- There's not a personal alive that doesn't want to get the
biggest bang for his buck, stretch that dollar to its limit, and triumph over inflation. But the reality is that most
of the products we purchase are made at ridiculously low prices, resulting in huge markups and profits for multi-national companies. I'll be talking a lot about
markups going forward, so let's first ensure you
know exactly what I mean. The term markup refers to the ratio between a good or a service
and its selling price. So if something costs $1.00 to make and sells for $2.50, its markup is 150%. Number 10, mattresses. Within the furniture industry, the mattress sector is far
and beyond the most lucrative, with markup prices veering from the expensive to the extreme. On the low end, buyers can find prices that include 100% markup. On the high end,
mattresses can be marked up by well over 1500%. That means you can be paying $5000 for something that costs
a mere $300 to make. This is the typical breakdown
of what you're usually paying. So how is this possible? For a plethora of reasons, apparently. Most obviously, it's
because there are only a handful of companies in the industry. This sort of market form
is called an Oligopoly, because in the mattress industry, only four companies account
for around 60% of all revenue. Since there are so few competitors, this companies have easily
aligned very high profit margins without competition. And we're just forced to pay their prices. So why doesn't someone
just enter the market with a cheaper mattress and make millions? Well, it's not as easy as that. Most mattresses are sold through
retailers who take a cut. They order through the
largest manufacturers and each mattress company usually slaps on a different name or label
for each mattress retailer. Crucially, this makes it difficult for anyone but a true mattress
expert to compare prices. So when one retailer says they can match the price
of another mattress, that may be because
it's the exact same one. And after all, we only
really buy a mattress every five to ten years,
so most of us find it hard to gauge its quality. Hardly anyone will feel bad
laying on a new mattress when we've been sleeping on
a mediocre one for years. So we usually just soak
up the salesman's rhetoric that we're getting a good deal. Add to that all the features
you likely don't notice, but they upsell you
anyway, like extra foam. And you have yet more reasons to add additional margins to the sale. If you need a mattress, I
suggest just ordering online. Sure you won't be able to
test it before your purchase, but they're far more
transparent and expensive. Number nine, popcorn. Popcorn and movies have
always gone hand-in-hand. But the price of popcorn in movie theaters have undergone massive
price hikes over the years as cinemas search out new revenue streams, as studios take more percentage
points on each new release. AMC and Regal Cinemas are two
well-known theater companies that retail a small bag
of popcorn for $6.50, which costs a mere
thirty-five cents to produce. That equates to a markup of an astounding 18 times the actual production rate. But it's not all doom and gloom. Based on conducted studies,
this markup enables theaters to keep ticket prices
lower and increase sales. Number eight, text messages. Remember the days when
text messages were free? Well that era is long over. And now the largest phone carriers have clamped down and
released coverage plans that seek to maximize profits per text. The cost that major
telecommunication giants like AT&T and Verizon
have incurred for texts average between a thousandth
of a penny to 8000ths cents. But these days, customers
are charged an average of twenty cents per text, with payment plans that include pay-as-you-go, annual
and multi-year options. That means we're paying tens of thousands more than it costs. That great deal that you
thought you were getting doesn't seem that grand once
you do some simple math. So if wireless carriers
priced text messaging at their actual wholesale cost, we would pay approximately
one to eight cents for 1000 text messages. And with so few companies offering complete coverage coast to coast, consumers' choices are limited, thus the price-gouging continues. Number seven, printer cartridges. Being able to print documents from the privacy of your own home is convenience we all want. But it also comes with an added expense. The major electronic manufacturers know that premium printer cartridges are an absolute necessity, subjecting consumers into
a Catch-22 situation, where they sell printers at
relatively inexpensive prices, but generate millions with their lines of printer cartridges. According to studies, Hewlett-Packard offers
cartridges for printers that retail between $13 to $50, with the production rates
estimated between $4 to $5, constituting to a markup that is three to ten times the actual cost. HP recently released a statement that the company invests
billions of dollars annually into ink development and research. Though this hardly
justifies the true reason they're so expensive, which is profit. With the biggest electronic
manufacturers in the industry adopting similar business models, it's virtually impossible for consumers to avoid the high prices
associated with printer cartridges. Number six, textbooks. It costs about $11 to print a new edition to the standard algebra textbook, though college students
often end up paying a retail price of over $200, a markup more than 20 times
the manufacturing fees. Though you may be led to believe that it's because
publishers have other costs, like royalties to authors,
editorial production, transportation, marketing, and employees' salaries in bookstores, the main reason is simpler than that. They cost so much, because publishers force
students to buy new books by releasing expensive
new editions each year, making older books obsolete, therefore undermining
the used book market. On average, students spend
$655 each year on textbooks, according to the National
Association of College Stores. Number five, electronics. Electronics are now essential
parts of our everyday lives, from remote control devices to cables, calculators, and more. One particularly expensive device is the graphing calculator. Texas Instruments is
the leading manufacturer of these devices. Their production costs
range between $15 to $20, but at retail, their
TI-83 graphing calcuclator sells anywhere from $100 to $140, a markup price that is typically seven times more than manufacturing costs. They can do this because textbook publishers
often provide exercises that coincide with specific
calculators and their functions, necessitating students to
purchase a specific device, regardless of price. Other electronics, like
TVs and video game systems, don't turn huge profits
for electronics stores. So they turn to their
accessories to maximize profits. HDMI cables give consumers the power to stream content directly
