Non essential shops to re-open…

[SalvorHardin]

I am not sure if it has been mentioned but simple supply and demand will sometimes result in a higher price, for example in the price of fuel. I can never understand how a BP filling station can sell any fuel at say £1.20 when Asda half a mile away sells it at £1.10. OTOH on a main highway a filling station can get away with selling the self same fuel on the same day for £1.35 as there is not another one for 50 miles in either direction.

It takes time, effort and/or money to discover cheaper sources of the same goods and services.

Someone who is close to the BP station may not know about the cheaper petrol at ASDA, or they may decide that it's more cost effective to buy the more expensive petrol instead of spending time and additional travel costs in getting to ASDA. Or it may be that a purchaser has decided to buy at BP because the last time they tried to buy petrol at ASDA the station was shut.

https://en.wikipedia.org/wiki/Search_cost

There's a great EconTalk podcast about transaction costs; the costs incurred in making any economic exchange (obtaining and comparing information, actually performing the transaction, enforcing the other side's part of the transaction).

https://www.econtalk.org/michael-munger-on-sharing-transaction-costs-and-tomorrow-3-0/

[Arborbridge]

It's unwise to pay too much, but it's worse to pay too little. When you pay too much, you lose a little money - that's all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was bought to do. The common law of business balance prohibits paying a little and getting a lot - it can't be done. If you deal with the lowest bidder, it is well to add something for the risk you run, and if you do that you will have enough to pay for something better.

John Ruskin

I like that quote, and it rings bells with me. However, this sort of thinking has all but died out, and I have a feeling it is to the detriment of society in general. I remember one particular customer I did a fair amount of work with. He would ask different firms to put in bids, naturally, but if he found that someone was too cheap, or even worse, came back with a lower counterbid, he wouldn't buy from them. No, he wanted your first bid, not one which might cut corners or increase his risk.

My on approach is that if someone in a shop has been particularly helpful and told me things I hadn't known about the product, or other wrinkles, I would buy from them even if slightly dearer. I would probably do some online searches to see what this premium would cost me, but generally I regard paying more for information, service or even just a pleasant shopping experience is worthwhile - think of it as reinforcing behaviour a virtuous feedback loop.

The tendency to get a demonstration in a shop, then buy cheaper online is a reprehensible attitude which I would avoid wherever possible. In the specific case of Amazon, I made a decision never to buy from them unless completely necessary for something essential. So far, I haven't needed to use them since that decision made years ago.

If we always buy from the cheapest source, the only eventual limit on the downward spiral comes through bitter experience with failing products, poor service or advice (classically through employing lost cost inexperienced staff who just read the back of a packet rather than knowing the product) or the common practice of shrinkflation.

Arb.

[AF62]

So to me if the online retailer can sell for £350 then the local garden centres have chosen to charge almost 1/3 more, then they have decided to overcharge me and make a greater profit.

Thus writes someone who, I suspect, has never actually run a business in their life.

So are you really suggesting that the local garden centres are not making a higher gross profit on this item than the online retailer by charging 1/3 more?

And before anyone mentions overheads, the online company was themselves a garden centre with physical premises where I presume the item was available at the same price, just they also had an online operation.

I'm not sure that's a reasonable presumption to make, although I can see why you want to make it given that it supports your arguments here...

10 years or more ago you might have had a point, as a small number of physical retailers did offer goods at different prices online and in store. These days when everyone has access to the internet in their pocket then it would be utter stupidity for someone like a garden centre to offer an item which needs home delivery cheaper online than in store - especially when it has free delivery.

I am not sure if it has been mentioned but simple supply and demand will sometimes result in a higher price, for example in the price of fuel. I can never understand how a BP filling station can sell any fuel at say £1.20 when Asda half a mile away sells it at £1.10. OTOH on a main highway a filling station can get away with selling the self same fuel on the same day for £1.35 as there is not another one for 50 miles in either direction.

Several reasons.

Fuel cards is part of the answer. Lots of the people filling up at the BP sites will be using a fuel card which is either providing them with previously purchased bunkered fuel (the bunkered fuel isn’t stored at a single site but is a notional pool held across all card sites) or the fuel card has an agreed rate usually based on a national average, so in both cases the advertised pump price is irrelevant.

There are some people who believe supermarket fuel is inferior so are prepared to pay more for ‘better’ fuel.

