S4L Book Club – Cheap

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?

Consider this:

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?

Categories: Reading

6 replies »

  1. Much of this is news to me although I’ve started to pick up on some of this trend in where products are manufactured ie. we bought our stroller used, which was made in New Zealand, but the newest models are now made in China. The same for many clothing brands. All for profit I presume as China seems to have the hugest factories on the planet, hence mega efficiency and, of course, cheap labour… It’s a luxury, these days, to buy locally made (or just North American made) stuff. Ha! Ha! My husband has a mug from when he was a kid that’s stamped “Made in the USA”. When was the last time you saw that on a non-artisan product?! Is it greed or is it a logistical shift in the manufacturing industry? Which came first? The chicken or the egg?!

  2. I have very mixed feelings about the whole China thing. I keep hoping to settle on one side or the other, but I seem hopelessly lost in the middle.

    I think awareness is the first step, and maybe talking about it is the second. Let’s see what we can figure out.

  3. I’m way behind with checking in and reading comments, but the China “thing” makes me crazy. If it’s made it in China it should sell in the US for less than half of what it was when it was made in the US (in my opinion). What I mean is that the regular price should be half (example: Spode Christmas China [as in dishes, not the country], old price when mfg in GB $100. New holiday “sale” price in the US is $50 – – – but the product came from China not GB) So is the $50 a real “sale”. Not in my opinion. It’s the new “real everyday price”. And have you noticed you don’t know products are now being made in China (or some other country) unless you take the time to look for the info.

  4. Let me see if I understand you: If a product made in GB sells for $100, and the same product is made in China, the China version should cost half of what the GB version does? Why is that? Is “half” arbitrary, or do you mean literally half?

    It’s very hard to know where products are made, especially when that product is made of several different components. It’s even harder to know where the materials in a product come from.

    I think the China issue may be a question/discussion in itself.

  5. Half is just a reference – not literal. What I mean to say is that the production is farmed out to China because it is less costly to produce. But the China-produced product now comes into the stores marked at the original GB produced price and has a sign that says “on sale” at the lower price. That rubs me wrong because I feel like it tries to pull something over on consumers. I buy my daughter a piece of Spode every year and when this first happened, I didn’t check to see where the Spode was mfg – I just assumed it was in GB as it had been for years and years. After the 2nd year of seeing the prices on sale before Christmas (which was very unusual) I discovered the China connection. I can only wonder, if the product can be sold before the holiday at a “sale” price of 50% off, how can they cover their cost. You & I both know that you can’t sell product everyday at 50% off and stay in business or make a profit – so the logical conclusion is that the 50% off is really regular price and not a sale. In fact Michaels’ (the craft store) just received a hefty fine in a New York court case for advertising the constant offering of their custom framing at 50% with the coupon – it was determined that the 50% off was the real price of the custom framing.

  6. That’s what I thought you meant.

    Yes, the practice of calling a not-discounted price a “sale” bothers me, too. There was a section in the book that talked about mattresses being marked up so that the regular price of one brand appeared to be a sale price. The higher prices are presumed to be reference points that make the regular price look good.

    I hate pricing games like this. It makes me suspicious of all prices, and I don’t like that feeling. My response, really, is simply to do without. I don’t like playing that game, so I don’t like shopping, so I simply don’t do it.