4 ms·

The margins in this industry and its structure are almost an economic paradox. The dynamic is basically (1) markups are very high (2) manufacturing is a solved

The margins in this industry and its structure are almost an economic paradox. The dynamic is basically (1) markups are very high (2) manufacturing is a solved problem and (3) there is lots of competition. This should resolve to a very competitive market with costs trending to marginal manufacturing cost. Instead, you have high prices for consumers and competition for the tremendous sales margins driving a marketing bidding war. IE consumers pay 400%. 100% is used to make mattresses. 300% is used to market mattresses. IMO, this is something like the wine industry. People want a premium product, but a premium product doesn't exist. So, the market spoofs it with marketing.

s_kilk 9y ago
It's almost as if the hegemonic form of Econ theory is mostly bullshit that doesn't correspond to reality.
- dalbasal 9y ago
  Not in this case, though hegemonic is a big word here. You can still buy a mattress for $200 if you want. Micro-102 has all sorts of funky examples where things behave weird. This mattress situation is only possible because people want to buy a premium product "irrationally." This isn't housing. Mattresses and wine are pretty straightforward examples because "marketing" is straightforward, advertising and sales. It seems obviously wasteful when $400 of your purchase price was spent on FB ads, $400 on sales and only £200 on manufacturing. In the garment trade (a much bigger industry), there's still that insane manufacturing/price ratio. It's just that "marketing" is more complicated, involving premium retail experiences and difficult stock management. In both cases, you could hypothesise a different structure where stuff gets produced and shipped to consumers at a fraction of current prices. But... this particular thing can't really happen in markets where people want/need stuff and can't afford it. Cheap/cost-price alcohol (also wine) is also available, and popular. This can only really exist when people don't mind paying more.
skibble 9y ago
Slightly off-topic, but if you genuinely think that there's no such thing as high-end wine, I feel a little sorry for you. Surely you can tell the difference between the Budweiser/Calsberg-type beer and beer from an independent brewery? If so, then surely you can imagine the same might be true of wine? I get that the fact that some bottles cost thousands may offend some people's sensibilities, but this hardly covers the wine mainstream and is usually down to intangibles that go beyond the wine itself, just like a piece of art. It's certainly the case, of course, that while there's a big gap between a $10 and a $50 bottle of wine, naturally the gains for price points above that get incremental pretty quickly in much the same manner as TVs — is a TV that costs $9,000 over four times as good as a $2,000 model? Wine experts often stumble on double-blind tests, sure, but then again, so do audiophiles trying to differentiate lossy and lossless audio.
- DanBC 9y ago
  A handful of people might be "super tasters" and be able to tell the difference. I suspect most people in a properly run double blind test would be able to tell you what they like, but that wouldn't be repeatable over time and it wouldn't correlate with price. Your last sentence about audiophiles is odd, because everyone knows audiophile hifi is full on nonsense.
  - skibble 9y ago
    Sorry, yes I should clarify. What I mean to say by that is that while there is objectively a difference between a 256kbps MP3 and a FLAC copy of a song, it's very hard to discern, but the difference is there. But personally, I can't imagine being unhappy with a $30-50 bottle of wine. I suppose this is part of the attraction here — mattresses aren't a regular purchase and the notion of 'cutting out the middleman' is a big part of the value proposition for lots of companies these days (Warby Parker and Everlane make a big play of this in their marketing). Being able to slap a label on someone else's product and have them handle both production and distribution while you just do the marketing is the dream for a large chunk of the Valley, I guess!
- dalbasal 9y ago
  I feel a similar way about micro-brews. It's good because people think it's good. They think it is good because of cultural/narrative reasons. It's not good for any underlying or objective reason. If Budweiser made a beer that tasted like micro-brew, the connoisseurs would be drinking a micro-brew that tastes like budweiser. Don't feel bad for me though :) Being a philistine is not life-threatening. Wine is a good example because it's proven to be nonsense. Neither experts nor consumers can rank wines for taste in either a consistent way or a way that corresponds to price. Prices & blind test preferences are random. OTOH, people demonstrably prefer expensive wine when they know it's expensive. This comes back to my earlier point, it's not all economics. Human beings are complicated. In these cases, some of us want to pay a premium for a premium product. There is no such thing, so the market spoofs it.
ericb 9y ago
> People want a premium product, but a premium product doesn't exist. So, the market spoofs it with marketing. I had never heard it described this way. I love it.

