The High Cost of Raising Prices

[braumeister]

A couple of good examples around here.

1. One of my neighbors owns a gas station. When we moved here two years ago I noticed that his price per gallon was always at least 20 cents higher than the next highest price in the neighborhood. I also noticed that there was seldom a car at the pumps when I drove past. Now his price is at least 25-30 cents higher and it's even rarer to see someone getting gas there.

2. A neighborhood strip mall had some good stores where we regularly shopped. They were all forced out when the owner raised rents to unaffordable levels. The stores have now been vacant for nearly three years except for the largest one which has had three different tenants in that time.

 

[Nemo2]

1. One of my neighbors owns a gas station. When we moved here two years ago I noticed that his price per gallon was always at least 20 cents higher than the next highest price in the neighborhood. I also noticed that there was seldom a car at the pumps when I drove past. Now his price is at least 25-30 cents higher and it's even rarer to see someone getting gas there.

We often/usually gas up on The Rez, (Mohawks), about 8 miles east of us, on our way to visit DW's daughter or her parents. Lots of duty free stations, cheaper fuel, always busy.

(When I read your post out loud to DW her first reaction was to call back "Money laundering!")

 

[folivier]

Booze in coke? The few times I enjoy a "highball" it is with water. Coke tastes bad enough why would you want to ruin a good whisky?
Back in my college days I bartended at various establishments from cheap bars to nice restaurants and even a country club. My boss at the higher end places would tell me when someone asked for a call brand to pour the first 2 or 3 with what he wanted then switch to our much cheaper house brand. Not once did I get a complaint, rather I'd mix the house brands stronger and usually get compliments and tips. And he'd have us pour the cheaper whisky into the other bottles! so the patrons didn't know what we were doing.

 

[braumeister]

When I read your post out loud to DW her first reaction was to call back "Money laundering!"

That was my first thought too.
But I don't think so. The business records would have to show how much gas he bought vs how much he sold, so that would be tricky.

He also owns (and spends most of his time at) an auto repair shop in the same neighborhood, which is where most of his income is from (I think). Talking to some of the old timers in the area, they say that the previous owner of the gas station had the same policy of very high prices, so it must work well enough. I'm just surprised, since he could easily have far more business if his prices were in line.

 

[Sojourner]

$7 a glass?? Today, if one orders the cheapest glass of wine and gets the $3 off at happy hour, one might find a $7 glass in my area.

Around here an average, run-of-the-mill glass of house wine at most good restaurants and bars is at least $7. Odds are that it was poured from a bottle that cost $10 or less at retail. So that's about a 3X markup. And you'll typically pay $10-12 (or more) for a nice glass of higher end Syrah or Cabernet. Even though it galls me, I'll do this when I go out from time to time, since I can easily afford it. Also, I can somewhat justify it on the grounds that I'm trying something different and might like it enough to explore that variety further. But still, the next day I'll feel slightly annoyed that I gave in to the temptation and paid that exorbitant markup.

 

[Midpack]

I can relate. I stopped buying any alcoholic drinks in restaurants over a decade ago because the high markup just irritated me. Don't these folks realize that "half a loaf is better than none"? So now instead of a $3.50 glass of wine I get a $1.50 tea or just the free water.

So when shopping for whatever and find it what I think is overpriced I just walk away.

I'm not cheap, I'm "value oriented".

We still might have one drink each with dinner (DW less often than me), but it's probably about time we quit as well. We know a few places where you can have decent beer or glass of wine for $4-5, but most better restaurants are charging $7-14 each for "craft cocktails" these days. An indulgence we should do without...

 

[GrayHare]

"Charge what the market will bear." Sometimes it's not easy to know what that price is unless one experiments. Apple, for one, seems to be able to raise prices and people continue to buy.

 

[Midpack]

"Charge what the market will bear." Sometimes it's not easy to know what that price is unless one experiments. Apple, for one, seems to be able to raise prices and people continue to buy.

Absotively. There's utility and there's status/conspicuous consumption and variations in between. Apple has/is tapped into status and utility. Going from a utility proposition to a status proposition is difficult if not impossible, but going the other way can happen in a flash. Raising prices without offering significantly more won't bring status.

It sounds like Apple is about to test their customers again with a 10th anniversary iPhone at an estimated $1000-$1,400 price tag. My guess is they'll sell bunches of the high end phone vs their standard iPhone 8's or whatever they call the next 'standard' iPhone's.

 

[W2R]

We still might have one drink each with dinner (DW less often than me), but it's probably about time we quit as well. We know a few places where you can have decent beer or glass of wine for $4-5, but most better restaurants are charging $7-14 each for "craft cocktails" these days. An indulgence we should do without...

