Explainer: 10 ludicrous markups
Who wouldn't want to save both time and money? Often, however, one comes at the expense of the other.
Convenience, for example, comes at a price. You'll pay dearly for the luxury of enjoying a candy bar from the minibar in your hotel room. Make the effort to walk out of the hotel and the price of the candy bar drops significantly. Here's WalletPop's list of the top 10 overpriced products you should avoid if you want to save money
1. Text messages: 6,000 percent markup
According to a story in the Chicago Tribune, outgoing 160-character text messages on a cell phone typically costs users 20 cents, while it only costs carriers three-tenths of a cent to process. That's a 6,000 percent profit.
SMS (short message service) texts are limited to 160 characters because they, in effect, piggyback on a secondary data channel necessary to coordinate voice communications. Even if you're paying 10 cents per text, that's nothing to LOL about.
"Six hundred text messages contain less data than one minute of a phone call," testified Consumers Union policy analyst Joel Kelsey at a hearing before Congress. If text data rates applied, he said, a brief cell conversation would cost customers $120.
2. Bottled water: 4,000 percent markup
When the business of bottled water has a documentary film made about it, you know something's awry. Estimates are all over the place for how much more bottled water costs than tap water from home. The web site Twilight Earth puts it at a 4,000 percent markup, partly based on the fact that it takes five bottles of water to make the plastic for one bottle of water. Blogger Jeff Berndt points out that water that is prepackaged is more expensive than a gallon of gas.
Since about 40 percent of bottled water comes from municipal taps, you're better off refilling that plastic bottle at home and toting it around. (Just be sure to clean it in between uses).
3. Movie theater popcorn: 1,275 percent markup
When a movie is first released, most of the movie ticket proceeds go to the movie studios, not the theaters. Theater owners try to make up the difference by selling more snacks such as popcorn. It's an effective method. When you pay $6 for a medium-sized bag of popcorn in theaters, you're paying a 1,275 percent mark up compared to the cost of buying three 3.5-ounce bags of microwaveable popcorn sold in a box for about $3 at the store.
The average movie theater makes 40 percent of its profits from concessions. Owners try to keep ticket prices lower, knowing that higher ticket prices would stop you from going in, and buying a soda, candy bar or bag of popcorn.
4. Brand name drugs: 200 percent to 3,000 percent markup
Over-the-counter medications were at the top of a recent WalletPop list of products to always buy generic — and for good reason. Some estimates put the markup of brand name drugs at 600,000 percent when compared to the cost of active ingredients. But, on average, the markup (while still high) is much lower than that.
In the past year, the cost of brand name prescriptions has increased nearly 10 percent, while generics have dropped, according to American Association of Retired Persons. Between April 2009 and March 2010, the average annual drug cost for a person taking three generic medications decreased by $51, while someone taking three brand name prescription drugs saw their cost increase $706. It was the biggest brand drug price spike in eight years, the AARP said.
Generic drugs are often much cheaper than brand names, but even prices on generic drugs, such as generic Prozac, vary widely. Costco, for example, often sells generics for much less than Walgreens and other pharmacies.
5. Hotel minibar: 400 percent markup
A 1,300 percent markup on Gummy Bears at the Omni Berkshire Place in New York may be the high point of hotel minibars mark ups, but unfortunately it's not that outrageous. Markups of 300 percent to 400 percent are common at hotel minibars.
Oyster.com found some crazy minibar charges in New York City, including $10 for a bottle of water and a $12 toothpaste kit. Do your wallet a favor and keep the fridge door closed.
6. Coffee: 300 percent markup
Thanks Starbucks. Nowadays, it's pretty common to pay a markup of 300 percent or more for coffee. And even those huge profit margins still may not keep your neighborhood coffee shop in business. Just keep in mind: That $3 cup of coffee (assuming you don't tip, add shots, or buy some fancy concoction) you buy at the corner cafe can be made at home for a quarter.
7. Wine: 300 percent markup
It's not unheard of for a restaurant to pay $5 wholesale for a bottle of wine and charge a customer $25 for the same bottle. A glass of wine can have a higher markup because the bottle could be thrown away if all of it isn't used.
The San Francisco Chronicle's food critic says that a markup of 2.5 times the wholesale price of wine is fair at restaurants to cover the cost of stocking the wines, serving it and still reaping a healthy profit. A $10 wholesale bottle should cost the diner about $25, and about $15 retail. Since wine is a restaurant's biggest profit area, don't expect to bring in your own bottle and drink it for free. A corkage fee of $10 to $20 is likely. Always call ahead and ask.
8. Greeting cards: 200 percent markup
The best greeting cards anyone ever keeps, are those made by hand. Either the crayon scribble of a child or a heartfelt note by a friend, are more likely to be kept forever than a generic card bought at the grocery store for $2 or $4.
So why do people pay the 200 percent markup that stores put on greeting cards? For the convenience. Buying that mass-produced card is a lot easier than making one at home. If you don't want to draw your own card, then print one out online. Paper and ink cost money, but printing them at home for virtually nothing beats paying $4 at the store.
9. Hotel in-room movies: 200 percent markup
Like the ripoff at the mini bar, in-room movies are another way for hotels to stick it to your wallet while you're stuck in a room with nothing to do. Why risk trying to find a local theater when you can pay 200 percent more for the ease of watching the movie in the safety of your room?
If you want to refrain from buying the $10 to $15 movie rentals in a hotel, bring your computer with you on trips and either bring your own DVDs, find a local movie rental store or bring your latest Netflix movie from home and then mail it when you're done. If you have free WiFi at the hotel, stream movies from Netflix. Some hotels have DVD players in rooms, or loan them to guests. So if you don't want to lug your laptop with you, call ahead and see if that is an option.
10. Pre-cut vegetables and fruits: 40 percent markup
Like many of these overpriced products, pre-cut vegetables and fruits are a way to save time. But it's time you're paying for, sometimes as much as 40 percent more for. That's just one of the traps that grocery stores use to get you to spend more money. You'll likely get fresher fruit and veggies by buying them at the farmer's market or at the grocery store and cutting them up at home. Save time by cutting a few days' worth of veggies up at home for a few meals.
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