The Price of Everything - Eduardo Porter [12]
A study of visitors to sports clubs that offered monthly subscriptions for just over seventy dollars or single passes for just over ten found that monthly subscribers paid more than they had to. They visited the gym 4.8 times per month, on average, paying some seventeen dollars per visit. Still, having a membership might improve their health, giving them a monetary incentive to work out.
Every day we commit to buying goods and services without paying careful attention to their cost. In 2009, the HP DeskJet D2530 printer might have seemed a steal at $39.99. But the price, displayed prominently on the HP Web site, was almost irrelevant. The more relevant numbers were $14.99 for a black ink cartridge, which prints about 200 pages, and $19.99 for the color cartridge, which prints 165. For those printing photos at home, the crucial number was $21.99 for the HP 60 Photo Value Pack, a set of cartridges and 50 standard sheets of photo paper. At the Rite-Aid drugstore, 50 same-day prints cost $9.50.
The worldwide printing business depends on selling cheap printers and expensive ink. According to a study by PC World, printers will issue out-of-ink warnings when the cartridge is still up to 40 percent full. HP, Epson, Canon, and others have sued providers of cheap ink refills, charging them with false advertising and patent infringement to make them stop. But the best ally of the printer business is consumer ignorance about what they are really paying to print.
Just setting the printer default to “draft” quality would save consumers hundreds of dollars a year. Yet few consumers do. Though many companies still sell cheaper ink refills, refills account for only 10 to 15 percent of the market. That means that 90 percent of printing is still done using ink that, according to the PC World analysis, costs $4,731 per gallon. You might as well fill your ink cartridges with 1985 vintage Krug champagne.
CONSUMERS CAN ALSO strategize keenly to fit their wants and needs to their budgets. As gas prices surged, drivers drove some 7 billion fewer miles on American highways in January 2009 than they did a year earlier, a decline of about twenty-two miles per person. During a run-up in gas prices between 2000 and 2005, economists at the University of California at Berkeley and Yale found that as the price of gas doubled from $1.50 to $3, families became more careful shoppers, paying between 5 and 11 percent less for each item. The typical price paid for a box of cereal at one large California grocery chain fell 5 percent. The share of fresh chicken bought on sale jumped by half.
But businesses are usually a step ahead. Nobody understands for sure what drove surging prices of agricultural commodities in 2007 and 2008. Analysts have mentioned drought in important growing areas, rising transportation costs and fertilizer prices, the diversion of maize and other crops to produce fuel, and even improving diets in big developing countries like India and China. Whatever the reason, food companies were remarkably adept at protecting profit margins by quietly reducing the size of their portions while keeping the price the same. Wrigley’s took two sticks of gum out of its $1.09 pack of Juicy Fruits. Hershey’s shrank its chocolate bars. General Mills offered smaller Cheerios boxes.
Then, as recession took hold in 2009 and agricultural prices started falling, firms resorted to the opposite tactic: giving consumers more for less and announcing it loudly.