Why things cost what they cost.
Many people love shopping, looking for a deal, or finding that perfect item. Very few understand how retail works, or what the real cost of an item is.
Let us suppose an item is made in one country, but sold to another – here is how pricing works.
First the components must be purchased. Let us say all the components cost $1.00 total. Somebody is paid to put the components together – let say $0.50. Now the item has a value of $1.50. Now the item must be packed in Styrofoam, and boxed, we can say that costs $0.10. The manufacturer then sells the product to a wholesaler (sometimes there is more than one wholesaler, each one raising the price). The manufacturer wants to make a profit so they might double the total, from the current value of $1.60 to $3.20. It is then transported to the country where it is to be sold. If we figure the cost of shipping, and duty, to be another $0.50 the item is now worth $3.70.
The wholesaler then markets the item to retailers. Let us say they mark it up to an even $7.00. They usually set limits, not allowing retailers to buy fewer than a set number of items. They sell the items through catalogs, websites (closed to the public), gift shows, and sales representatives – all of which have costs.
The retailer orders the item, typically having to buy a minimum amount of merchandise from the supplier. They pay for shipping, which can be another 10-20% and must be recovered in the price of t the item. The retailer also has to cover employee expenses, rent, electricity, and so on.
Some retailers double the price of their goods, others may triple the price. As such the item that cost $1.50 to make can be sold for $14.99, or more.
Image by doug_wertman via Flickr
By now most consumers know that ending the price in .99 or .95 or whatever is a marketing ploy. A trick to get the consumer to think they are spending slightly less than they really are. Many stores now have even more unusual pricing stratagies, ending the price in .58 or whatever. Some even use the price as a code for what month the product came into their store, or to mark what type of product it is to catch tampering with price tags.
Published in: Consumer Information