On Capitalism — the art of making money ( by cheating others ??)

I am no stranger to capitalism and having been lucky to get a sound education from one of the pillars of capitalism, I find it strange to be writing this piece. But sometimes a story has to be told.

A couple of months ago, I was in Boston visiting my son and decided to get myself a drink at Dunkin’. I ordered myself a cup of hot tea, as it was a little chilly for a southerner up north, just for a day. The lad at the counter asks me if I wanted a small, medium or a large. I chose my size and as I was doing so; it struck me how these chains have found ways to make money of us. There was a 30 cent difference between a small and a medium. and an additional 20 cents for a large, and 20 cents more for the extra large. I started to think whether they were charging me for the water or the cup for when you get a tea, irrespective of the size they still give you only 1 tea bag. Now clearly this is not unique to Dunkin’ for we always end up paying more for the size. I had a discussion with the guy working the counter and he nodded his head, seemingly agreeing with me at why the pricing worked this way. Now when we walk in to any store, the store gets to set the price and we the consumer have the choice to buy, or not to buy. So it would need us as consumers to launch a movement across America to stop buying the medium, large and extra large drinks at prices that don’t make sense to force the chains to get the prices normalized. Clearly something is amiss here for we the consumers are not doing so. The price is low enough for us not to care, but you would be surprised if you were to calculate how much of our money gets transferred to a business in a month, year or over our life time. The next time you are on your couch with your phone, just open up the calculator and punch up some numbers to figure out for yourself that number. Now one could argue that the cup sizes are different and since the medium and large or the Grande’ and Vente’ are bigger they ought to cost more. But surprisingly economies of scale are driven by consumption volumes and not by amount of material alone. It wouldn’t surprise me if the cost of a medium or Grande’ actually works out cheaper than a small, as more consumers choose that size. So why do we have to pay more for our Grande’?

Now strangely this method of pricing doesn’t seem to apply to clothing. Most stores sell all sizes of the same design for the same price. When I googled this, I stumbled on this article from Teen Vogue that explains this in some detail. Clearly, stores have tried the strategy of differential pricing by size and have since reverted to one price fits all size strategy.

Airlines too don’t charge for your ticket by your size or by your weight ( until Southwest started to make you buy two seats if you didn’t fit into one ). Of course we should never ask our co-passengers on a flight or for that matter our hotel mates for either we will walk away beaming when we discover we paid less or disgruntled when we find out they paid much less.

Your favorite marketing guru will tell you to price by value. If you walk into a store or restaurant when you are hungry, your prices will go up. Look out for those Fitbit trackers starting to tie your pulse rate to your hunger and transmitting it to a store near your soon; so they can have dynamic pricing on food. It’s exciting if you want to start a business, but not so if you are trying to pinch a few pennies and balance your budget.