What kind of product pricing is determined primarily by advertising? I mean something that costs $100...which would only cost $10 without an attractive ad campaign. Fashion and cosmetics come to mind...anything else?
Depending upon the product there's a built in amount that is added to allow for advertising costs. That amount varies from product to product but rarely exceeds 5 percent of the total budget of the entire company. Usually the budget is about 1 to 3 percent of the years budget again depending on the product. Start up products always are going to take higher percentages but they aren't more than the 5 percent. At least that was what I was taught in college.
When I go shopping for insurance, I really hate the thought that I'm helping to pay for all that advertizing. So I look for companies that don't advertize much.
I think all luxury items fall into that category. Luxury cars, clothing, jewelery. Cinema films. Upper-scale art.
The advertising campaign doesn't have to eat up all the price inflation. It just has to make the price inflation possible by attracting the attention of the target consumer and convincing hem to go buy the s...tuff. I think that would be true of all superfluous items: toys, many electronics, toilet cleaning technologies, snack foods, beverages, decorative trinkets. The profit margin on eyeglasses soared since they've been marketed as fashion accessories instead of prosthetic devices - while selection diminished.
I have read that car makers gain higher proportional profits from luxury vehicles...but I dont know how much of the retail price can be attributed to advertising vs. economy cars. I believe the value of art is primarily determined by critics. Films pretty much live or die based on word of mouth. I dont think Hollywood can hype a bad production. So many super expensive movies have bombed.
Movies get all there hype before they are released. I can't even tell you how many movies I went to see based on TV commercials showing great trailers that were real dogs. When I was younger I liked to be first in my group of friends to see the new movies. The theaters were full so I wasn't the only one to be sucked in to a bad movie. However those movies didn't have much staying power after the first week.
The prices of luxury items can be ridiculously inflated. Auctions are good examples - it's simply a game of who is willing to pay more. According to this source Leonardo DiCaprio earned 77 million dollars from July 2010 to July 2011, the next one is Johnny Depp with 50 million dollars. Daniel Radcliffe got 20 million dollars per one Harry Potter film. What justifies that actors be payed such sums?
Well I would say they have a demonstrated value based on the movies they have already done. If I think you will make me a 100 million by staring in a new movie. Paying you 20 million won't be much of a problem for me if that's the only way you will do the new movie for me.
I'd think it is determined by what people will actually pay for something. I bought a piece of art long ago at a art show in a park. The painting was priced at 600.00 but after talking to the artist about what I thought it was worth and a few other things she agreed to discount the painting to me by 30 percent. I might have even been able to get it reduced more if there weren't other customers there wanting to deal with her but I thought my 30 percent off was good enough for what I bought.
While such things are legal, the question is, whether they are 1. economically sound, and 2. ethical. While the exorbitant sums that Wall Street bankers have been paying themselves may be legal, in the long term this has damaged the economy and negatively affected the morale of the lower- and average-ranked workers.
Would you restructure the capitalistic system that our government and economy are based on? I personally don't like the system very much. I think it brings out and even encourages the greed that is causing major problems in our society. So if you have any ideas, I'm all ears.
I'd like to respond to that if I might. The system isn't the problem it is the people who allow the others to get away with what I call theft of the way the system was set up to work. While giving out billions of dollars to themselves for doing absolutely nothing but stealing, those in charge of companies are also getting away with breaking many laws that were instituted to insure that things like that don't happen. Anyone can just do whatever they want above the law today to rip others off then get paid for doing that by their companies. I'd rather see the laws upheld more than anything else because once those in charge were convicted of their crimes they would be in jail for many years or at least out of their positions that give them the ability to rip others off. It seems that the government just turns its back on wrong doers and is given money for looking the other way. So as long as the government doesn't uphold the laws that are already on the books we won't be out of trouble for decades to come due to the mismanagement , corruption, theft and dishonesty that those in charge have done. I'm affraid until corporal punishment is meated out to those who misuse their power nothing will happen and things are going to get far worse in the very near future.
Part of what you say is right, people that break the law should be held accountable for there actions. But why do you think our economy goes through booms and bust on a fairly regular bases? When the average working person sees a chance to get rich the easy way, they will almost always go for it. They see their friends and neighbors making big money on property. They are told the house they bought a few years ago has doubled in value and they now want to get into the legal action. In the back of their minds they know this is a bubble that's going to burst sooner or later. But what I call the greed factor is kicking in and they say to themselves, why not it legal money. They never think they will be caught in the bust. It is our capitalistic system that creates the environment for the greed factor to kick in. Well who is it that gets hurt when the bubble burst. Here's a hint, it's not the rich people and big corporations.
At the high end, people are willing to pay only what the critics decide the art is worth. The early works of an artist usually go WAY up in value after they become famous...and they dont become famous without critical acclaim.
Because of the companies that are mismanaged by people who take advantage of others and skirt the laws through pay offs and bribes. Those unscrupulous CEO's who manipulate whatever product they are in charge of to gain a higher profit ratio and bottom line for their shareholders and themselves. If the CEO's would do as other CEO"s do, and try to keep a lid on things like their own pay checks, prices at the retail level and better ways to in-act a better product then there wouldn't be as many highs and lows as we have had. Unless the people in charge stop their greedy ways we won't ever have any normal business cycles ever again.
Its usually the bankers who cause the trouble...and the bankers who get hurt. Over 10,000 banks went ka-boom during the great depression.
The owners and CEO's of the banks never went broke and had enough money they extracted from those who put their money into the banks enough to live a comfortable life during the depression while other people who lost everything to them suffered.
A few for sure but since they were in the position to see what was coming they made themselves very secure and took precautions to inoculate themselves from being poor or penniless.