s_kilk 9y ago

It's almost as if the hegemonic form of Econ theory is mostly bullshit that doesn't correspond to reality.

dalbasal 9y ago
Not in this case, though hegemonic is a big word here. You can still buy a mattress for $200 if you want. Micro-102 has all sorts of funky examples where things behave weird. This mattress situation is only possible because people want to buy a premium product "irrationally." This isn't housing. Mattresses and wine are pretty straightforward examples because "marketing" is straightforward, advertising and sales. It seems obviously wasteful when $400 of your purchase price was spent on FB ads, $400 on sales and only £200 on manufacturing. In the garment trade (a much bigger industry), there's still that insane manufacturing/price ratio. It's just that "marketing" is more complicated, involving premium retail experiences and difficult stock management. In both cases, you could hypothesise a different structure where stuff gets produced and shipped to consumers at a fraction of current prices. But... this particular thing can't really happen in markets where people want/need stuff and can't afford it. Cheap/cost-price alcohol (also wine) is also available, and popular. This can only really exist when people don't mind paying more.

skibble 9y ago

Slightly off-topic, but if you genuinely think that there's no such thing as high-end wine, I feel a little sorry for you. Surely you can tell the difference between the Budweiser/Calsberg-type beer and beer from an independent brewery? If so, then surely you can imagine the same might be true of wine? I get that the fact that some bottles cost thousands may offend some people's sensibilities, but this hardly covers the wine mainstream and is usually down to intangibles that go beyond the wine itself, just like a piece of art. It's certainly the case, of course, that while there's a big gap between a $10 and a $50 bottle of wine, naturally the gains for price points above that get incremental pretty quickly in much the same manner as TVs — is a TV that costs $9,000 over four times as good as a $2,000 model? Wine experts often stumble on double-blind tests, sure, but then again, so do audiophiles trying to differentiate lossy and lossless audio.

DanBC 9y ago
A handful of people might be "super tasters" and be able to tell the difference. I suspect most people in a properly run double blind test would be able to tell you what they like, but that wouldn't be repeatable over time and it wouldn't correlate with price. Your last sentence about audiophiles is odd, because everyone knows audiophile hifi is full on nonsense.
- skibble 9y ago
  Sorry, yes I should clarify. What I mean to say by that is that while there is objectively a difference between a 256kbps MP3 and a FLAC copy of a song, it's very hard to discern, but the difference is there. But personally, I can't imagine being unhappy with a $30-50 bottle of wine. I suppose this is part of the attraction here — mattresses aren't a regular purchase and the notion of 'cutting out the middleman' is a big part of the value proposition for lots of companies these days (Warby Parker and Everlane make a big play of this in their marketing). Being able to slap a label on someone else's product and have them handle both production and distribution while you just do the marketing is the dream for a large chunk of the Valley, I guess!
dalbasal 9y ago
I feel a similar way about micro-brews. It's good because people think it's good. They think it is good because of cultural/narrative reasons. It's not good for any underlying or objective reason. If Budweiser made a beer that tasted like micro-brew, the connoisseurs would be drinking a micro-brew that tastes like budweiser. Don't feel bad for me though :) Being a philistine is not life-threatening. Wine is a good example because it's proven to be nonsense. Neither experts nor consumers can rank wines for taste in either a consistent way or a way that corresponds to price. Prices & blind test preferences are random. OTOH, people demonstrably prefer expensive wine when they know it's expensive. This comes back to my earlier point, it's not all economics. Human beings are complicated. In these cases, some of us want to pay a premium for a premium product. There is no such thing, so the market spoofs it.

ericb 9y ago

> People want a premium product, but a premium product doesn't exist. So, the market spoofs it with marketing. I had never heard it described this way. I love it.