5 ms·

You're looking at the cost of production, and then the price and assuming that all of the space between the two is profit, and seem to be implying that somehow

by nirvana 14y ago

You're looking at the cost of production, and then the price and assuming that all of the space between the two is profit, and seem to be implying that somehow it is a ripoff. What you're not considering is the value to the customer. The incremental cost of a copy of Microsoft Office (with electronic delivery they cut out virtually all of their manufacturing cost) is close to zero. Probably 12p as well. Yet Microsoft sells that Office Suite for $99 or much much more. If the value of one copy of that office suite to a company is $10,000 in improved efficiency (eg: salaries saved by not having to pay overtime or hire as many people-- remember when spreadsheets were physical sheets of paper and companies had staffs of dozens of women whose sole job was to type up correspondence on typewriters?) then they are "profiting" even more than Microsoft is because the spread is wider. Further, manufacturing costs are only one part of the costs of a product. Yes there's marketing, and advertising which you may hate, but there's also the offices that house the workers that run the company, the royalties paid to people who generate formulations, the taxes paid to the government, the manifold fees, costs, and expenses involved in running a business. All of these raise the actual "cost" from above the 12p manufacturing (and delivery costs I assume you included.) For me, the value of buying a brand that has reliable quality control is often pretty high. If a high quality bottle of ketchup elevates the satisfaction of an inexpensive meal (say fish & chips) to the point where it is on par with a much more expensive meal, like those workers using office, I may be getting more "profit" out of the transaction than the company. This is how I use ketchup. It means I eat out less, and spend less on food and have a higher quality of life.

AlexMuir 14y ago
Ketchup is a physical product with raw material costs which requires physical storage and delivery, and must be distributed through intermediaries. It also has a shelf life, and ingredients that fluctuate in price seasonally. Your comparison is about as sensical as me complaining I can't type an essay using 100 bottles of ketchup. However, my points are that a) we routinely pay 10x the 'value' of food products, and b) supermarkets piggy back off our conditioning by brands to offer us 'value' products which still cost 8x what they are worth without any of the advertising/marketing overhead. The parallel would be if Macbook Airs were being made and delivered to Apple stores for $100, or cars were delivered to dealers at a cost of $2,000 and then sold to you for $20,000.
- twoodfin 14y ago
  You keep talking about the 'value' of products and what they're 'worth'. Things are worth what people will pay for them. As nirvana pointed out, looking at only the marginal production cost of something is highly misleading. Heinz makes about 36% gross margins [1], which is certainly good, but it's not as if they're seeing the 'value' of that '10x' markup. And lest you think the rest of their cost is advertising to fool people into spending too much on ketchup, their total marketing (not just ads) budget is only a few hundred million[2] (at least as of 2006) vs total revenue of over $10B. [1] http://ycharts.com/companies/HNZ/gross_profit_margin http://ycharts.com/companies/HNZ/gross_profit_margin [2] http://adage.com/article/news/heinz-ceo-boost-ad-spend-proxy-fight-forces-hand/110939/ http://adage.com/article/news/heinz-ceo-boost-ad-spend-proxy...
  - pyre 14y ago
    | Things are worth what people will pay for them. If I pay $50 million for a forged Mona Lisa, does that mean that forgeries of the Mona Lisa are all worth $50 million?
    - twoodfin 14y ago
      Of course not. Had you known it was a forgery, you wouldn't have spent $50 million. That would apply just as well to buying a bottle of Heinz ketchup tainted with rat poison. But people know what's in Heinz. They know what it tastes like. They keep buying it at the price Heinz and their grocer charges.
    - tedunangst 14y ago
      It means, at the time you bought, you thought the painting was worth $50 million. Later, when you discover it's not, you'll be less likely to buy anything else from that art dealer. Same as anything else in life. People keep buying ketchup because ketchup remains valuable to them, even at $2 a bottle.
  - logn 14y ago
    In addition to the Heinz margins, most grocers rely on only 1% margins.
bjourne 14y ago
The OP is assuming it is a ripoff because you can buy other producers ketchup for half the price of "brand-name" Heinz ketchup. I doubt many people would tell the difference between Heinz and something else in a double-blind test. And if they can it is because the better tasting ketchup contains more sugar which anyway is bad. Same thing with jeans, you cant see the difference (unless they have the brand printed on them) so buying Levi's is a waste of money.
- Lockyy 14y ago
  You act as if the only difference in high quality clothing is the looks, instead of considering that they may be much more comfortable to wear. People close to me have also admitted that wearing brand name clothing provides them with confidence in social situations that they wouldn't otherwise have. I think it's rather unfair to disregard brand names just because of looks.
- adestefan 14y ago
  I'm guessing that you'd be surprised by the number of people that would be able to pick out the Heinz ketchup in a double blind test. I know people that refuse the ketchup at McDonalds specifically because it's not Heinz.
  - bjourne 14y ago
    Found this: http://www.seriouseats.com/2012/10/taste-test-the-best-ketchup.html http://www.seriouseats.com/2012/10/taste-test-the-best-ketch... http://lenpenzo.com/blog/id1481-ketchup-taste-test.html http://lenpenzo.com/blog/id1481-ketchup-taste-test.html http://www.huffingtonpost.com/2011/09/13/the-best-ketchup_n_960068.html http://www.huffingtonpost.com/2011/09/13/the-best-ketchup_n_... http://www.dailymail.co.uk/news/article-1387285/Red-faced-Heinz-ketchup-comes-BOTTOM-taste-tests.html http://www.dailymail.co.uk/news/article-1387285/Red-faced-He... and many more taste tests. Not to say that not many people honestly prefer Heinz ketchup, but there seem to be no empirical evidence proving that Heinz would be the "best" ketchup.
    - adestefan 14y ago
goatforce5 14y ago
> remember when spreadsheets were physical sheets of paper and companies had staffs of dozens of women whose sole job was to type up correspondence on typewriters? Back in the 60's before I was around, my mum worked in the accounting department of a mid-sized car dealer. Her job title was "Computer" because she'd update their books by hand. Later on they got the first electronic desktop calculator in the city and the local paper came by to do a story on this modern marvel.

