If retailers were required to label and disclose the margins of items, would it drive down the prices of consumer goods?
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A thought experiment about information and behaviour in the market: if, like nutrition labeling for food producers, supermarkets were required by some new legislation to state the markup of each item on the price tag, what would happen? Would consumer behaviour change, would the behaviour of retailers and suppliers change? I'm thinking about this especially in the Australian context, where we already have various labeling requirements in place, as well as unit pricing. And the market is dominated by an oligopoly.
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Answer:
This information is already essentially public, at least for publicly traded companies. Maybe not at the per-SKU level, but certainly margins at the corporate level and by business unit. A rational consumer would be aware that margins don't tell a full story. Brand A may have higher margins because they are more efficient than Brand B, have proprietary IP that enables them to product at a lower cost. Or they might be using cheaper materials that will break or wear out sooner. Or they might rely on low pay offshore labor. The margin does not tell you this. The retail price does not tell you this. The rational consumer needs more information to find what the best value is. Of course the real, often non-rational consumer might think that lower margins are a sign of greater value. In which case producers of cheap goods (quality and price) will tout that quality. You see automobile sales do this today, "Only $X over deal inventory!". Higher margin products would need to overcome any consumer resistance to the higher margins. Of course they already do this today. That is why we have brands and advertising. Coca-Cola is able to charge a premium for that brand recognition over lower-margin competitors.
Rob Weir at Quora Visit the source
Other answers
If all the retailers of a given kind of merchandise has a similar range of markups I would conclude that the display of the markups would not modify buyer behavior. I have an anecdote: Back in days of yore in Brookline Massachusetts there was a restaurant: Jack and Marion's. On their menu they clearly marked about a quarter of their entrees as "high profit items". This did not seem to stop people from either going to the restaurant or ordering these items. The folks were willing to pay the price.
Robert J. Kolker
It already happens in Canada at the gas pump, in some places the station has to put the breakdown of its price on the pump. The sticker shows a net profit of less than 2%. I don't think it makes any difference to consumer behaviour. You would find retailers disputing what is meant by "markup". Do you mean the selling price divided by the cost to their supplier? Or do you mean the selling cost divided by all costs? In the first case you might get markups of 2 or 3 times (200% - 300%). In the latter case you will likely get markups of may 2-4%. Big difference and the latter reflects reality - the first is only a management tool and doesn't represent the true cost of doing business.
Anonymous
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