I am struck by the following claims:
Generally speaking, consumers don’t know what things cost, and we all tend to believe we’re paying too much. We associate price with profit, not realizing all the costs that go into production. In fact, consumers grossly overestimate profit margins.
How often do you think you’re paying too much for something?
Honestly, I rarely think I’m paying too much for something, unless, say, I’m paying full retail when I know very well there’s a coupon available that I simply haven’t taken the trouble to get.
I think my opinions about paying too much changed upon starting my business and manufacturing printed patterns and embroidery kits. I think my opinion changed again after reading this book, which I first did a year or so ago. I probably have a better sense of production costs than many consumers. In fact, I am often dismayed at how cheap things are, well aware that I, as a manufacturer and publisher, can’t compete. Similarly, no independent needlework shop could compete with WalMart in selling DMC fibers: The wholesale price we paid for DMC fiber was greater than WalMart’s retail price.
The book claims consumers believe we pay more for goods and services than our parents and grandparents.
However, prices of most consumer goods, even food and fuel, have been trending downward for decades. Compared with the early 1970s, in 2007 we spent 32% less on clothes, 18% less on food, 52% less on appliances, and 24% less on owning and maintaining a car. Technology-driven globalization has pushed real prices to rock bottom in almost every category.
As a consumer, while I’m keenly aware of the increases in gas prices, I was not aware that we currently pay so much less for clothes, food, appliances, and cars. Were you?
Aside: And speaking of fuel costs, as someone who has been driving from the Lower 48 to Alaska for twenty years, I have long been aware of how much cheaper US gas has been than Canadian gas. I always wondered why that was and if it was really a good thing.
So what does it mean that consumers think they’re paying too much when, in fact, prices have never been lower?
Do you believe that technology-driven globalization is solely responsible for the drop in prices, or are there other factors contributing to current low prices?
Despite widespread corporate prosperity, median family income, adjusting for inflation, dropped by $1,175 between 2000 and 2007. At the same time, that average family spending on basic expenses grew $4,655. Meanwhile, corporate profits doubled.
So wages have also decreased in addition to production costs. Yet corporate profits have increased.
It seems consumers are partly right, then: profits from goods are, indeed, greater. However, it seems we don’t understand exactly where those profits are being made.
So, prices for goods have decreased, wages have decreased, but our basic expenses have increased. Basic expenses, I presume, include fuel, housing, medical expenses, education, etc.
What do you think about this? Is this news to you?
Why do you think the push to reduce the cost of goods doesn’t extend to reduce the cost of basic expenses?
Do you think this push to reduce the cost of goods is responsible for the wage decrease?