A penny saved is a penny earned
If you’re an entrepreneur or a merchant seeking profits, there’s a guaranteed solution to find them: sell items for more than you pay for them, but if you are a buyer, always keep in mind that most of the goods do not reflect the fair price that you see on the price tag. It is obvious that companies make their revenues by selling you services and products with markup, but it can surprise you to realize that some of the products you purchase cost twenty or more times their production costs!
Such items with unreasonably high markups exist because somebody, somewhere, is ready to swipe a bank card for that item, whether because it’s an urgency, convenience, perceived value, or the experience itself.
Bottled water holds the lead as the highest markup product, which fetches more than a 4,000% profit. The necessity of water is second only to the need for oxygen, so it is one of the most essential elements that nature offers to humanity. This is where lucrative business can be built on. The French multinational company Danone SA (BATS EU: BN) is one of the top suppliers of water, and based on their official statement, 19% of their sales were generated from their bottled water products, with gross annual sales of $28.7 billion.
A daughter company of the Coca-Cola Co (NYSE: KO), Dasani and Aquafina, which is currently owned by PepsiCo Inc. (NASDAQ: PEP), are categorized as the 3rd and 4th biggest water companies in the world with a total of $5 billion gross annual sales and distribution all over North and South America, UK, and the Republic of Ireland. Also, Dasani has been in the battle for a green planet for some time, and in 2019 announced that its goal is to make its bottles and cans with an average of 50 percent recycled material by 2030, designed to reduce plastic waste and increase the use of recycled and renewable materials.
The following overpriced product that we usually purchase is movie theatre popcorn. Since most cinemas prohibit customers from bringing in outside food and drinks, you can be persuaded in this way to buy such “convenience” so you can enjoy watching a newly released movie by Paramount Global (NASDAQ: PARA), Walt Disney (NYSE: DIS), or Warner Bros (NASDAQ: WBD) with something to crunch on while the film keeps rolling. Movie theatre popcorn has an average markup of 1,275%, but on the bright side, Stanford’s study shows that this high markup allows cinemas to sell tickets at a low price since they gain significant profits from their popcorn sales.
Lastly, the item with the most outrageous markup is the brand-name prescription drugs with a 200-3000% profit margin. The reason for such a high price is due to a monopoly on patented drugs, brand names, and limited market competition. When it comes to a health issue, patients tend to spend more money on something well-known rather than risk and buy a cheaper alternative. As an example, the American pharmaceutical giant Pfizer Inc. (NYSE: PFE), with a revenue of $83 billion, manufactures the auto-injectable devices for anti-allergic treatment EpiPen, which is worth a few dollars, but the retail price is around $600 for a two-pack.
In my opinion, the drug prices are unjustifiable because there are many alternatives and similar products to well-known drugs that are much more affordable and as efficient as the brand drugs, but due to a lack of marketing and advertising, people do not know about them. Even though the big pharmaceutical companies spend billions of dollars on innovations and research every year, the final cost is very high, and it should be priced fairly on a global scale.
Marking up products is unavoidable, given that it’s the way businesses make a profit and guarantee growth; by investing in new technology, thus providing better products and services. Also, manufacturers establish the supply of the goods, which plays a crucial role in the final price along with the demand from the consumers willing and able to pay for the product. As customers, we must be aware of such prices and clearly decide between what is essential to us at the moment or what we just want to have. At the end of the day, money is hard to make and so easy to spend, and as the saying goes, “a penny saved is a penny earned.”