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Marketing, Credit Cards, and Taxes

Marketing Hype
for Over-Priced Goods

Posted on December 20, 2011

Economists will tell you that nothing happens economically until an end-user retail sale is made. Everything starts with a sale. A sale feeds into the system nourishing the economy much like blood nourishes the body. The retail sale is the basis for all other types of sales in the economy. Everything is built around the retail sale to the end user. Without the end user retail sale, there cannot be an economy. The retail sale is so important that it spawns creative schemes to sell products and services. Retail sales are the basis for all business and business models including the taxes we pay. There are many different sales techniques, all of them important, and all help drive the economic engine.

Those businesses in retail sales get very creative in trying to sell their products and services. Some of these efforts are over the top but all try and present a positive reason for buying their wares.

For instance, you are familiar with the audacious ads of a popular clothing outfit. Their ads showcase sales that make comparisons to their 'regular' prices. This clothier takes normal pricing to new heights. Buy one at the normal price and 'get one free or even two for absolutely nothing' is an often heard ad from the popular clothier.

It is a selling strategy, but you have to feel for the unwary that just needed a suit and went in and paid full price to get one. Somewhere within the wheeling and dealing of this clothier is an ethical question when dealing with those who pay non-advertised prices. Apparently, the actual retail value for their product is only one-third to one-half of the claimed 'regular price'.

The purchaser of the advertised special on suits or other clothing comes away feeling good because of the notion that he just bought two suits for the price of one, when in reality, he only paid the fair retail value for the two suits.

I am not picking on this particular business, just using their type of marketing as an illustration of commonly used selling techniques.

More and more, we see prices for goods and services go up as the credit card industry adds fees to the point of sale that have to be included in the retail price. Americans apparently accept these charges for the convenience of using a credit card - or, few really know just how much is added to the cost by the credit card issuers. Another note about tacked on charges, the charges imposed by the credit card industry and point of sale taxes do not add value to the product - only cost.

In today's world, the items we buy are priced above the retail price that would normally be encountered. Credit card companies charge retailers this fee on every purchase made with a credit card. The retailers pass the additional cost on to the consumer. You won't see the premium on your receipt because the premium is priced into the product you purchased. In addition to the fee that the credit card company charges the retailer, credit card companies also get to charge you interest on your account balance.

It is a vicious circle. Since the additional fees are priced into the product or service, paying with cash just increases the margin to the retailer.

A number of credit card issuers are now offering 'cash back' to their card holders. Returning a small amount of money is just another marketing scheme. Believe me; you pay a lot more to the credit card companies than what is returned to you. What you receive from the 'cash back' program is a mere pittance of your value to card issuers. Items purchased in today's market place cost the consumer between 9% and 17% more than what would ordinarily be charged if everyone used cash instead of a credit card. Adding the interest you pay on your account makes that purchase even more expensive.

Charges and fees by any entity except the government at the point of sale are relatively new. Historically, the retail sale was the germination of money distribution for the upstream businesses like the wholesaler and those who are in the supply and production business. But the credit card issuers have inserted themselves directly at the point of purchase. Their fee to the retailer is often a larger percentage than the profit margin earned by the retailer. Taxes are the only other imposed addition to the price on what we buy at the point of sale.

Retailers that accept credit cards have to add the credit card fees onto their products. That fee plus any sales taxes make up a large part of the purchase price for a product. Collectively, taxes and fees at the retail level raise the price for a product or service to the end user upwards of 30% of the total price. (Depending on the sales tax) This narrative only deals with the retail sale, but upstream of the retail sale there are other numerous added taxes and fees. There are a lot of influences on the wholesale cost of the products and services that we use and buy.

The government is like the credit card industry. They have no product from which to make a profit, so they just take a profit from any product they think will produce money. This is an especially foul practice. True, governmental expenses have to be paid for - even if you don't agree with the expenditures. To collect the needed money, the government has to make a decision. They can either tax for it or simply print the money they need.

Taxing has developed into an art form. Politicians have to be very careful about where and who to tax or risk being voted out of office. That is why taxes always appear as an emergency or that somebody besides you has to pay. Some notable examples are the hotel/motel tax. The assumption with this tax is that the only the visitors and out-of-towners will have to pay. Even when the money received goes for the greater good, politicians divide us into different groups. By creating categories, (we all fit into different categories) taxes can always be made to look like somebody else is paying the tab.

There are too many different taxes to list here, but the number is long and all of us have to pay since we all fall into one or more of those tax categories.

However, the Government can and does cheat the system by printing money that is not 'created' by way of commercial activity. By simply printing money, wealth is not added to the economy, only dollars. Too many dollars in the system is inflationary and devalues the currency.

Supply and demand has to drive pricing for goods and services. When the money supply is expanded because of the government's tinkering, prices go up. Prices go up to regulate demand. For instance, if good steaks sold for ten-cents/pound, the demand would be so great, that we couldn't raise cattle fast enough to satisfy that demand. Only the first in line would get the steak. The number of steak eaters cannot increase beyond the ability to produce them. Pricing that responds to demand is a way of assuring that when you need a steak that you can find one. The steak may be priced higher, but at least it is available. The same proposition goes for all products. Inflation comes from too much money in the system and is devastating to wage earners. Wage earners and those on fixed income are always behind the curve in an inflationary economy.

When the government pays its bills by printing the money it is called monetizing the debt. But the government continues to try and control the economy by using the printing presses. The beast must be fed and politicians go along with this arrangement because it saves them from having to explain the new taxes it would take to pay for their extravagant spending.

Politicians hang onto their job using pork to pacify their constituents. The able politician conjures up projects for his/her district or state and gets the funding approved using the tried and true back-scratching technique with fellow congressional members - "you vote for my project and I will vote for yours". Politicians can then return to their constituents and brag about what they accomplished for the voters. For a price of course, because federal and state projects are not for free. It even cost us, the citizens, if the government just prints the money to pay for something. Inflation is the cruelest tax of all.

Nothing in the above is new or news. It is just the way things are. But the day of reckoning is approaching and will affect everybody. There is no conceivable way that we can continue to live at the expense of everybody else. Sooner or later the train will run out of track and go careening out of control.

Increasing taxes is a bad idea during periods of deflation and economic downturns. Borrowing money to pay our bills will not lead to anything other than debt. Business friendly policies are desperately needed for us to dig our way out of the mess we are in.

I only wish I could be more cheerful, but on the horizon, I don't see things getting any better until we get real changes in Washington. Obama has brought changes but killed hope.

Robert welcomes your comment to this or any other of my commentaries.

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