Tag Archives: price

“It’s Supposed to be That Expensive!”

Photo Credit, David Niblack, Imagebase.net

Photo Credit, David Niblack, Imagebase.net


A higher priced product does not necessarily mean a better quality product. While it is true sometimes, often times, we pay a higher price only because we perceive something to be a higher quality. Other times we pay for higher priced items because we like that brand and are conscious of image. Here are a few things that people assume you have to pay a lot for because marketers have brainwashed us into thinking that the price point is the norm. The companies in these industries also have monopoly/oligopoly over the industry.

Eyeglasses

Glasses are expensive. Recently, I received a coupon for “$200 off” glasses at an optical store and I thought I would get a great deal, but in the end, the salesperson still told me the glasses would cost over $500. I always assumed glasses are just expensive and there was just no way around it. Then I read about a company, Warby Parker, that was turning the eye-wear industry on its head. The founders explained that the reason why eyeglasses are so expensive is because most frames are manufactured by a single company, Luxottica, which controls 80% of the major brands. Not only do they own most of the major brands, they also own a majority of the eyewear stores, including, Lenscrafters, Pearle Vision, Sears Optical, and Target Optical, among others. But wait there’s more! If that wasn’t enough, Luxoticca also owns EyeMed, the second-largest vision care insurance plan in the U.S, which, if you have coverage from Aetna or Anthem Blue Cross Blue Shield, is your carrier. Now it makes sense, the glasses are expensive not because it costs a lot to make, it’s expensive because one company has a monopoly and can control the price. According to an article on the DailyMail, Oakley had a dispute with Luxoticca about pricing so it dropped Oakley from Sunglass Hut, which is surprise surprise, owned by Luxoticca. Luxoticca would later buy out Oakley. So because Luxoticca controls the market, they can price glasses at over $200 when they cost only about $30 to make.

So if you want to find an affordable pair of eyeglasses, you can check out Warby Parker which sells glasses online but they have physical stores in some cities. I haven’t bought glasses in awhile and haven’t gone there so I don’t have personal experience but you can read about Kristin’s experience, who blogs at the Wild Wong. There are also other online eyeglass stores like Zenni Optical, 39 Dollar Glasses, and Kristin wrote about some of those online stores as well. I know many people may not feel comfortable going to an online store but Warby Parker allows you to try 5 frames for 5 days and has a 30-day no questions asked return policy. Also, I read that Costco has good prices. Bob Niedt, who writes for Kiplinger, wrote about his experience buying glasses at Costco . I’m not sure whether Luxoticca controls them, but the DailyMail article mentioned Costco as its competitor.

Mattresses

When I bought my first mattress, I remember my mom telling me not to scrimp when buying a mattress. She told me that mattresses are worth it since we use it so often and that mattresses are supposed to be expensive. This was somewhat odd to me because I grew up with frugality ingrained in my head by my parents so expecting to pay a lot was rarely something that was said to me. My mom is not the only one though and I’ve heard many people, including those who blog about frugality, say that their mattress costs thousands of dollars, but is worth it. I’m not saying that a comfortable mattress is not worth it, it certainly is. But does it really have to cost that much?

If you’ve been paying attention, there seems to be a lot of internet ads for online mattress companies. Much like Warby Parker, these online mattress companies are trying to turn an old industry on their heads. One such company, named Tuft & Needle, says that “mattresses are typically marked up 6-12 times and consumers are mostly paying for “gimmicks, unfair retail markups, sales commissions, and wholesaler’s profits.” Another online mattress company, named Helix which makes customized beds, argues the same thing. According to their website, their team conducted substantial research and “found that there is typically a fairly direct increase in quality as price increases, but only up to roughly the $1,000 price point for a queen. Beyond that point, typically brands are just charging you more for the same materials. Adding on extra features sounds nice, but in practice these extras aren’t adding much to your sleep quality.” The CEO of another online mattress company, named Casper, said that “statistically, lying on a bed for four minutes has no correlation to whether it’s the right bed for you.” He explains that hotels don’t ask people what beds they want, and yet, we often find those beds very comfortable. He said that the salesmen at mattress stores like to play games with customers to get them to buy the what they say is the “most comfortable” mattresses which are always the most expensive ones.

