Mark-up a mystery ingredient in price
The backlash at a Ka¯piti Coast cafe’s
$5.50 cheese scones has highlighted the murky nature of mark-ups.
Leigh Healy, owner of High Tide Cafe north of Wellington, annoyed sconefanciers recently when she lifted the price by $1.
The rising cost of dairy products, and disruption caused by construction work outside the cafe, left her no option, Healy said.
‘‘These are substantial, and there’s a generous amount of cheese in each scone because people value generosity.’’
Consumers often underestimated how much effort and money it took to get a product on a shelf, said Dow Design group account director Simon Wedde.
‘‘Transport, marketing and sales people … all of that adds up.’’
Wedde said the mark-up on products depended on how competitive its industry was.
Consumer NZ researcher Jessica Wilson said branded sunglasses and beauty products sold for higher prices despite typically being made from the same stuff as their cheap counterparts.
Wilson said her organisation compared the efficiency of women’s body moisturiser in a lab, only to find that a
$520 La Mer moisturiser left skin no more hydrated than a $13 product. She said the cost of advertising was behind mark-ups.
‘‘They put money into marketing to glamorise brands … It is all designed to increase sales.’’
Wilson warned shoppers. ‘‘Do not let price sway you, it is not a reliable indicator of quality.’’
Clothing prices vary massively, depending on whether they are branded or sold in a high turnover store, but experts say clothing items are typically marked up by about 50 per cent to 60 per cent.
Jewellery can sell for at least 100 per cent more than it costs to make, because it is endorsed by a brand or the store selling it makes few sales.
Whiteware and household appliances have about a 30 per cent margin included in the sale price.
Otago University senior marketing lecturer John Guthrie said established brands had the power to charge more.
‘‘Big companies invest a lot of money in building their brand … They are buying your loyalty.’’
Most shoppers did not know how much margin, or profit, companies added to the price, so they could not break down its cost.
Knowing the size of margins did not always help consumers anyway, he said.
‘‘It is often a case of what we have always paid.’’
Citing petrol, Guthrie said if the price randomly spiked, consumers would rethink buying it.
He said companies always had their bottom line and competitors’ prices in mind when pricing their products.
‘‘At the end of the day, it is going to be a function of what it costs to make it.’’
When household appliance stores such as Briscoes have half-price sales, they were definitely still earning at least 10 per cent in margin from each product, Guthrie said.
‘‘It is that whole psyche of pricing, using pricing as promotion.’’
Dane Wetton, a former buyer for Progressive Enterprises’ Australian supermarket chain Woolworths, said the company sold bottled water for about 26 times more than it bought it from the supplier.
‘‘We were paying A15 cents (NZ17c) for a bottle of water and selling it for A$4. There is a lot of mark-up and a lot of margin that goes into water.’’
Progressive’s New Zealand subsidiary Countdown said its average gross margin added to each product was 24 per cent.
It spends most of that on staff wages, property, electricity and transport costs.
Fresh food in supermarkets typically have 30 per cent added to the sale price, packaged food around 60 per cent.