Mark-Up Revulsion

Consumers are without a doubt a difficult bunch to please. I know; I am one. Most of the time, consumers aren't happy unless they feel they've gotten some sort of deal--unless they feel they've one-upped the seller. It often doesn't matter how cheap or expensive the selling price of the item in question is. Rather, it is how much of a cut of the profit the consumer can take back from the seller that makes all the difference. Consumers thrive on 'ripping sellers off' or, perhaps the more consumer-friendly corrolary, preventing sellers from 'ripping them off.' Consumers, in other words, take great pleasure in whittling away the profits of those from whom they buy, but they cannot tolerate sellers actually making money off of them. If there is one thing that sets consumers off more than anything else, it is mark-up.

There is perhaps no funnier thing than seeing a person frantically chug a Venti latte all the while complaining about the profit starbucks makes off of one its flagship sizes. It's not that they are unwilling the pay five bucks for the beverage. They do, over and over again. It's the fact that Starbucks is making more money off of the latte than the consumers feels it should. Many consumers just can't stand the fact that someone else is making money off of their purchase. They, of course, would never expect to be given their purchases for free--but they demand getting pretty darn close.

Some consumers are willing to spend a little more on the 'good cause' factor--if they see that the seller is doing something the consumer deems as worthwhile with the profits. Everyone loves philanthropy. Certainly I would not contest that it is good to help out those in need. Yet, there are many needs and only so much profit to fill them. Which 'good cause' should the seller focus on? If focusing on one 'good cause,' the seller will attract business from one set of consumers. If focusing on another 'good cause,' the seller will attract business from another set of consumers. In other words, the consumers that buy the seller's products on their 'good cause' merit are only doing so because it gives them pleasure. The seller's profits, sure, are going to a 'good cause'--but one that is upheld by the buyers. Therefore, the principal is the same. The consumers are still trying to get everything possible out of the sale.

Well, what is the reason for mark-up? Is it because sellers simply need to make a living? Is it because sellers are greedy and want all the money for themselves? Well, the answer is neither of these and both of them. The reason for mark-up is specialization. The reason why Starbucks is able to make such a high profit on your morning latte is because you have your own job to do and don't have time to make your morning latte. It's not merely because the people who work for Starbucks need to make a living. It's also not because people at Starbucks are trying to suck all of your money out of you. It is merely because at $5 a latte you say I'll take one whereas at $6 dollars a latte you say I'll make one. The simple economic fact is that we as consumers will pay whatever amount we are willing to give up in order to not have to make the product or provide the service ourselves.