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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. restaurant guy says:

    Ok- don’t mean to move the message board off the “bottled vs. tap” water thread, but one of the things that come to mind that is actually ON TOPIC (and not exhausting it) is “chilean sea bass”.

    Chilean sea bass- now available for upwards of 15 dollars a pound at the supermarket or 25 dollar in a fine restaurant is actually Patagonian toothfish..an ugly ass fish that was once, like sea robins, a throw away catch.

    It was remarketed by chilean fishermen as “chilean sea bass”. As the toothfish..you couldn’t give away the fish, but as the more attractive chilean sea bass, they quickly created a market for the fish..causing it to be fished to near extinction today.

  2. restaurant guy says:

    and to the stupid chick directly above my post—
    it didn’t cost you $40 to get that pearl,
    it cost you $2540. Include the cost of your travel.

  3. L says:

    Cosmetics. It’s amazing to me how they can re-package and re-name the same shade stuff over and over again and continually jack up the price, especially with celeb endorsements.

    Cleaning products as well. There are only a few that you could consider truly innovative.

  4. Bernie says:

    Nitrogen filled tires. When a tire is mounted on a rim it contains regular air. Nitrogen is added to this. So if your tire runs at 30 PSI the mix of gases inside is only about 2/3 nitrogen from the bottle from the installer.
    The air we breath is about 78% nitrogen already. Do you smell a scam here? I do.

  5. Erich says:

    iPods. They aren’t the best, but they are the most expensive.

  6. mooster says:

    Restaurant Guy, are you saying you can’t imagine any reason or reward for that person’s trip other than acquiring a pearl? I guess it wouldn’t be worth going to see the Grand Canyon unless I get to bring it home with me? Think before calling someone else stupid! It might be said that travel is overpriced, but you didn’t bother trying to make that point.

  7. Jsh says:

    There are people out there who don’t have water at all. They don’t care how clean or dirty their water it, all they know is that they need water. Many of these people are children. The fact that we can sit there and argue about what kind of water to buy shows how much we have to be thankful for.
    I’m not trying to judge, have attitude, or be mean; I’m simply trying to bring some perspective into our “major” issues.

    That being said I do agree with most people who have written here.
    Bottled water is just city water with a few added minerals, but city water isn’t so pure either. As most of us do, I also buy bottled water once in a while to quench my thirst BUT I also use this same bottle a couple more times during the week. Otherwise I just drink from the company “Glugers” (you know that huge blue thing that *glugs* each time you take some water?), or my fridge filtration system (how effective this is I have no clue).

    For those of you who are into REALLY clean water, there has been much research showing how our bodies are so adapted to living with a lot of bacteria that when we suddenly purify everything, sometimes the body has been known to react and become overactive. Check out Chron’s disease, also called the wealthy disease. Seriously, Google it: Chron’s disease the wealthy disease. Go ahead copy and paste it.
    No one knows what causes it but researchers have suspicions that it’s a too clean envirionment that shocks the body that causes it….
    Thought for the day….

  8. Eni says:

    “Bottled water, in blind taste tests, is no better than tap water despite the ridiculous price difference”

    Really? Because I KNOW I can tell the difference, and I know plenty of other people who can. Maybe there’s no difference for people who don’t care, but I care, and I can tell.

    • Joel says:

      you cannot tell the difference, you just think you can.

    • Brian says:

      Sure, most peolpe can tella difference in the taste of bottled water. But I think anyone can agree it’s not 100x better (caomparing the prices). We drink bottled water because it’s more convenient that filling up a water bottle and it’s simply more trendy. It also is awful for the environment.

  9. Denise says:

    Love the article. It was no surprise to see diamonds and starbucks on the list, really.

    There is also shopping and buying strategy that makes a difference. We saved quite a bit of holiday budget to wait for the expected after-holiday sales. That was part of our plan ahead of time. Since then, we have been looking through bargains worth picking up. It’s not about being overly frugal, but simply smart shopping. In fact, we bought a large LCD TV over the holiday. We also sold or gave away some stuff on Craigslist to those who can need some stuff more than we do.

    As consumers, we are all trying to make do and get as much as possible for each dollar spent. Lately my family and I have been doing more research before buying anything, and have also done more online shopping and looked harder for better deals. As mentioned previously, we have not stopped spending, however.

    One of the online sites we have found to be useful is:
    http://www.uberi.com

    They do have some interesting bargains listed that are not available even on price search engines. We were able to get more for each dollar. Hope that’s useful info for some.

  10. alan says:

    DeBeers isn’t solely responsible for the over-inflated cost of diamonds but it’s so true that theses carbon based gems have been price padded brilliantly by many, many marketing campaigns. Check theotherdiamond.net for an example.

  11. Travis says:

    I definitely coffee more than any of the others… it’s relatively cheap t manufacture, yet businesses make a FORTUNE out of it!

  12. Well this topic sure did open up Pandora’s Box! lol

    I don’t think Jim is saying bottled water isn’t any better than tap water. I think he’s saying that it doesn’t have much value over tap water b/c most conventional bottled water does derive from regular tap water. There have been various studies on that. We’re not a fan of tap water at our house, but we made the investment to get a $300 three-filter chamber system for our water via the internet. Since the filters last for about a year, they beat out the price of bottled water or the sink filters as well. (Not sure how much they cost yet, but sure that a filter replacement is $60 or less.) It’s a great value, comes from a small business, and better yet, I’m not giving Coke and Pepsi my money.

    Another thing that’s overpriced besides coffee is tea. Your average serving of tea is mere pennies. Sure, there are fancier varieties that cost more, but your average tea has a markup of 11,000+%.

  13. LOL! Hey, Jim– Did you know this thing is still floating around on StumbleUpon?

    Furniture is hugely overpriced. Often even in swanky stores you can wangle a discount if you ask–only because the mark-up is so high they can afford to come down on the price.


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