Every consumer is, at heart, a sucker. We blindly pay $5 for items that cost 20 cents to make. And why? Because it's convenient, it's packaged well, it has a catchy jingle, it's the last one in the store or it's simply the closest thing to the checkout stand.
If you'd rather remain ignorant to how much you overpay for some of life's most common purchases, then you should stop reading right now. But if you have a funny feeling you're getting ripped off at the grocery store (and the shoe store and the drug store and the jewelry store), then the following is the sad, sad proof.
We've chosen our top 10 retail markups to share with you, in no particular order. We'll start with one of the finest examples of retail markup magic: beverages.
Some of our favorite refreshing beverages carry the heftiest retail markups. Bottled water is wildly popular -- Americans spent $16 billion on the ubiquitous drink in 2007 -- and it's wildly overpriced, considering that 40 percent of bottled water is nothing but filtered tap water [source: Fishman and Dolan].
In fact, for the price of a single bottle of Evian bottled water, you could pay for 1,000 gallons (3,785.4 liters) of municipal tap water [source: Fishman]. With bottled water, you're not paying for the H2O, but rather the packaging and the convenience.
Coffee is another culprit, especially if you buy it in a coffee shop. If you make coffee at home, it costs between 25 and 50 cents a cup, depending on the quality of your beans. That same cup may cost you more than $3 at Starbucks -- the same price that store might pay for an entire pound of beans wholesale [source: Markman and Batsell]. Interestingly, only about 25 cents of a $3.75 latte is profit for Starbucks. The rest pays for importing and roasting the beans, milk, the cup, labor and overhead costs [source: Batsell].
But the biggest beverage markup of them all belongs to wine in restaurants. The average retail markup on a bottle of wine in a restaurant is 300 percent [source: Bailey]. The best advice: Bring your own bottle and pay the $10 corking fee [source: Dolan].
Next up for markups? Weddings.
A diamond is forever, which is good, because that's about as long as you'll be paying for it. When you go to buy a diamond engagement ring, don't expect anything close to the wholesale price. Retailers mark up diamonds between 50 and 200 percent and 100 to 400 percent for gold [source: DY Jewels]. Warning: The biggest markups typically are found at the mall where there are more overhead costs.
Wedding dresses retail for at least 100 percent more than the wholesale price and that slinky wedding night lingerie will carry a 200 or 300 percent markup, too [source: Grant]. But what really takes the cake is the cake itself. One slice of a multi-tiered, painstakingly decorated wedding cake will cost you around $15, about five times what you'd pay for a whole box of Betty Crocker cake mix [source: Grant].
The next stop in the retail markup hall of shame is the produce aisle at the grocery store.
Americans are obsessed with everything organic. But living the healthy lifestyle at the grocery store means big markups on organic fruits and vegetables. It's estimated that the average price of organic produce is 50 percent more than regular supermarket fruits and vegetables. The markup jumps to as much as 100 percent for items like organic milk and meats [source: Consumer Reports]. Organic foods generally have higher production costs, which get passed on to the consumer.
But the biggest retail markups in the produce aisle belong to those bags of pre-cut fruits and vegetables. When you buy a bag of pre-cut apple slices, you're paying about 75 cents more per apple for the luxury of not having to pick up a knife [source: Downing].
Consider these price comparisons gleaned from the Albertson's grocery store Web site at the time of this writing:
- Fresh broccoli and cauliflower are both $1.69/lb. Pre-cut broccoli and cauliflower florets are $4.67/lb.
- Whole carrots are $.69/lb. A pound of baby carrot sticks costs $1.50. Crinkle-cut carrots cost $1.89, and a one-pound bag of organic baby carrot sticks costs a whopping $2.29.
- Fresh celery is $1.69 a pound. A pound of pre-cut "celery hearts" (meaning the tops and bottoms have been removed) runs $2.99, or $3.49 if you're going organic.
The next markup culprit is clothing and accessories.
Brand-name clothing means big-time retail markups. A study of French clothing franchises found that the average markup on clothing was 250 percent and 350 percent for accessories [source: Australian Trade Commission].
