Many years ago, I took a Marketing Fundamentals course. I was more interesting in branding and advertising but this class covered basic business principles as well, and most importantly, the idea of retail mark-up was permanently etched in my mind.
Every product on the market is priced to make a profit for a retailer. Below is a good explanation from a Houston chronicle article:
“The markup percentage measures the percent a company adds to its costs to set the retail price. Knowing the markup percentage for each of the items you sell helps you figure which of your items are the most profitable, which can help you decide which products to promote. For example, if your company can markup product A by 150 percent but can only markup product B by 30 percent, your company may elect to devote more advertising to product A because of the greater potential profits.”
As a class exercise we had to figure out a mark-up percentage for different products. I quickly realized that high mark-ups are the norm. According to a Wall Street Journal, “the typical markup on designer fashion is 55 to 62 percent. Premium denim jeans often wholesale for around $150 and may sell at retail for up to $375.”
While I know that companies and retailers need to make a profit, I question paying such a high price for things that had nothing to do with the actual quality of the product itself — building rental, advertising, taxes, salaries, etc… In other words, when a factory churns out two similar quality products (say, a cotton sweater) and distributes Lot A to J. Crew and Lot B. to Old Navy, you will pay substantially more for the J. Crew one because of the label on the back.
There are certainly quality differences between products. For example, you can’t compare a run-of-the-mill cashmere sweater with one from Loro Piana, an Italian company whose name is synonymous with the finest cashmere.
At the same time, the vast majority of people associate price and quality — i.e. If it’s more expensive, it must be better — and that is simply not true.
Not all marketing classes are structured the same but I’ve listed a handful of online classes that should give you a sound foundation for understanding our free market system.
- Introduction to Marketing – University of Pennsylvania / Wharton School
- Foundations of Business Strategy – University of Virginia
- Marketing for Non-Marketers – University of British Columbia
Even if you have zero interest in business, I highly recommend that you take at least one Intro course. That’s because once you understand of basic marketing strategies, you have a better chance of becoming a smart consumer.
One course will not make you a marketing expert, but it could open your eyes. I know… because that happened to me.