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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. Brian says:

    SOFTWARE! Look at the prices of Microsoft and Adobe products. Most of the time it’s a nominal upgrade and they want you to shell out another couple hundred bucks.

  2. Ron says:

    Who knew bottled water could evoke so much emotion?

  3. marci says:

    You may not want to believe it but there are places in rural America where the tap water is NOT safe to drink….. Ours comes straight out of the creek, after several farms and a mill…. We bath in it, flush the toilet with it, and wash the car in it, but filtering it would be prohibitive.

    Now add to it the fact that one of us is allergic to chlorine in the city water systems, and voila – bottled water. The “big jugs” are not available here (rural)- just the gallon jugs. But sometimes it is cheaper to buy the 24 pack of water for $3 than the gallon jug for price varies.

    There’s more to the world than your city life. Stretch your narrow horizons! And no, I wouldn’t move for anything – out here it’s really living the good life :)

  4. BTGNow.net says:

    Funny, the only one I ever buy or consider buying is the bottled water.

    But in that case, I know exactly what i’m paying for: I’m not paying for water, I’m paying for the BOTTLE.

    I’m paying for the convenience of portability, and the possibility of it being nice and cold and refreshing too.

    But I know not to kid myself: the water is cheap as free, it’s the packaging and the convenience I’m paying for.

  5. Zhu says:

    First thing that comes to mind if the cell phone industry.

    For example, in Canada, we pay a monthly “system access fee” of as much as $10. This is supposed to be to develop and maintain the network… Now I know Canada is a big place but:

    1) There is no coverage in most of the country, only in bigger cities
    2) Cell phones have been around for a while and if each user paid $100-120 a month, I’m pretty sure the network is paid off.

  6. seotunes says:

    A list would be things that AREN’T more expensive because of marketing. I’m stuggling to think of anything.

  7. This is pretty localized but I’m sure not unique and I think it fits the topic. in the past month my local grocery store has moved the Bob’s Red Mill Oatmeal, which I have for breakfast every morning, from the cereal aisle where it has always been, over to the health food aisle and raised the price 60 cents! I think “health food” is a good addition to your list!

  8. Anonymous says:

    On the supermarket over here (Western Europe) 5 litres of bottled water cost 10, 12 eurocents. So, not too expensive if you live in a part of the city where the tap water tastes like chlorine mixed with iron…

  9. Dana says:

    1. cars
    2. cards – hallmark is evil
    3. laundry soap – make your own!
    4. all the extras from the phone company – come on – do you really need 3 way calling?
    5. beer

    worst of all… hands down:
    prescription drugs! they market to us.. so we can market to our doctors – now that’s sick!

  10. I’m pretty sure Anonymous hit it on the head by pointing out the price of a 5 litre bottle of water in Europe.

    My sister lives in a rural area with well water – she buys bottled water, but in the big jugs that go on the water cooler. And her tap water is filtered enough to use for cooking and cleaning.

    Of course, if you’ve only got so many options, you gotta do what you gotta do. But Jim is right – you’re a small percentage. America spent $15 BILLION on bottled water in 2006, and that number is only now starting to shrink. That’s $50 a year for every man, woman and child (including infants that can’t drink water!) in America, when most of America has access to clean drinking water.

    I don’t want to go off on a tirade here (I already wrote, and made a video, about bottled water on my own site), but let’s face facts – when the National Resource Defense Council did a three year study on bottled water, they found that 33% of bottled water brands failed FDA standards, which too high levels of arsenic, bacteria, or heavy metals.

    Think bottled water is cleaner? There’s a 33% chance that it’s not.

  11. Jeffreystune says:

    Agreed about the bottled water being the best marketing price pump in recent history. I only buy it for hurricane supply emergencies (for when I don’t have any access to tap water).

    However, I didn’t see anything in the comments about the bottles ending up in the landfill (even the recycled bottles don’t get turned back into water bottles as far as I know, they end up as planking).

