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Plenty of things vary by location. Rent and wage have a bigger impact than sales tax on the final price in a supermarket. Yet they are able to coordinate sales

by mijamo 3y ago

Plenty of things vary by location. Rent and wage have a bigger impact than sales tax on the final price in a supermarket. Yet they are able to coordinate sales prices even when the rent varies a lot, because anyway those are loss leaders and then the rest of items get the proper markup and differentiated prices depending on the location. Just like you have items in the RU with the same promotion prices in countries with 15% VAT and countries with 25% VAT, usually because you want the nice rounding at, say, 399.

crazygringo 3y ago
That's not really true as a general rule. Grocery stores, for example, have an average profit margin of just 1–3%. Attempting to maintain the same final prices in one town with 3% sales tax and a neighboring one with 8% sales tax simply isn't workable. I mean, sometimes it's fine for extremely high-margin electronics, or things like cell phone service where marginal costs are low, but it's definitely not the case in general.
- hansvm 3y ago
  That's the profit margin across all products. Consumers are not rational (or at the very least, not infinitely knowledgeable and able to use that knowledge instantaneously), so you would absolutely expect effects like charging 4.99 rather than some tax-adjusted number like 5.18 to translate into real profits. Individual items can have >100% markup, there are items sold at a loss to ensure you can complete your trip at a single store or get you in the door or whatever, and the store absolutely has to consider how revenue (not just line-item profit) plays into things to balance out rent and wages and whatnot. 1-3% profits for the store don't imply much about what you need to charge to offset the effects of sales tax. As a brief example of irrationality, last I checked, on like-new iPhones it made a 30% difference in total revenue to offer "free" shipping rather than split it out as a separate line item. People would really rather pay 1.3x with "free" shipping than 0.8x base price and 0.2x shipping.

by mijamo 3y ago

crazygringo 3y ago

That's not really true as a general rule. Grocery stores, for example, have an average profit margin of just 1–3%. Attempting to maintain the same final prices in one town with 3% sales tax and a neighboring one with 8% sales tax simply isn't workable. I mean, sometimes it's fine for extremely high-margin electronics, or things like cell phone service where marginal costs are low, but it's definitely not the case in general.

hansvm 3y ago
That's the profit margin across all products. Consumers are not rational (or at the very least, not infinitely knowledgeable and able to use that knowledge instantaneously), so you would absolutely expect effects like charging 4.99 rather than some tax-adjusted number like 5.18 to translate into real profits. Individual items can have >100% markup, there are items sold at a loss to ensure you can complete your trip at a single store or get you in the door or whatever, and the store absolutely has to consider how revenue (not just line-item profit) plays into things to balance out rent and wages and whatnot. 1-3% profits for the store don't imply much about what you need to charge to offset the effects of sales tax. As a brief example of irrationality, last I checked, on like-new iPhones it made a 30% difference in total revenue to offer "free" shipping rather than split it out as a separate line item. People would really rather pay 1.3x with "free" shipping than 0.8x base price and 0.2x shipping.