Customer: ignorant victim of theft or con?

Yesterday's blog mentioned how the Industrialist was more loyal to his investors than anyone else. The Industrialist may start being nice to his customers but greed and the growing demand of increasing profits (remember, the Industrialist not only promises a profit, he promises that this year's profit will be higher than last year's-->this increases the value of the company stock making the Investor ecstatic), forces the Industrialist to cheat and steal from his own customers.

We are told that prices increase because of inflation. Ok, lets look at an interesting case:

Years ago, long distance charges were at about $1 per minute. The excuse? Extra funds needed for research and maintaining existing telecommunication lines. Competition is allowed to enter the long distance race.... suddenly, we have long distance charges at about 10 cents per minute but you are only allowed to have this special rate if you pay a special permission of $5 a month. What happened to the extra research costs? Are we also not in the process of replacing existing telecommunication lines with fiber-optics? The competition charges 8 cents per minute without any special permission fees. Once again, the main company, the leader of the pack.... you know, the same one who has lost a decent percentage of its customers over to the competition.... well they now seem able to charge the customer 7 cents per minute and they get rid of the special permission charge.... To add insult to injury, the loyal customers who pay the special rate of $5 per month so that they can benefit the 10 cents per minute are never told about the new rates, so they continue paying the $5 per month and 10 cents per minute. The new rate is only offered to attract new customers away from the competition. I guess inflation, research and development and other expenses have not increased the prices for this industry.

That's not theft? Stealing from the customer? Yesterday's blog showed theft against the workers. How about another example:

Many years ago, banks offered you a cheap toaster to convince you to get a bank account at their branch. Boy, did they treat you like royalty! They bent over backwards to attract your interest and they put everything aside when you walked in the door! They knew you by your first name! Today, you have to wait in line to see someone, then you are invited to make an appointment, a law had to be enacted to prevent banks from denying anyone because they started to deny their services to the poor. Once you show up and get your bank account, you must pay a minimum of 2 cheap toasters a year just to have your bank account open. If you enter your home branch, you are politely invited to use a machine to do your transactions.

Well you must hand it to the banks, they have managed to increase their rates of profit consistently! But have the customers suffered? What about the competition? Well lucky for someone, all the banks have a similar practice so they can all get away with their prices!

Basic management textbooks explain how prices are set: lets say a refrigerator costs $10 to manufacture. They test different prices and see how many people decide to buy them at whatever given price.

If the price is $100 then 7 will buy the product. Total $700
If the price is $200 then 6 will buy the product. Total $1200
If the price is $300 then 5 will buy the product. Total $1500
If the price is $400 then 4 will buy the product. Total $1600
If the price is $500 then 3 will buy the product. Total $1500
If the price is $600 then 2 will buy the product. Total $1200
If the price is $700 then 1 will buy the product. Total $700

So they choose their price based upon the highest money that they will get, in the above example, it will be at $400. As for the remaining 3 who won't buy it, who cares!!! Now note, they could sell it much lower, but they choose not to. The total cost to make $40, the sale $1600, for a difference of $1560. With this money they spend on packaging, advertising (to convince you to buy their product), transportation and leave enough for a profit.

Now if someone decided to make a high quality refrigerator which would cost $70 to manufacture. One that lasts 25 years (lets assume the above regular refrigerator has a 3 year lifespan before things break down). If the manufacturer decides to sell at the same price of $400, he will have much less than his competitor to advertise the superior quality.

So the cheap, wins out. The cheap gets his message out to more people. The cheap doesn't care what the price is and that some poor guy won't be able to afford his product. The cheap will try to find ways to cut cost if he can because if he starts out using the "cheap".... why would he stop there? The one who tried to get a decent product out will inevitably lose the attrition war.

Marketing textbooks will explain to you that about 90% of the price is all based upon marketing (which includes packaging, transportation and advertising). About 3% would be the actual production cost. So we see that the initial price setting is more based on what they can get away with as opposed to the stories they feed us about production costs and other nonsense.

Would it be fair to say that our entire economic system rewards the intelligent thief? The celebrated Industrialist steals from his workers first, then steals from his customers next. Because he has gotten away with it for so long, the Industrialist is now starting to steal from his investors..... Enron anyone? How can we sustain such a system of thievery? Why do we tolerate it?