10 Products With Big Markups
BOSTON (MainStreet) -- While chatting with an acquaintance at the popular Italian restaurant he owns, our conversation was interrupted when he learned a customer had complained about a meal.
The waiter, feeling the diner was merely being finicky, resisted a request that the meal be removed from the bill. "Give it to them," the owner countered. "A plate of pasta costs me almost nothing. It is worth more in the long run to get good word of mouth than to worry about a few cents worth of spaghetti."
His point was that, all things considered, the meal itself wasn't the commodity -- the experience was. It is the latter that justified the significant markup on the meal.
When it comes to pricing, you typically pay what the seller thinks you are willing to pay. Aside from fixed costs -- raw materials, labor and overhead -- consumers are plunking down their money on perceived, not actual, value. For example: Gold, used for little more than jewelry, isn't really worth $1,600 because of scarcity or necessity. It is worth that much because buyers and sellers have negotiated that cost over time.A huge decision for any company -- whether it sells food, electronics or clothing -- is pricing, but it is as much art as science. There is a hard number for what it takes to cover costs and scratch out a profit, of course. But great care is made to find the sweet spot for getting customers to pay as much as possible without driving them away. Determining what a product "could" cost versus what it "can" cost isn't always a matter of gouging for profits. Companies need to factor in overhead, manufacturing and marketing when setting a price. People often complain about the high cost of prescription drugs, but then again the drugmakers have years of research -- as well as a limited time free of generic competition -- to account for. The following are 10 products that have notable, if not the highest, markups.
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