    So, your convenience ended up in the landfill for a few million years. If you gotta buy it, buy it big and refill.

    However, the main point of the article was to come off with a product as being the premium and first to market. That way, you can charge a premium. Just create some “instant” credentials and you can lock up the premium slot (granted your product has to function on what it says it does at least on the perception level).

  12. Beowulf says:

    I disaggree with the bottle water entry. I’ve tasted pretty lousy bottle water brands (especially in the UK and US) but at least here (Portugal) there are several brands that do taste a lot better than normal tap. A lot more balanced and neutral. Some are costly but the trick is to find brands that are a lot cheaper but still taste great.

  13. DollarTamer says:

    I’d add cola/pop/soda (whatever your local name for the sugary liquid you drink is). It’s one of the most heavily marketed items on the market, fairly inexpensive to make, and very expensive to buy. Restaurants in the midwest charge around $2.00 (US) for it. Way more expensive than the production costs!

  14. Slugnola says:

    Golf balls! $50 for 12 Titlest Pro Vs! Golf gear in general.

  15. Nuno Lagoa says:

    I see yet another unfortunate example of bottled-water snobbery.
    You see, you are really lucky if you don’t feel a difference between tap and bottled water. I do. Where I live water tastes of detergent, especially at night, around after dinner. While I may not mind it if I’m really thirsty, I find the taste quite odd and really, really prefer bottle water. Besides, where I live it costs me around €0.37 (less than $0.50) for a 5L bottle (around 1.3 US gallons)
    So, please don’t call everyone who doesn’t agree with you a fool.

  16. Rob Tyrie says:

    Jim:

    Let’s think through this. I agree that marketing works, but it’s not limited to a few products. It’s not even limited to products that were perceived as having inelastic or commodity prices.

    The real answer here is that ALL products can be made more “expensive” through marketing strategy – it’s a technique called segmentation *wink*.

    I have a rule that I follow – “any products could have a price range of 10 times (even in commodity markets) – so for instance a car is a product and it can be priced at $20,000 or $200,000.” Economics will dictate that you won’t sell as many units, but some times it’s worth it… just think luxury…. so, salt, flour, sugar, pens, cups, bras, condoms, butter, pins, fuel, buttons, coats, cakes, books, drugs, fruit, bread, internet access, radios, tires, computers, dogs, houses, dirt, planes, chalk and cheese… the list will go on and on. it’s safe to say that good marketing can increase the price you get for a product, and markets dictate the volume you will sell.

    So in basic marketing if a company wants to attain a higher price, their strategy should deal with the other 3 P’s of marketing, Product, Place and Promotion. For example, while water out of your tap may be “free” (we’ll ignore that tax thing for now), water at a rock concert on a hot summer day may cost 3.99. W hat’s the difference? That’s right – Place – The rock concert; Promotion – people walking around in the throngs yelling Water!; and Product – water in the portable plastic container. That’s why the vendor can charge the premium…even if there are water fountains in the stadium.

    see MIT’s online course for some basic marketing theory.

    http://ocw.mit.edu/OcwWeb/Sloan-School-of-Management/15-812Marketing-ManagementFall2002/CourseHome/

  17. Not to upset the bottled water loving crowd, but I saw an interesting segment on CNBC detailing the downside of the bottled water industry.

    Seems there is a growing movement to discontinue, or at least curb, bottle water production. Their argument says that 40% of the bottled water currently comes from municipal sources (their data, not mine) and too much energy goes into the production of the plastic bottles.

    http://www.cnbc.com/id/15840232?video=902977967&play=1

  18. Don says:

    On my last trip on a small ship of the Lindblad Fleet, that has a great and long record of environment work, there was NO bottle water for the hikers to take along on the many scheduled shore trips. The reason? They simply got sick and tired of hauling along hundreds of cases of water in plastic bottles. Bottles that the ship then had to dispose of in a legal and responsible way.
    To make up for the bottles they simply equipped all their ships with desalination units and produced all the water needed for the entire ship, including pure drinking water. Each passenger had their own reusable plastic jug to fill up with ice cold water and to have everywhere they went.
    At the end of the voyage, all the jugs were picked up and completely washed and sterilized so they could all be used again. This might seem to be little, but if all the ships on the ocean, using large amounts of water, did the same we might no see so many bottles floating around in the ocean. Those are not only a waste, but are blamed for many bird killings.