I found it really cut down on my restaurant costs to not only avoid alcoholic drinks, but also to just have water with my meal instead of diet Coke. Restaurants seem to make a lot of money on whatever they serve you to drink. Even diet Coke seems to cost $2-$3 at most inexpensive restaurants and it is just not worth it to me.

 

[W2R]

"Charge what the market will bear." Sometimes it's not easy to know what that price is unless one experiments. Apple, for one, seems to be able to raise prices and people continue to buy.

Not me. When my iPhone 5S started acting flaky, I checked out what a new, latest version iPhone would cost and I was appalled.

I have had an iPhone since the beginning (well, a year after the first ones came out). But now I have switched to a free LG phone and I'm not going back. I was pleasantly surprised to discover that I don't miss my iPhone one bit. Their high prices have lost this once faithful customer.

 

[travelover]

Not me. When my iPhone 5S started acting flaky, I checked out what a new, latest version iPhone would cost and I was appalled.

I have had an iPhone since the beginning (well, a year after the first ones came out). But now I have switched to a free LG phone and I'm not going back. I was pleasantly surprised to discover that I don't miss my iPhone one bit. Their high prices have lost this once faithful customer.

I was one of the first people not to buy an iPhone. Now, a $25 Moto E services my every smartphone need.

 

[Texas Proud]

Good premise, but the end result is that you get sub-par tenants with prices too high.

Raising the rent above market would mean that only tenants that could not go anywhere else would want to rent at my places. I understand that, so I never try to be above market.

I can tell if I am $25 too high. The quality of tenants goes down, and good tenants that see the place walk away without filling out an application. If I am the best value there, the quality tenants take and application and I get it back the same day.

The above is a concept that many landlords do not understand, but is simply Econ 101.

That is my point... there is a sweet spot in the supply and demand curves... and if you get out of whack with it then you more than likely lose profits.... if you are too low, then your rent income is not what it should be.... if you are too high you probably pay extra for repairs and aggravation.....

So your increases were due to rents rising on other properties and you could get away with it... not just because you thought it would be a good idea to raise the rent...

 

[Midpack]

I have had an iPhone since the beginning (well, a year after the first ones came out). But now I have switched to a free LG phone and I'm not going back. I was pleasantly surprised to discover that I don't miss my iPhone one bit. Their high prices have lost this once faithful customer.

I was one of the first people not to buy an iPhone. Now, a $25 Moto E services my every smartphone need.

Clearly it depends on what you use it for. I have no idea what you use yours for. If it's just phone and text like some here, a late model iPhone or flagship Samsung/Android smartphone is way overkill, and not Apple's rather market. It's just a fashion/status statement for some who don't begin to use most smartphone features.

But if you rely on your phone for all it can do e.g. real time social media, lots of very handy apps, video/still camera, streaming video, directions/navigation, surfing & real time research, email, contact management, eReader, etc. it might be of value. For some people, their smartphone is almost a primary computer.

So an iPhone is overpriced like a Porsche 911 is overpriced (it's not), it's well worth it for some. And Apple still sells lots and lots of iPhones, must be worth it to their target market.

 

[calmloki]

Seems like another factor in price increases is supplier response to outside forces:
Oregon is very tenant friendly and people have decided Portland is the newest hipster mecca, resulting in a large influx of intelligent vocal young people who do not necessarily have large incomes. Portland decided to alleviate the housing crisis by doing a rent freeze followed by restricted annual rent increases and greater difficulty in evicting tenants. The state followed suit. As a result, many landlords began bumping rents up by the maximum allowed amount. This meant all rents suddenly jumped up and people who had decent places no longer went apartment shopping. Our move-out rate went from 2-5/month (about a turn/unit/year; pretty ideal for apartments) to maybe one/month. This while jacking the rents more than I would have, though not to the maximum.

I imagine there will be a boom in rental property construction, siphoning higher income tenants away, but I don't think lesser property rents will drop.

 

[Marita40]

I spent $75. for my first iphone, a 5C, last year--and I'm happy as a clam!
Let's remember, as a counter to the direction of this thread, that things like basic laptops have come way, way down in price. My first laptop was about $1600., as I recall, and as basic as they come! At least there's some good news in that area.

Restaurant prices, glasses of wine, some groceries are, however, as many of you report, much higher than 5-10 years ago. Glasses of wine are typically $8-10 around here; $6.00-$7.00 at Happy Hour. I'm glad I can no longer drink more than one with a meal.