The mattress industry has striking similarities to the eyeglass industry. An article on Priceonomics said that the “whole mattress industry seems to be a giant, make money hand-over fist, anticompetitive racket.” They are controlled by a small amount of companies. Sealy, Serta, Simmons, and Tempur-Pedic make up 59% of the industry revenue. Mattress wholesalers have gross margins of 41 to 64% and retailers mark that up another 96% on average.

If you have the time, listen to this Freakenomics podcast entitled Are we in a Mattress Store Bubble?, which explains why a lot of these start ups are selling mattresses and why there are so many mattress stores to begin with. Mattresses have high markups. Retail profits are steep because manufacturing costs are low. A mattress with a retail price of $1000 costs about $250 to make. While new mattresses have special gels and foams, most people buy a mattress that is similar to the basic innerspring mattresses that have been around for ages.

I still have a mattress that I bought about seven years ago so I haven’t had the chance to try out these new startups. However, a few personal finance bloggers whom I trust gave Tuft and Needle excellent reviews. Amazon reviews also seem excellent. Their return policy is pretty generous. If you are someone who just can’t fathom buying a mattress on the internet, you should at least make sure to try to haggle when you buy at the mattress store. There is a high markup and they are definitely open for negotiation. I wasn’t even thinking to negotiate when my wife and I bought a mattress from Sleepy’s years ago. We were just looking around and not ready to buy so we left the store, but the salesman immediately told us he would knock off $100 and we took the deal. I’m sure we could have gotten an even bigger discount!

Diamonds

They say two months salary for engagement rings right? Is that net salary or gross?? And who made up this rule? Demand for diamonds is a marketing invention, argues Rohin Dhar in a Priceonomics article. Before the 1940’s, the diamond industry was dying so De Beers went to Madison Avenue for help. They marketed diamonds as a symbol of status and love by enlisting the help of Hollywood stars and the fashion industry. The marketing campaign was so successful that in 20 years, a diamond engagement ring was practically a requirement to marriage. Today, 80% of women in the U.S receive diamond engagement rings. This custom has also spread to other countries. And as to the rule about two months salary, the De Beers marketing machine made that one up. Actually, it was only ONE MONTH’S SALARY, but since that rule worked so well, they figure they should increase it to TWO MONTHS!

Like the first two industry, De Beers is pretty infamous for having a monopoly over diamonds, in addition to creating the market for it, in the 1980s, De Beers controlled almost 90 percent of rough diamonds and they would manipulate the markets by buying up mines and intimidating competitors.

Diamonds are marked up 100% to 200%, and if you want to sell your diamond back, good luck getting the wholesale price. According to an Atlantic article, Jack Brod, president of Empire Diamonds, which is a company that buys diamonds estimates that a half-carat diamond ring, which might cost $2,000 at a retail jewelry store, could be sold for only $600 at Empire. Jewelry retail stores don’t buy back diamonds because their offer of lower than wholesale price for something that they just claimed was so valuable would be a bad optic. The whole house of cards may just fall down. Diamonds are not an investment, they are merely a status symbol. Unfortunately, there is no internet company to disrupt this industry, because unlike eyeglasses and mattresses, diamonds have no intrinsic value. Instead, maybe people can buy a different type of gemstone, however I know there is societal pressure to get a diamond. I did read a very interesting alternative on a post from Millennial Boss blog where the blogger sets out her grievances against the diamond industry and said that she went with an alternative: moissanite, which looks strikingly similar to a diamond. And one final reason to consider an alternative to diamonds, Blood Diamonds!

What other products are highly marked up and not worth the cost? Do you think these internet companies can disrupt the monopolies in those industries? Have you tried any of the above-mentioned companies?

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