That Price Tag Is A Liar

by Ron Haynes


At the Market - pies

While having one of those “here’s why you don’t have a cell phone yet, honey” with my daughter, I explained that the “add a line for only $9.99” marketing gimmick is a myth. There are so many charges other than the $9.99 charge: fees for this and fees for that. “There are always hidden costs that the retailer never tells you about,” I explained, “There are costs associated with using, obtaining, maintaining, and upkeep that aren’t publicized.”

That got me to thinking about other ways there are hidden charges for the items we buy:

Usage Costs

The phone may be free or reduced cost, but without the monthly access fee, it’s pretty much a paperweight. Just as a car without gasoline is worthless, there are usage costs that evade the thinking process for many people. Taxes and fees for cell phones, tag costs, maintenance costs, the costs of tires and insurance for vehicles.

Hidden Costs

Hidden costs are difficult to anticipate. Just tell that to a friend of mine who’s daughter ran up over $700 in text messaging fees during a week long cheerleading camp! A doughnut’s calories may be a direct cost to your quest for better fitness, but it’s consumption may set you on a slippery slope that leads to a lack of self discipline. A video game player may cause you to lose focus on your quest to make extra money and that is a cost as well.

Time Costs

Anytime something saves time, it will almost always cost more than the time consuming alternative. Compare eating out to preparing foods at home. Compare a pressure washer cleaning your deck, versus using a scrub brush. Compare a microwave to a pot. Compare driving a car to walking. Whenever we insist on using items that save time, they almost always cost more.

Acquisition Costs

Most of the time, these costs are used in a business setting to explain the cost of getting new customers, but there are acquisition costs for consumers as well. The cost of shipping, the cost of Realtor fees, the cost of driving to the store, the cost of the research you performed to reach the decision to buy that particular brand.

Depreciation Costs

Most items have a specific life, but when we buy lower quality tennis shoes for our kids, we soon realize that they last less than one third the time that the better quality shoes … at only a 20 percent savings. Buying quality allows us to avoid depreciation costs. Depreciation costs really come into play when you’re making large purchases, such as carpeting, appliances, vehicles, or windows.

Credit Costs

Buy a $1,200 MacBook with cash from your savings account and it costs … well, it costs $1,200. Buy it with your credit card and make only the minimum payments at 20 percent interest and it’s cost balloons up to $2,380.

It’s better to pay full price with cash, than to buy at a discount and finance it for 10 years. 

Before making a purchase decision, make certain you evaluate all the costs.

photo credit: Lili Vieira de Carvalho

About the author

Ron Haynes has written 1001 articles on The Wisdom Journal.


The founder and editor of The Wisdom Journal in 2007, Ron has worked in banking, distribution, retail, and upper management for companies ranging in size from small startups to multi-billion dollar corporations. He graduated Suma Cum Laude from a top MBA program and currently is a Human Resources and Management consultant, helping companies know how employees will behave in varying situations and what motivates them to action, assisting firms in identifying top talent, and coaching managers and employees on how to better communicate and make the workplace MUCH more enjoyable. If you'd like help in these areas, contact Ron using the contact form at the top of this page or at 870-761-7881.


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{ 6 comments }

Very Evolved

These rules also apply to things you aren’t purchasing – the hidden cost of free.
This website for example is free for me to read, but it did cost time for you to create and time for me to read.
I have bookmarked WJ now though, and though I have not applied any of the advice from this post yet (I’ve only just read it!), I will be investing more time into your site in the future.

This leads naturally into the hidden benefits of things we buy and do. Perhaps a topic for a follow up post? For example I recently bought a new macbook as in your last example, and because I have it I was able (or more motivated at least) to build my new site and begin writing for fun again.

Patrick
veryevolved.com

Ray

Great list. I’ve had similar conversations with my 15 year old son who wants a sports car. Unfortunately, teens rarely recognize the total expense of something like a car or a cell phone and only want what they want because it will impress their friends. I’m guessing a GO Phone is out of the question? :razz:

abigail

Definitely good points. I was very annoyed by cell companies recently — particularly T-Mobile, which is our current provider. For new cell phones, there’s a price.

First off, most of those were after mail-in rebate. So, right away, you’re having to fork over cash and then wait to get it back and make the phone free. Meanwhile, that money could be used elsewhere.

Second, the prices were all for two-year contracts. Add $50 to the price for a one-year contract. This, actually, I think is a fair deal. I’d rather pay an extra $50 for a phone and be stuck for just one year, versus potentially paying $150 to cancel partway through a two-year contract. But it’s still another adjustment I have to make in my head.

Third, the prices for the two-year contract were only if you included a data plan. Add — you guessed it — another $50 on if you refuse to pay $25-35 per month for internet access you can get at home on a regular-sized screen. Paying $35/month would increase our total cell bill by almost 50% (and that’s only because it’s a family plan — technically our share is just $10/month).

So, to buy a “free” phone, I’d be looking at chunking down $150-200: $50 for the phone without a data plan, $50 for a one-year contract, and $50-100 that would come back to me in a rebate.

Seriously?!

Aleksandar M. Velkoski

Good points. And, I’m not a big fan of mail-in-rebates at all. Price tags are very misleading.

Admin

I absolutely DESPISE mail in rebates. What is the point? I guess it’s that the retailer or manufacturer can advertise a lower price and count on X percent of the people mailing in the rebate forms too late, Y percent not following the instructions to the letter, and Z percent losing their receipts. Oh yeah, another large percentage of the people are just too lazy to go through the hassle. It sounds somewhat like a bait and switch, except for that tiny, tiny print that excuses their tactics.

What about the percentage (like me) who move on to another retailer or manufacturer who doesn’t use these methods? Has anyone got any numbers on that?

Pilgrim

You are so right on with that. I laughed when reading the message, because by the time I think to mail in the rebate it is too late. I just wait to find the right deals. Thanks.

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