by nirvana 14y ago

AlexMuir 14y ago

Ketchup is a physical product with raw material costs which requires physical storage and delivery, and must be distributed through intermediaries. It also has a shelf life, and ingredients that fluctuate in price seasonally. Your comparison is about as sensical as me complaining I can't type an essay using 100 bottles of ketchup. However, my points are that a) we routinely pay 10x the 'value' of food products, and b) supermarkets piggy back off our conditioning by brands to offer us 'value' products which still cost 8x what they are worth without any of the advertising/marketing overhead. The parallel would be if Macbook Airs were being made and delivered to Apple stores for $100, or cars were delivered to dealers at a cost of $2,000 and then sold to you for $20,000.

twoodfin 14y ago
You keep talking about the 'value' of products and what they're 'worth'. Things are worth what people will pay for them. As nirvana pointed out, looking at only the marginal production cost of something is highly misleading. Heinz makes about 36% gross margins [1], which is certainly good, but it's not as if they're seeing the 'value' of that '10x' markup. And lest you think the rest of their cost is advertising to fool people into spending too much on ketchup, their total marketing (not just ads) budget is only a few hundred million[2] (at least as of 2006) vs total revenue of over $10B. [1] http://ycharts.com/companies/HNZ/gross_profit_margin http://ycharts.com/companies/HNZ/gross_profit_margin [2] http://adage.com/article/news/heinz-ceo-boost-ad-spend-proxy-fight-forces-hand/110939/ http://adage.com/article/news/heinz-ceo-boost-ad-spend-proxy...
- pyre 14y ago
  | Things are worth what people will pay for them. If I pay $50 million for a forged Mona Lisa, does that mean that forgeries of the Mona Lisa are all worth $50 million?
  - twoodfin 14y ago
    Of course not. Had you known it was a forgery, you wouldn't have spent $50 million. That would apply just as well to buying a bottle of Heinz ketchup tainted with rat poison. But people know what's in Heinz. They know what it tastes like. They keep buying it at the price Heinz and their grocer charges.
  - tedunangst 14y ago
    It means, at the time you bought, you thought the painting was worth $50 million. Later, when you discover it's not, you'll be less likely to buy anything else from that art dealer. Same as anything else in life. People keep buying ketchup because ketchup remains valuable to them, even at $2 a bottle.
- logn 14y ago
  In addition to the Heinz margins, most grocers rely on only 1% margins.

bjourne 14y ago

The OP is assuming it is a ripoff because you can buy other producers ketchup for half the price of "brand-name" Heinz ketchup. I doubt many people would tell the difference between Heinz and something else in a double-blind test. And if they can it is because the better tasting ketchup contains more sugar which anyway is bad. Same thing with jeans, you cant see the difference (unless they have the brand printed on them) so buying Levi's is a waste of money.

Lockyy 14y ago
You act as if the only difference in high quality clothing is the looks, instead of considering that they may be much more comfortable to wear. People close to me have also admitted that wearing brand name clothing provides them with confidence in social situations that they wouldn't otherwise have. I think it's rather unfair to disregard brand names just because of looks.
adestefan 14y ago
I'm guessing that you'd be surprised by the number of people that would be able to pick out the Heinz ketchup in a double blind test. I know people that refuse the ketchup at McDonalds specifically because it's not Heinz.
- bjourne 14y ago
  Found this: http://www.seriouseats.com/2012/10/taste-test-the-best-ketchup.html http://www.seriouseats.com/2012/10/taste-test-the-best-ketch... http://lenpenzo.com/blog/id1481-ketchup-taste-test.html http://lenpenzo.com/blog/id1481-ketchup-taste-test.html http://www.huffingtonpost.com/2011/09/13/the-best-ketchup_n_960068.html http://www.huffingtonpost.com/2011/09/13/the-best-ketchup_n_... http://www.dailymail.co.uk/news/article-1387285/Red-faced-Heinz-ketchup-comes-BOTTOM-taste-tests.html http://www.dailymail.co.uk/news/article-1387285/Red-faced-He... and many more taste tests. Not to say that not many people honestly prefer Heinz ketchup, but there seem to be no empirical evidence proving that Heinz would be the "best" ketchup.
  - adestefan 14y ago

goatforce5 14y ago

> remember when spreadsheets were physical sheets of paper and companies had staffs of dozens of women whose sole job was to type up correspondence on typewriters? Back in the 60's before I was around, my mum worked in the accounting department of a mid-sized car dealer. Her job title was "Computer" because she'd update their books by hand. Later on they got the first electronic desktop calculator in the city and the local paper came by to do a story on this modern marvel.