to K441. 10 per litre from K490 whereas diesel has been reduced to K445 per litre from K475.
Several petroleum industry stakeholders, including some retailers sent their feedback on the issue. They accused Mera of taking them unawares. As expected, many of the ratailers said they made losses.
How should Mera have communicated the price reduction? Some of the players suggested a 48-hours notice to parties concernedâ€”retailers, suppliers and, of course, consumers. This happens elsewhere, but requires a strong sense of discipline and ethical behaviour. Without discipline, retailers would create an artificial scarcity by hoarding fuel, pending a price increase whereas consumers would also panic.
My heart bled for one retailer who told me he made a loss of almost K2 million due to the price reduction. Hours before the price reduction was effected, this dealer had taken delivery of 20 000 litres of petrol bought at K463 per litre, hoping to sell at K490 per litre only to sell it at K441.10 per litre. Now, the 20 000 litres was worth K9.2 million (about $36 000), but this retailer was now to earn K8.8 million (about $35 200). This dealer may not be able to service the loan he took from the bank and, eventually, consumers may not find fuel at this particular station.
That is the sad reality of business where sometimes you win and sometimes you lose.
With the automatic pricing mechanism, price reviews-both downward and upward-will likely be regular, almost every month. The key is sanity and discipline among all stakeholders in communicating the prices. Traders should especially exercise ethical behaviour as the see-saw continues.