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  • The Pink Elephant Lady

Have We Been Spoiled by Low Prices Created Through Exploitation?

Why do 'green' products often cost more? Why do small, stand-alone retailers and small grocers often charge more than big chains?

Low Volume Purchasing and Lack of Strong Bargaining Position

Chain retailers and chain grocers purchase many thousands of units of a product, and thus receive better pricing than smaller retailers. Large multinational consumer products companies are purchasing many thousands of units of cans, bottles, and bags for packaging; they receive better pricing on both packaging and ingredients for their products. Economies of scale mean cheaper prices.

A small retailer or manufacturer holds far less bargaining power with who they are purchasing from than a large retailer. Wal-Mart has the power to dictate how much its suppliers should charge them. The supplier must comply or risk being shut out of Wal-Mart altogether and losing their shelf space to a competitor.

Nationwide and regional chain grocers often make just pennies on each unit of a product they sell. They make their money not on markup, but on volume. A couple pennies doesn't sound like much, but when you multiply that by hundreds of stores and thousands of products, it sure adds up. A small retailer would never survive charging a markup of only a few cents.

Low inventory Turnover

If a grocer stocks healthy, fresh, perishable food such as fruits, vegetables, prepared grab-and-go food, and lean meats, there has to be enough foot traffic and enough demand for those foods for it to make sense to continue to carry those foods. A box of dry macaroni and cheese, sugary cereal, or a can of high-sodium soup can often sit on a shelf for a year or more before expiring. Broccoli, fresh fish, prepared salads, milk, etc. have anywhere from just a few days to a few weeks.

If the fresh inventory expires before it's sold, it's a sunk cost and lost money. An unscrupulous grocer with low inventory turnover on fresh inventory might attempt to sell produce past its prime, sell expired products, or sell grey-ish meat to avoid having to toss inventory. Other retailers might forego fresh options altogether because they cannot afford the cost of inventory loss over time.

Many consumers want less preservatives in their food, beverages, and personal care products, or even no preservatives at all. The problem is that products with little to no preservatives have very short shelf lives. Coupling short shelf life with low inventory turn over means a LOT of lost inventory.

Ingredient Quality and Ingredient Sourcing

If you look at the ingredient label of a facial moisturizer or body lotion at your local drugstore, dollar store, or chain beauty shop, you'll most likely notice that one of the first five ingredients is petrolatum. It's probably packaged in plastic. Plastic and petrolatum are both petroleum products. And 'fragrance' is probably towards the end of the list of ingredients. Synthetic fragrance oils are far cheaper than essential oils and 'natural' fragrance oils.

Plastic packaging is far cheaper than metal, glass, or compostable paperboard and its light weight means it costs far less to transport.

The synthetic detergents in drugstore laundry products, shower gels, dish liquid, and hand washes are also petroleum products. Synthetic detergents and petrolatum are cheaper than true soap (soaps made not of petroleum products, but from combining fats or oils with an alkali, such as lye) and skin moisturizers like cocoa butter, aloe, shea, etc.

Where the product or product ingredients are sourced from also affects its price. An ingredient sourced from an environmentally responsible company that practices fair trade and does not exploit farmers, its employees, or the people of the country the ingredient is sourced from is going to cost more.

Labor Practices

A company's labor practices can affect the prices of what it sells. A company that offers things like full benefits, a 401k plan, paid vacation, tuition reimbursement, and a living wage is going to have to create enough revenue to be able to pay those costs. A company that offers no benefits and $10 an hour can sell its products for a lower price (assuming it can get anyone to work for those wages!)

Manufacturer’s MAP (Minimum Advertised Price) Policies

Unless a retail store is making its own products, the retailer will have to deal with MAP policies. When a retailer buys wholesale from a manufacturer, the retailer must contractually agree to not charge less than the manufacturer's minimum advertised price. For example, if the MAP on a bottle of hairspray is $12, a retailer cannot sell it for $10. To do so could mean that the manufacturer will refuse to sell to the retailer anymore.

Covering Cost of Goods Sold

No matter how much good will a business owner has, at the end of the day the business MUST cover its cost of goods sold or it will not be in business very long. Payroll and benefits, rent, security, internet, utilities, inventory and ingredients cannot be paid or purchased with good intentions and high hopes.

The public sees the multimillion dollar salaries of big business CEOs and (rightfully) wonders why those CEOs and c-suite staff can't take a pay cut to pay employees more and make their products more affordable. And the same logic gets applied to ALL businesses. Pay more! Charge less! But very small businesses and retailers are not multimillion dollar CEOS running massive multinational companies.

Customer Experience with Big Box Retailers and Ignoring Negative Externalities

The public's reference point for pricing is often what they have seen their entire lives at large chain retailers and big box stores. They know what an average bottle of lotion, a sandwich, and laundry detergent costs based on their experiences. That's the reference point. A handcrafted lotion packaged in small quantities in a metal, 100% recyclable bottle made with fair trade cocoa butter and essential oils by employees with a fair wage and full benefits is compared to a mass produced, plastic bottle lotion with full of petrolatum and synthetic fragrance produced cheaply overseas and is met with 'Why is this so EXPENSIVE? Lotion shouldn't cost this much!'

We're used to cheap goods because negative externalities like worker exploitation and environmental degradation are not factored into the costs of the products. We want higher wages, less preservatives, better quality, and environmental protection all wrapped up in our products, but we don't want them to cost any more than what we're currently paying at Wal-Mart and Dollar General. It just doesn't add up.

Rejecting the Linear Economy

Buy a company's product. Use it, Throw it out. Buy another one. That's the American way. But if a company rejects that model and instead strives to create a circular economy, that affects its revenue stream in some important ways. If you're selling reusable products that are designed to last for years, your customer isn't coming back again and again to buy a new thing, and that reality may be reflected in the product's cost. Also, the customer may be spending more up front initially, but less over time because they're reusing a single product and not constantly replacing it.

Price Gouging by Capitalizing on a Trend

Lastly, and most unfortunately, some 'green' products are needlessly expensive because they can be. According to a 2019 CBS News piece:

For some products, such as organic food, the higher sticker price is reflective of the higher cost of creating that type of food. But others charge more simply because they can. "Eco-friendly" or "sustainable" branding is increasingly used as a marketing strategy to distinguish products as premium or elite, making them almost certain to appeal to wealthier shoppers.

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