Priceless: The Myth of Fair Value

Over the weekend, I was reading the book Priceless by William Poundstone. It’s an interesting discussion on why companies can charge thousands of dollars for one item.  Companies, like Prada and Gucci, carry a few obscenely expensive items in order to boost the sales for everything else.

In a landmark study, he recounts that a consumer when given a choice between an inexpensive, low-quality item and an expensive, high-quality item, the consumer often cannot decide. Therefore, the marketing solution was to drastically increase the price of the high-end item, and introduce to the consumer a third option – a product of slightly better quality and higher price (making the mid-option seem like a bargain).

A great real-world example – found on the website (www.humuch.com)-  is the market for Cognacs.

Cognacs are blended brandy sold in three major categories:
- XO (Extra Old), which are required to have the youngest blend aged at a minimum of six years. The average price of XO Cognacs are an astounding USD $210 per 750ml bottle.
- VSOP (Very Special Old Pale) are required to have the youngest blend at a minimum of four years. Yet, the average price of VSOP Cognacs are only USD $75.  That’s almost a 3x discount.
- VS (Very special) are the least rigorous, requiring the youngest blend at a minimum of two years. The average price of VS Cognacs are only USD $35.  That’s about half the price of VSOP at half the aged difference. It’s all a wonderful eye opener on how products are priced today.

Troubles with New Bank Notes Around the World

As efforts to fight counterfeit currency increases, there have been a number of surprise controversies in Canada, Bermuda, the Philippines, and other places.  Will it happen soon in your country?

Article on WSJ:

http://online.wsj.com/article/SB10001424127887323511804578297993757700724.html

 

Your Real Inflation Rate

Inflation is a rise in the level of prices.

Inflation is generally regarded as not a good thing for an economy. When prices increase, consumers pay more for goods and services. It also becomes more difficult to predict costs in the future. Companies are not sure what prices to set, employees are not sure what wages to request, and banks are not sure what interest rates to put on loans.

Almost every country in the world employs an economic bureau to monitor changes in the level of prices. In the United States the Bureau of Labor Statistics creates a monthly consumer price index (CPI). The CPI is the percentage change in consumer goods and services purchased by urban households. Most recently, the U.S. inflation rate has been about 1.5 to 2.0%.

In Europe, it is common practice to look at the Harmonised Index of Consumer Prices (HICP). It is a collection of monthly prices in the European Union. In Asia, much of the attention is focused on China’s National Bureau of Statistics (CCPI). In Latin America and other countries, individual central banks or government agencies issue price level reports in either quarterly or monthly releases.

One limitation of inflation indexes is the lack of transparency, often limited to general categories of food, clothing, and shelter. In the end, it is the price increases in your own purchased goods and services that really matter. To make your financial decisions, you need your own real rate of inflation. On HuMuch (http://humuch.com), you can create a personalized basket of goods and services and create personalized inflation rates and cost of living comparisons. It’s free. We invite you to check out HuMuch, the place to find, share and compare prices around the world.

Crazy Finds in New Zealand

We just finished a 2 week visit to New Zealand, and had a wonderful time. During the course of our visit, we did see some fun and crazy things that we have to share:

1. Fried Egg is a popular hamburger topping (In local McDonald’s, they add to their sandwiches a fried egg and slice of beetroot, and call it a Kiwiburger)

2. The country has its own time zone – New Zealand standard time (+12 hours to GMT)

3. Vanilla ice cream with small chunks of toffee is a popular treat. They call it the Hokey Pokey

4. There are no snakes on the island (not even in the Auckland Zoo)

5. There are a lot of sheep, the ratio is about 7 sheep: 1 person according to the mayor of Hamilton

… and in terms of global price comparison, New Zealand is in the middle 50% range of countries, which is lower than Western Europe and slightly lower than the US and Australia.

Shopping Abroad in Johannesburg, South Africa

If you are in Johannesburg, you’ll see new bank notes bearing the image of Nelson Mandela. The South African Reserve Bank has decided to recognize its country’s long struggle with apartheid by issuing currency with images of its first democratically elected president. The new notes feature Mandela on the front and the Big Five animals (lion, leopard, elephant, rhino and buffalo) on the back. The old bank notes that feature the Big Five animals only  are still legal, but will be phased out. The new notes remain the same in size as the old notes, so confusion should be minimal.

Some of the things that you can buy with the new notes: (1 U.S. dollar = 8.7 rands)

Internet monthly bill (speed <10 Mbps): 900

Gasoline/Petrol (standard, or regular grade): 9.98

Passport Book (1 adult, standard processing): 190

Postage (domestic letter): 1

City Bus Tour (1 adult): 150

iPad 2 (16GB, wifi): 4,300

McDonalds, Big Mac Meal:  23

See prices in South Africa and all  around the world at http://humuch.com