 

[travelover]

...........
So an iPhone is overpriced like a Porsche 911 is overpriced (it's not), it's well worth it for some. And Apple still sells lots and lots of iPhones, must be worth it to their target market.

OK, I admit it. I actually was not one of the first people to not buy an iPhone. There were many ahead of me.

 

[FireBug]

I hit the sushi bar and ate a $30 lunch. I love to pay high prices for good food.

 

[W2R]

I hit the sushi bar and ate a $30 lunch. I love to pay high prices for good food.

The day before yesterday, I ordered a fabulous, huge, amazing salad for lunch. Lots of bacon , blue cheese, avocado dressing, tomatoes, and more and it was just utterly divine. Just the salad alone, with tax and tip was $18! It was the most expensive thing on the menu and the cost was more than twice my average lunch cost. But it was sooooo good and like you, I like doing that once in a while.

 

[Chuckanut]

I have a friend who for years when He bought stuff online and in brick and motor stores never bothered to worry about the sale tax issue. However, the latest increase in sales tax was the last straw for him. Now he checks prices carefully and tries to buy from certain out of state retailers that do not collect the sales tax.

His latest purchase was a $650 camera on which he paid no sales tax. The local stores lost business. The city and state lost tax revenue.

My local grocery store sells a certain brand of yogurt that I really like. It was about $3.50 two years ago. A few weeks ago I noticed the price had creeped up to over $4 to $4.29. I also noticed that my Instant Pot pressure cooker has a Yogurt setting. As I write this I am enjoying my home made yogurt that cost me maybe $2 to make.

The Law of Unintended Consequences strikes again and again.

 

[GravitySucks]

Two bars in the village on my side of the tracks.
Hole in the wall draft is $2.50 a pint, but small selection. Nicer place across the street is $5 or $6 a pint, but a big selection and happy hour prices are less. I don't do happy hour so not sure how much less.
One favorite restaurant does a happy hour on pizza and wings Mondays. Pizza went from $5 to $6.50 over last two years. $1.50 Domestic pints and $4 for a decent wine. They pick, your only choice is red or white.

 

[Chuckanut]

The same day the WSJ published the article on the dangers of raising prices, one of their tech writers had an article on the rumored $1400 10th Anniversary iPhone. The article was full of reasons why enough people would buy the pricier iPhone to make it worthwhile for Apple to sell it.

An interesting contrast to be sure.

 

[JoeWras]

When it comes to hospitality, I think what you all are talking about is the "experience economy." This is currently hot, and it seems to me that prices are rising above inflation.

I thought this was a joke, but after talking to and hanging out with my niece and nephew, I don't think so anymore. They place a pretty high value on going out with friends, and documenting that toast of wine glasses on various social media.

They also don't think twice about spending (what I consider to be) obscene amounts of money for sports and entertainment tickets.

Meanwhile, GM is overstocked with cars and will soon be offering huge incentives, thus depressing their price.

There is something going on here, and it starts with that morning coffee. Some of us are happy paying $0.15, and others are not happy unless it is the $5.00 version.

 

[Blue Collar Guy]

I have a friend who for years when He bought stuff online and in brick and motor stores never bothered to worry about the sale tax issue. However, the latest increase in sales tax was the last straw for him. Now he checks prices carefully and tries to buy from certain out of state retailers that do not collect the sales tax.

.

Im not alone in this venture, I have every intention of changing my residence to a income tax free state. This will give me at today's wealth between 10 and 20 THOUSAND more disposable income per year. They gouged me enough.

 

[travelover]

Im not alone in this venture, I have every intention of changing my residence to a income tax free state. This will give me at today's wealth between 10 and 20 THOUSAND more disposable income per year. They gouged me enough.

Part of my logic for moving to Washington instead of Oregon, with their 9% income tax. And living just over the border, I've *heard* that some Washingtonians even buy big ticket items in Oregon, which has so sales tax.

 

[John Galt III]

Two bars in the village on my side of the tracks.
Hole in the wall draft is $2.50 a pint, but small selection. Nicer place across the street is $5 or $6 a pint, but a big selection and happy hour prices are less. I don't do happy hour so not sure how much less.
One favorite restaurant does a happy hour on pizza and wings Mondays. Pizza went from $5 to $6.50 over last two years. $1.50 Domestic pints and $4 for a decent wine. They pick, your only choice is red or white.

$2.50 a pint, or $1.50 a pint for domestic draft must be Heaven, whether it's happy hour or not. Those prices went away years ago around here. Are those Syracuse prices?