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6 Things More Expensive Because of Marketing

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Black Pearl EarringsOne of the most fascinating stories I read in Predictably Irrational, by Dan Ariely, was that of Tahitian Black Pearls. It’s amazing because what happened with black pearls has happened with so many other products through the ages, you’d think we’d learn to recognize it… but we don’t! While I won’t reveal the whole tale, Emily Bobrow’s review, which appeared in the New York Observer, remarked that in Predictably Irrational…

We learn that James Assael, a postwar ‘pearl king,’ had little luck in unloading the gunmetal fruits of black-lipped oysters when he first introduced them to America in the 1970’s. But then he convinced his buddy Harry Winston to display a string of these lovelies in his Fifth Avenue window, together with an outrageous price tag. The rest is history.

For those who don’t know, black pearls are supposed to be very expensive. :)

The story of the rise of the black pearl is an example of an idea Ariely hits upon frequently in the book. Again, from that review:

“We don’t have an internal value meter that tells us how much things are worth,” Mr. Ariely explains. Instead, we rely on context and relativity (is this scarf better or worse than the scarf sitting next to it?), which makes us gullible consumers.

Are there more examples out in the wild? There are plenty.

Bottled Water

Bottled WaterThis is by far my favorite example because it’s one that only recently became popular. Bottled water is one of the most ridiculous marketing inventions of the last ten years, even more ridiculous than a Pet Rock. Bottled water, in blind taste tests, is no better than tap water despite the ridiculous price difference. You can buy a thousand gallons of tap for the price of a single bottle. Americans spend $30 billion a year on bottled water, according to San Francisco Mayor Gavin Newsom.

In countries where you cannot drink tap water, bottled water is more reasonably priced. My wife and I recently went to China and found that bottled water was mere cents compared to dollars here in the US. While you have to account for cost of living, the main reason bottled water was cheaper there was because it’s a necessity rather than a perk or status symbol. You couldn’t drink the tap water, you had to buy bottled water. Americans overpay significantly for bottled water.

If you buy bottled water in individually-sized 12 oz. bottles, I’m sorry but you’re a fool. If you like the convenience, buy a reusable bottle. You save yourself some money and you help out the earth.

“Enhanced/Fortified” Water

If bottled water was the first listed, enhanced water has to be close behind it. These are bottle waters fortified or enhanced with something special, like 50 Cent’s vitamin sweat or Michael Phelps’ pool water. Unfortunately, they’re also nearly all marketing hype. Check this out from the Consumerist.

Diamonds

Diamonds Are ForeverOkay enough with the water, after water comes one of the biggest scams ever – Diamonds. Diamonds are forever and they’re rare, at least that’s what DeBeers would like you to believe. The reason they are rare is because the DeBeers diamond cartel owns practically all the mines and has inflated their prices by restricting supply (they recently settled a diamond class action lawsuit regarding this).

We can make perfect diamonds in a lab, so why are nature-made diamonds so expensive? DeBeers & Marketing FTW!

Wines & Spirits

Wine Shop AisleWines and spirits, and the beverage market as a whole, is just one big marketing machine churning out one brand after another. It’s been shown that the more expensive the bottle and the fancier the label, the more we end up enjoying it and the more likely we will pay. We have been conditioned to believe, especially in wine and spirits, that the more expensive bottle is the better one because many of us aren’t wine experts. Price is thus our proxy.

Dr Rangel gave his volunteers sips of what he said were five different wines made from cabernet sauvignon grapes, priced at between $5 and $90 a bottle. He told each of them the price of the wine in question as he did so. Except, of course, that he was fibbing. He actually used only three wines. He served up two of them twice at different prices.

The scanner [it was a functional magnetic-resonance imaging device that showed blood flow to parts of the brain] showed that the activity of the medial orbitofrontal cortices [an area of the brain that previous experiments have shown is responsible for registering pleasant experiences] of the volunteers increased in line with the stated price of the wine.

The pricier the wine, the more we enjoyed it. Crazy huh?

Coffee

Starbucks Cup of CoffeeFor the longest time, Starbucks was the darling of many an MBA case study as being able to take a commodity type good, coffee, and turn it into a rich experience people would be willing to pay $4 a cup for. You can make coffee at home for a few cents per cup but people were willing to drive to a Starbucks in order to enjoy a $4 cup of coffee given a fancy name… all because of marketing.

How did they do it? They made Starbucks a brand about coffeehouse experience, rather than the coffee, and people bought into it. Don’t get me wrong, I have much respect for Starbucks and what they’ve been able to accomplish but the people paying for coffee each morning on their way to work are buying into the experience and not the coffee. You could argue that Starbucks coffee is better, but is it 100x better? 50x better? They successfully made the purchase more about the experience than the commodity good they were selling. When a business does that, they win.