between their TV and laptop at a cost of less than $3 wholesale. The retail price, however,
averages about $20, and is unavoidable if you want to enjoy the advantages in technology
in the comfort of your home. Televisions these days are not manufactured
inside the US anymore, due to major brands
outsourcing production costs to India and China, where the workforce works
for substantially less than their American counterparts. Number four, shoes and clothing. The price we pay for clothes can vary dramatically from brand to brand, but one component that remains the same is the markup of items purchased. A typical polo shirt
costs around $5 to make, but will sell for $14, a markup of 180%. The major costs include
materials and transportation, with only around 2% of the wholesale costs going to the workers. There are only a few companies that can make the Made in the USA claim, as the majority of clothing brands opt for manufacturing
overseas in other countries, like Vietnam and Bangladesh, where the labor rate is around $2 an hour, compared to the average
US rate of $20 an hour. The cost to make a pair
of American-made jeans, like True Religion, for
example, are around $50. But the retail price comes in at $335. The company factors in the
cost of running stores, shipping, marketing, and other overheads to justify the markup of nearly seven times the
actual production rate. Another area where exorbitant
retail prices abound is the shoe industry, with most major brands
significantly marking up prices to cover endorsement deals,
international production, and marketing costs. Nike's Air Max, for example, carries a production cost of only $33, but retail for $190, a 600% markup that consumers are obviously
willing to overlook. Similarly, the Yeezy Boost
750 costs around $76 to make, but retails for $350. As long as there remains a hungry market for premium footwear, these
prices will continue to hold. Number three, seasonal gifts. A cheap card typically costs $1 or $2, and premium cards can
go for upwards of $8. But isn't that really expensive for something that is essentially just paper with some ink on it? Yes, but not as much as
others in this video. Usually the markup on a
card is around 50% to 100%, which means that on the high end, something that costs $6
might cost around $3 to make. As usual, the reason is economics. The main reason they're so cheap to make is because a lack of
competition in the retail space. Hallmark and American Greetings are the giants of the industry, cornering over 90% of the market, which means they can
easily gouge the market and charge as much as consumers will pay. Start-ups who try to
compete down card prices are warded off by the deep relationships that major manufacturers have with major paper companies
and distributors. They also prefer to charge
a few dollars per card as a marketing tactic, to encourage consumers to substitute up. Think about it. If the cheapest card was
$3.99, as opposed to $0.99, then you're more likely to
switch to the $7 premium card, if you were swaying to that design anyway. Also, they are not as cheap
to produce as you may think, especially the premium ones. Companies employ a lot of people to brainstorm, design, and assemble them. Also, their specialist
printers are not cheap, and paper costs are rising. That's why you won't see
much cheaper prices online. Just as the gift card industry is controlled by relatively few companies, so is another seasonal
staple, floristry and roses. During the peak season for rose sales, specifically around Valentine's Day, you'll pay an average of 100%
to 300% markup to buy roses. Apart from increased
demand, part of the reason is that 80% have to be
imported from other places, like Columbia and Ecuador, and this is why prices can vary so much. In Los Angeles, where local growers supplement the import market
and drive down prices, wholesale prices increase from $0.70 per stem to $1.85 per stem. At retail, they'll go
anywhere from $3 to $6. However, New Yorkers have
to import their roses, and hence wholesale prices swell from $1.50 to $2.50 during Valentines, and retail prices typically
rise from $5 to $9. According to BradsDeals.com, the optimal time to buy
roses for Valentines Day is around January 15th
to lock in a lower price, as they inevitably get more
expensive the longer you wait. Number two, drinks. We're all serial drinkers. From breakfast through dinner, from filtered waters, coffees, smoothies, beer, wine, and beyond. With such a high demand, the industry has a variety of practices in regards to pricing their products. Bottle water is one of the largest growing areas in the industry, which passes on huge markups
from leading manufacturers. On average, we pay 300
times the cost of water whenever we buy a bottle of tap water. According the the American
Water Works Association, bottled water is 2000 times
the cost of tap water, when taking into account the majority sold are 16-ounce bottles. Obviously, drink companies
have cost of the bottle itself, distribution, and marketing. But that's still an
incredibly high markup. Carbonated drinks also have high markups. Coca-Cola's carbonated
beverages dominate the market, and retail from $0.50 for a can, with material costs well below $0.10, which is a markup of 5 to 12
times the production cost. As a leader in the industry, Coca-Cola could charge a lot to consumers because they're selling us
experiences and not liquids. They spend a lot of time on marketing and transporting
their products, too. Number one, Apple iPhones. Most of us cannot live
without our Smartphone. And Apple leads the market in this realm. Though Apple never releases
actual production costs, however according to analysis
by research firm IHS Market, the base model of the iPhone
10, with 64 gigs of storage, costs approximately $370.25 in raw parts, then it's sold for just under $1000, so the markup is around 170%, without taking all other development and design costs into account. That's actually a lot more
expensive than previous models, as Apple has really paid a premium for parts of the Flagship Model. For example, the iPhone 6+
cost around $215 to make, whereas the cost to retail
is $749, a markup of 250%. Still, it's not as much as other phones. The Galaxy S8 is said to cost around $307.50 per unit to make, and they retail just over $700, so the markup is a lot lower, at 130%. So why are iPhones so expensive? It's simply because we're
willing to pay for iPhones. Apple still has a reputation
for being easier to use and more reliable than Android, though it's no longer
necessarily the case in reality. They also rarely offer discounts to make them seem more exclusive, so there are very few opportunities for retailers to undercut
the RRP on Apple's own site. Were you surprised by how inexpensive some products you buys are? Do you know any others
I should have mentioned? Let me know in the comments down below. Thanks for watching. (upbeat music)