  19. George says:

    When I see my home today, full of STUFF, and remember how my late wife and I had our most enjoyable time when we had little money, no debts, maybe one credit card, a used car without a/c; I really miss those days. We had just been assigned by the government to work for two years in San Francisco, an expensive city for us, even in though it was the haight of the flower revolution.
    We still lived pretty good after finding a nice apartment within our means and furnishing it with used and junked furniture, a B/W TV, a fun cat, and some friends to come over.
    I am sure we would not have done as well if my wife had been an American. She was from Argentina and was from an upper middleclass background. With a French father, she learned frugality, but more importantly, she was, for the most part, 100 % happy with life.
    She would change, as the State Department wanted her too, They called it to be Americanized. Probably it was me who changed more as I struggled to have a decent standard of living on low government wages when my wife could not work or worked at very low wage white collar clerical jobs.
    Then a child came along, and unrelated legal and medical bills began and never seem to have stopped to this day.
    After losing my wife and finishing raising a child who earned a M.Ed. in mathematics teaching, I finally retired. I’d worked since I was twelve years old, but today my home is mortgaged, I have big debts, and low retirement funds. Regretably, when I die, my daughter will only have the loss of her father and not much of an inheritance.
    I don’t get angry anymore, but am sad and disallusioned to find, through no fault of my own, that I have not much more at the end of life than did my parents. I guess I just got the wrong ideas.
    Now, my hope is to learn again to live as I did during my earlier adult life. It is very hard though to go back to the simple life, no matter how romantic some people make it sound.

    I will die If I see one more story in Money Magazine about the couple who left their high powered jobs in NYC to become bee keepers or something, after buying up some expensive country land and building a custom house with their millions of dollars saved while working on Wall Street.

  20. Dave says:

    Handmade premium cigars. Priced from a about a buck on up to as much as you want to spend per stick. There are what seems to be thousands of brands and within each brand, dozens of styles. So far, of the several hundred I’ve smoked, I think I can recognized maybe 3 different types, bad, good, and damn good.

  21. Michael says:

    How about PC’s? Your generic Windows box is the same as anybody’s generic WIndows box. There may be differences in service, but in my experience, all customer service is bad, although some are worse than others. Yet, you’ll see some makers charge more for theirs even though there’s no difference in the specs.

  22. Komodo says:

    BOSE… bose audio equipment sucks and the only reason they are so highly regarded is because of marketing. If you actually listen to anything BOSE compared to something that you can put together that’s priced similarly, it sounds like garbage. And don’t get me started on the lifestyle dvd players and their software!!

  23. c says:

    well, no one in the industry buys bose…Meyers, JBL, yamaha is what the pros use…don’t know if they have a consumer line…oh sony sucks-really poor customer service, but, we use them when we have to…from a stage-hand.

  24. p says:

    sunglasses

  25. devildoggie says:

    If I could add just my experience with the black pearl phenomenon? Yes, they are beautiful, a nice one has all the colors of the sea, with pinks and greens, silver and blue..really lovely. However..on a trip to Raiatea that I took last year, in French Polynesia ($2500, including airfare from LA< 10 days, hosteling and camping,but thats another story) I visited the farm where the pearls are raised in vast beds. Um,..I bought a stunner for $40 USD. Stuck iit in my pocket, guess I should have declared it, oh well…Came home to LA< put it on a lovely waxed cord..voila. I have people asking me constantly how did I afford it on a nurses salary..hmmmm.
    Nice site..keep dispellilng those consumerist myths! The bottled water is a good one, what a scam, and those billions of Plastic bottles in landfills, yecch,,


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