Any Others?

Do you know of anything that comes to mind that fits this list? It seems as though everything on here was either jewelry (pearls, diamonds) or beverages (water, coffee, liquor), are there any others that I missed? I thought about throwing the iPhone on here, because that certainly benefited from marketing, but electronic components are expensive and their business plan is to profit from the recurring monthly service fees. Let me know!

(Photo: Black Pearls by jacbt, Diamond Ring by salreus, Wine Aisle by pgoyette)

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66 Responses to “6 Things More Expensive Because of Marketing”

  1. How about eBooks either on affiliate marketing websites or on the author’s personal websites? I’ve seen many “send-your-website-traffic-through-the-roof” type eBooks as well as eBooks about hypnosis or meeting your life partner or whatever that sell for $25, $45, $69 and more.

    Considering these eBooks are all, well, “e”lectronic and therefore free to distribute it’s amazing to me they get so much money. Sure, the author puts in his time, labor and intellect. Sure, one has to format the eBook so it’s relatively easy to read once it’s downloaded (and printed on my own paper or read from my own screen). But consider that all that same stuff goes into “real” books that also costs bundle to manufacture and distribute and market and, yet, most hardbacks books are in the $25 range (paperbacks about half that much).

  2. Ron says:

    True Religion jeans comes to my mind. $185 for a tattered denim rag sewn together?

    What about $400 hair stylists? What do they do that no one else can? No one else, really.

    Ivy League schools. What specifically does someone learn in Harvard’s MBA school that isn’t taught at The University of Virginia, or some other well regarded but non Ivy League school? Not talking about the networking aspect, only the educational aspect. Many of those “lower tiered” schools have professors from Harvard, Yale, Princeton, Cornell, Brown, Dartmouth, etc. Does the professor keep the knowledge he/she acquired at those schools a secret from the students at the lower tiered school?

    Good marketing is all about perception. It rarely has anything to do with reality.

  3. CF says:

    Anything related to a wedding – dresses, cakes, photographers. Somehow the emotion of the event creates a hefty surcharge.

  4. Nike (and other major maker) tennis shoes. But still, I love me some Nikes.

  5. Patrick says:

    Cars… There are quite a few that use identical components but have a different brand. Mazda and Ford trucks, several GM products, etc. The price tags are also quite different.

    Even when you get away from identical cars/parts, there are some vehicles that have a hefty premium simply because of the branding. There are many (comparative) deals to be had by shopping around.

  6. Matt says:

    Phone service and the cell phone industry in general come to mind. They plug and push the latest phones on you with their marketing tactics even if you just got a phone from them recently.

    I love the water example – the only water I can taste the difference in is Dysani (sp) other than that it might as well be tap water in a plastic bottle. The best part is I’ve seen the small bottles go for as much as $2 each!

  7. Drugs and Healthcare.

    Imagine what would happen to the cost of the top 10 drugs sold in the US if big pharma couldn’t push their meds. Do we really need to have a Viagra, Levitra, and Cialis commercial in every 1 hour block during Monday Night Football? Not just one of them… all of them? I think not.

    I worked in the pharma industry for many years, and it’s amazing to know the real mark ups.

    As for bottled water, many of those guys don’t want you to know the plastic bottle costs more than the water. The profit margins are ridiculous.

  8. Tom Perry says:

    Eye Glasses. Two pieces of glass and some wire.

  9. JI Surfer says:

    Politics

  10. Andrew says:

    Music CD-ROMs are crazy overpriced.

  11. dick says:

    The biggest scam involves our health! Blaming fast food for the obesity epidemic. Weak people can’t stop themselves from thinking about food. Of course, they are the ones who spend millions on fancy diets. Can you imagine an intelligent person having a belly tuck? We are supposed to eat when we are hungry. We are supposed to drink when we are thirsty. Not 8, not 10 ounces of water a day.

  12. Chris says:

    Perfume, smelly water?

  13. Ryan G says:

    Erm…women.

    Yes, women and metrosexuals make the prices higher, and also those that pertain to be ‘in-touch-with-their-feminine-side’. They are the cause as they are the demand for supply.

    The sooner we get to proper no-nonsense living, the sooner these corporates/shareholders will get a big kick in their wallets.

    This is totally transparent in their advertising. That is the social market grouping they all aim at.

    What really is the point in a shop-sold diamond ring? Come on, it’s not personal.

    Can’t we make coffee at home and invite friends around?

    Do we have to allow Nike to have a massive profit margin from poorly paid third-world manufacturers? (Kids)

    Is bottled water that good when we have a hand full of plastic to throw away too?

