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6 Things More Expensive Because of Marketing

Posted By Jim On 09/09/2008 @ 6:26 am In Shopping | 66 Comments

One of the most fascinating stories I read in Predictably Irrational [3], 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 [4], 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

This 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 [5]. Bottled water, in blind taste tests [6], 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 [7].

Diamonds

Okay 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 [8] owns practically all the mines and has inflated their prices by restricting supply (they recently settled a diamond class action lawsuit [9] regarding this).

We can make perfect diamonds in a lab [10], so why are nature-made diamonds so expensive? DeBeers & Marketing FTW!

Wines & Spirits

Wines 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 [11] 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

For 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 [12], Diamond Ring by salreus [13], Wine Aisle by pgoyette [14])


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[1] Tweet: http://twitter.com/share

[2] Email: mailto:?subject=http://www.bargaineering.com/articles/6-things-more-expensive-because-of-marketing.html

[3] Predictably Irrational: http://www.bargaineering.com/articles/r/amazon.php?asin=006135323X

[4] Emily Bobrow’s review: http://www.predictablyirrational.com/?p=164

[5] Pet Rock: http://en.wikipedia.org/wiki/Pet_rock

[6] blind taste tests: http://today.msnbc.msn.com/id/19865855/

[7] the Consumerist: http://consumerist.com/tag/enhanced-water/?i=5020816&t=4-waters-enhanced-with-100-hype

[8] DeBeers diamond cartel: http://en.wikipedia.org/wiki/De_Beers

[9] settled a diamond class action lawsuit: http://www.bargaineering.com/articles/de-beers-diamond-settlement-explained.html

[10] perfect diamonds in a lab: http://www.smithsonianmag.com/science-nature/diamonds-on-demand.html?c=y&page=3

[11] the more we end up enjoying it: http://www.economist.com/science/displaystory.cfm?story_id=10530119

[12] jacbt: http://www.flickr.com/photos/jacbt/409497647/sizes/s/

[13] salreus: http://www.flickr.com/photos/salreus/

[14] pgoyette: http://www.flickr.com/photos/pgoyette/94521651/sizes/m/

Thank you for reading!