Jeans are prime targets for markups, whether they're cheap or expensive. For example, a $21.99 pair of jeans from Kohl's still has a 112 percent markup from wholesale, while a $300 pair of designer jeans from True Religion can boast a markup as steep as 300 percent over cost [source: National Labor Committee and Leder].
Eyeglasses carry astronomical retail markups. Some opticians charge 1,000 percent over wholesale for designer frames [source: Kadet]. Once again, the worst prices are at the mall or other chain stores where there are many other costs built into the price of the frames. If you already know your prescription, one option is to buy your glasses online. But then you'll never know how goofy you look in those square-framed turtle shells until they show up in the mail.
And now, for one of the biggest markup traps: concessions.
Nothing makes a retailer's eyes shine quite as much as a captive audience. When a consumer has no other option, he'll pay $4 for a bag of popcorn or $10 for a dinky cheeseburger. This is why concession food -- the snack food stuff you find at the movie theater, the state fair and along the boardwalk -- is so incredibly expensive. You're trapped and they know it.
Popcorn is brisk business. If you set up a popcorn cart in a well-trafficked neighborhood park, you can mark up your salty treat as much as 500 percent a bag [source: Entrepreneur.com]. At the movie theater, people grudgingly pay popcorn premiums of 1,300 percent [source: Donal].
FunFoodProducts.com lists some admirable profit margins for a few of its concession products:
- Nachos: 47-64 percent
- Corn dogs: 82-89 percent
- Ice cream in waffle cones: 84-90 percent
- Snow cones: 92-97 percent
All these hyper-markups are enough to make you want to sneak your own bag of popcorn into the movie theater, right? Just don't make it from one of those microwave bags. A three-bag box of microwave popcorn, which costs more than $2, contains about 10 cents of actual kernels [source: Paul].
If you think these snacks are overpriced, try checking into the next markup on our list: the hotel mini-bar.
When you're worn out from traveling, the drinks and snacks waiting for you in your hotel room can be tempting. But convenient as they may be, every item in those tantalizing hotel mini-bars is outrageously marked up.
A small bag of potato chips, for example, can cost you nearly four times what you'd pay at the grocery store. A Clif Bar that typically sells for $1.83 could cost you a whopping $4.50, and a half-bottle of Skyy Vodka is about 200 percent higher than at the liquor store [source: Mint.com]. One New York City hotel even charged a 1,300 percent markup for a package of Gummi bears [source: Crowe, 10 Items]. And the charges are automatic: Today's mini-bars have detectors that record the items you remove and bill your room.
Order an in-room movie and you'll find more hefty markups. You can rent a recent movie from Redbox for only a dollar; a Netflix subscription costs only a few dollars per DVD. But hotels routinely charge $10 to $15 for movie rentals [source: Crowe, 10 Items].
The best way to beat high hotel markups is to plan ahead. Pick up your snacks and drinks at a convenience store before you check in. Bring a DVD with you and watch it on your laptop, use Wi-Fi to stream movies onto your computer, or stick to free channels on your room's TV.
Are all these markups giving you a headache? The remedy is likely to be marked up too. Read on.
We often buy brand-names because they give us confidence about a product's quality and consistency. But when it comes to medicine, about all you get with a brand name is a higher markup. Over-the-counter drugs are marked up from 200 to 3,000 percent [source: Crowe, 10 Items]. When you consider just the cost of active ingredients in the pills, the markup can amount to 600,000 percent [source: Crowe, 10 Items].
For example, antacid tablets and pain relievers are both marked up nearly 400 percent over wholesale costs. Vitamins, decongestants and acne treatments are all marked up more than 300 percent, too [source: Crowe, Biggest].
Generic medicines are also marked up, but they cost considerably less than brand names. For example, 50 Advil tablets retail at $8.49. The same amount of ibuprofen, the active ingredient, is only $5.29 in generic form. That means Advil is marked up 60 percent over the generic alternative [source: Pepitone]. And remember, the U.S. Food and Drug Administration requires generic drugs to be just as safe and effective as brand-name varieties.