    It’s all about image, and (sorry) women are at the forefront of spending power, whilst the product advertising completely focus on that fact.

    If you disagree, spend a sad day infront of a TV and tell me how many daytime ads are about cleaning products/fashion/anti-age/make-up/perfume, etc, compared to beer ads in the evening. Even the diamond companies have started advertising daytime…while I’m at work and the wife is at home….erm.

  14. hefty says:

    in southern california, we have TERRIBLE tap water. you can even smell it. maybe if youre really thrifty and arent all too into cooking, youre fine with poor water. but not everyone is the same.

    in indiana, where my grandmother lives, i have no problem drinking tap water straight.

    maybe the terrible water is unique to my immediate surroundings, but ive done blind taste tests, and consistently can pick out the tap water (though a lot of bottled water isnt much better!)

    really, it depends on where you live, what water you buy, and you yourself.

    calling it ALL hype is just doing it an over-simplification.

  15. hefty: Just because your water sucks doesn’t mean you should buy it in single serving bottles. You could filter it, buy it in large jugs (like for an office-style water cooler), etc.

  16. tlange says:

    What does Gavin Newsome know about bottled water? That is like quoting a high-school dropout in the Journal of the American Medical Association!
    Find a better source…

  17. yourmanstan says:

    TOOTHPASTE.

    ask any dentist, the effect is the same whether you buy 50 cent toothpaste or $5.00 toothpaste. it is the toothbrush that does the cleaning.

    thanks to clever marketing, people will pay much more for ‘advanced whitening formula’ and other gimmicks that have virtually no effect

  18. md says:

    “In blind taste tests, is no better than tap water …
    If you buy bottled water, I’m sorry but you’re a fool. ”

    HUH???????

    Not sure which FOOL planet you live on but my tap water tastes like pool water with extra chlorine.

    Any FOOL that tastes my tap water and Dasani water can tell the difference, even a blind person.

    Your quite the dumbass aren’t you?

  19. jim says:

    md: Get a filter.

  20. Cap says:

    Yeah because Dasani is so fucking special that Coca-Cola had to get magical municipal tap water for cents, filters it, adds small amounts of minerals for taste and charges you dollars for it.

    Don’t buy into the marketing (the fact that you called it “Dasani water” says a lot). Buy bottled water for convenience and practical reason. If you’re worried about taste then get a f’ing filter as mentioned.

  21. surly says:

    For those of us not in the city but using cistern or well water, filtering is not enough. In fact, to truly clean water for drinking from our sources you have to construct multiple filter systems and even then it can’t get everything. From chlorination to sedimentation filtration to ozone and other methods, no one filtering mechanism can do the job.

    We often get tap water from either my mother’s or mother-in-law and truly it is probably better to drink this but trust me it taste like crap and I question its health quality. I not talking about chlorine I am talking mud. My cistern water tastes better.

    We drink bottled water. I don’t like it but on the fringes of the city where there is no supplied water, water services are more expensive then buying bottles or 5 gallon containers.

    You, city dwellers really have no idea what your drinking and those of you talking about buying filters, you’ve been scammed yourself by marketing, that can do very little to truly improve the quality of the water, just the taste. If you knew what happens from the time your water company recycles its sewage and it travels 20 miles to your tap, you would question drinking it not because of taste but because of the chemistry set and breeding ground 80 years of bury cast iron has developed. Is bottled water better I can’t speak to that question but I do taste a difference between bottled (economy- not name brand: that is nonsense), my well water, and city tap water.

    My pool water is safer to drink then your city water tap.

  22. Sam says:

    I don’t know where you fools buy bottled water but I get a 24-pack for $3.27. That’s less than 14 cents a bottle, not dollars. It does taste different than tap water but I wouldn’t say better. It’s more for the convenience of portability.

  23. HJ says:

    What’s with the attitude? What just because you save and some people are wasteful gives you the moral superiority to call people fools?

  24. jim says:

    There’s no attitude and no moral superiority, just a pure statement of facts. I didn’t call anyone who bought diamonds or black pearls a fool, I specifically called people who overpay on water because they’re paying 100x to 1000x what they could and should be.

    For the folks who have terrible tasting tap water, I feel for you and I can understand your purchasing of bottled water but percentage-wise you’re a small group.

  25. I’ve tasted the southern California water on business trips and their water quality is pretty horrible. Coming from a smaller area on the east coast, water quality was never an issue and I will admit to buying bottled water while I was in California.

    If I were living there permanently, I would look into mass quantities the activated charcoal filters (like Brita) to remove all that extra chlorine.


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