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Ketchup is a physical product with raw material costs which requires physical storage and delivery, and must be distributed through intermediaries. It also has

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.
adestefan 14y ago
Heinz ketchup is worth it to me because it tastes like Heinz ketchup. They could sale the off brand for $0.01 and I still wouldn't buy it. I'm not going to go broke by buying a $3 bottle of ketchup that will last me months. The other food that I will only buy one brand is Kraft Mac & Cheese. I know the stuff is nasty. I know it's bad for me. But, damn it that's what boxed Mac & Cheese is suppose to taste like.
jlarocco 14y ago
Your complaint doesn't make any sense. How much a person will pay for something determines its "value" to them. If a person will pay $10 for a bottle of ketchup, then it doesn't matter what the production cost was, the value they received was at least $10.
freehunter 14y ago
Well the alternative is to make it yourself. If there's no one else selling it for what you perceive the value to be, then you have to do it. The question is, how much will it cost you to make ketchup yourself, in both dollars and in time? And then ask yourself is it worth the time and money to make it yourself, or do you get more value from buying it at the store? For 99% of consumers, $2 is a value because it's less expensive than making it themselves. It doesn't matter how much it cost Heinz to make.

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.

adestefan 14y ago

Heinz ketchup is worth it to me because it tastes like Heinz ketchup. They could sale the off brand for $0.01 and I still wouldn't buy it. I'm not going to go broke by buying a $3 bottle of ketchup that will last me months. The other food that I will only buy one brand is Kraft Mac & Cheese. I know the stuff is nasty. I know it's bad for me. But, damn it that's what boxed Mac & Cheese is suppose to taste like.

jlarocco 14y ago

Your complaint doesn't make any sense. How much a person will pay for something determines its "value" to them. If a person will pay $10 for a bottle of ketchup, then it doesn't matter what the production cost was, the value they received was at least $10.

freehunter 14y ago

Well the alternative is to make it yourself. If there's no one else selling it for what you perceive the value to be, then you have to do it. The question is, how much will it cost you to make ketchup yourself, in both dollars and in time? And then ask yourself is it worth the time and money to make it yourself, or do you get more value from buying it at the store? For 99% of consumers, $2 is a value because it's less expensive than making it themselves. It doesn't matter how much it cost Heinz to make.