Prescription drugs are also much more expensive as brand names. According to Consumer Reports, if you're taking Glucotrol for diabetes, you'll pay anywhere from $42 to $84 a month. Switch to the generic substitute, Glipizide, and you'll pay only $4 to $8. You could shell out $166 a month for the heart drug Coreg, or you could take the generic form, Carvedilol, for $44 [source: ConsumerReports.org].
Ultimately, the best way to save is to stick with generic drugs and make sure your doctor prescribes your meds in generic form whenever possible.
Next big markup: college textbooks.
College students are often hit with sticker shock when it comes time to hit the campus bookstore. Books and other course materials now cost students an average of $1,137 a year, according to the College Board. That's equal to 26 percent of the typical tuition at a state college. And the prices have risen 22 percent in four years -- that's more than four times the rate of inflation [source: SparkAction.org].
However, the typical bookstore markup -- about 40 percent -- is only part of the story [source: ireaderreview.com]. Publishers may use a variety of additional strategies to jack up the price. By regularly issuing new editions, they discourage the use of last year's textbooks, which can cost a fraction of the price of a new one, and decrease your chances of being able to sell back your books for much of a profit. Also, they have taken to bundling other features with textbooks, such as CD-ROMs with additional materials or pass codes to access information online. These "extras" help send textbook prices sky high [source: Roediger].
Students can save money on texts by shopping online instead of at the campus bookstore. If possible, pick up a used book from another student who's just taken the course. Or simply go to the library.
Next up, some beautiful markups in the cosmetic department.
The cosmetic industry in the U.S. generates $50 billion in revenues each year [source: Mont]. The price of lipstick, makeup and various skin care products is driven largely by advertising and marketing. Manufacturers know that cosmetics are often an impulse purchase, for which consumers are usually willing to pay more. They enlist celebrities in the marketing game, adding to the price. As a result, the average retail markup on cosmetics is about 50 to 60 percent [source: Crowe]
You can almost always find a cheaper product that will do the job of an expensive cosmetic item. For example, a 4-ounce bottle of facial cleanser that boasts caviar extract as an ingredient sells for $40. That's about 14 times what it would cost for a dermatologist-recommended bottle of Cetaphil skin cleanser [source: Stonefield]. Makeup is mostly clay, with wax, oil and fragrance added. Yet these simple ingredients can run you $30 for a few grams in a department store. Perfume also comes with a hefty 50 to 60 percent markup [source: McHugh, Mont].
You can save a lot by avoiding celebrity and designer brand names in the cosmetic department. Or better yet, make your own skincare items from natural ingredients.
The next marked-up item may be the last one you pay for: a funeral.
Even death has its markups. That's part of the reason the average funeral in the U.S. costs $6,500, about four times what folks in Great Britain pay to see their loved ones off [source: Gottschlich].
Caskets are a big part of it. They're generally marked up 300 to 500 percent over the wholesale cost. For example, a casket might wholesale for $325. An independent retailer would typically sell it for about $650. A funeral home may charge $1,295, a 300 percent markup [source: Funeral Consumers Alliance].
Other funeral products and services also carry a healthy markup. The charge for placing an obituary in a local paper can be three times the actual cost. A "coffin vault," which holds the casket in the ground, is much more expensive than a concrete "grave liner." A funeral home might charge an $800 premium for a sealed casket, even though it just means adding an $8 rubber seal to the lid. And remember, no casket preserves a body in the grave [source: Gottschlich].
Internet sources and discount stores like Costco sell caskets for less than what you will pay a funeral home. Or, a person handy with a hammer and saw could even make his or her own coffin in advance. If that seems too morbid, cremation is another money-saving option. Keep in mind that Federal Trade Commission rules allow you provide your own casket for a funeral and prohibit the funeral home or cemetery from charging extra fees if you do so.
For much more information on markups and other money matters, read on to the next page.
Dollar stores — where most items cost just a buck — always seem to make money. HowStuffWorks finds out how they do it.
Related HowStuffWorks Articles
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