There are many who can’t be bothered to drive a couple of miles to save £2.

And for the ones on the motorway charging £1.35, most of the fills will be £10 ‘splash and dash‘ but there are enough people who have misjudged how much fuel was in the tank to make it worthwhile for the fuel company, and if you have such a monopoly position you might as well exploit it.

[redsturgeon]

It is very difficult to find goods of the quality that use to be commonplace.

Yesterday my son was off to cycle to play basketball, on his back was my Berghaus rucksack bought at least 25 years ago by me for my own use and used constantly by me for most of that time.

My son started using it about three years ago for his school, then college books when I began using it less frequently. He started using it because his latest in a long line of branded rucksacks failed, either a zip broke or a strap broke or it came apart at the seams. We must have bought him at least half a dozen bags during his school years.

I looked at the Berghaus and it was still absolutely sound with all zips working and no holes, in fact it showed no real wear for the years of heavy usage.

I have a new smaller Berghaus I bought last year, a better size for my needs these days, I hope it is still made to the same standards of old. I could have bought something which did ostensibly the same job for half the price or less but I bought the Berghaus in the hope that Vimes maxim still applies.

The same pattern can be seen across many products these days.

John

[didds]

I am not sure if it has been mentioned but simple supply and demand will sometimes result in a higher price, for example in the price of fuel. I can never understand how a BP filling station can sell any fuel at say £1.20 when Asda half a mile away sells it at £1.10. OTOH on a main highway a filling station can get away with selling the self same fuel on the same day for £1.35 as there is not another one for 50 miles in either direction.

Dod

See above - slightly. Filling stations don't all buy in at the same price - so the price they charge isn't based on a a flat playing field. That doesn't of course totally explain why two fuel staions oppsite each other with different prices has customers frequenting the more expensive one anyway. That's just some people's "Whatever" attitude to fuel pricing I guess.

didds

[Wuffle]

AF62,

Delivery at no extra cost, if you don't mind.
It isn't free.
Thanks.

W (the logistics industry professional).

[Dod101]

Fuel cards is part of the answer. Lots of the people filling up at the BP sites will be using a fuel card which is either providing them with previously purchased bunkered fuel (the bunkered fuel isn’t stored at a single site but is a notional pool held across all card sites) or the fuel card has an agreed rate usually based on a national average, so in both cases the advertised pump price is irrelevant.

There are some people who believe supermarket fuel is inferior so are prepared to pay more for ‘better’ fuel.

There are many who can’t be bothered to drive a couple of miles to save £2.

And for the ones on the motorway charging £1.35, most of the fills will be £10 ‘splash and dash‘ but there are enough people who have misjudged how much fuel was in the tank to make it worthwhile for the fuel company, and if you have such a monopoly position you might as well exploit it.

I did not know anything about 'bunkered fuel' but I assume you do.

On a motorway it is simply a matter of supply and demand, but Asda is always the cheapest in my nearest town and I would not go anywhere else. If I am putting in 65 litres (those were the days!) the saving is well worthwhile.

Dod

[Mike4]

I am not sure if it has been mentioned but simple supply and demand will sometimes result in a higher price, for example in the price of fuel. I can never understand how a BP filling station can sell any fuel at say £1.20 when Asda half a mile away sells it at £1.10. OTOH on a main highway a filling station can get away with selling the self same fuel on the same day for £1.35 as there is not another one for 50 miles in either direction.

Dod

A couple of possible explanations.

FIrstly the market is not perfect. Drivers passing the BP station on the main A class carriageway may not be local and are therefore unlikely to be aware of the existence of the Asda station tucked away nearby in a residential area.

Secondly a lot of petrol is purchased by people travelling on business and paid for by their employer. The employer especially if running a large fleet, will usually have negotiated lower-than-retail prices with BP (or whoever) as BP can offer the coverage, and the employer can offer the volume of sales. So the employee is instructed to fill up only in BP stations using the company account. The worst example of this effect (or best, according to how you see it) is the motorway service station prices. Around here they are typically 30p per litre or more higher than the local Asda, but I've seen it suggested, possibly on TLF, that almost all sales on motorways are to account holders rather than retail customers.

[Dod101]

Thanks Mike. There is clearly a lot more to this than meets the eye.

Dod

[bungeejumper]

And before anyone mentions overheads, the online company was themselves a garden centre with physical premises where I presume the item was available at the same price, just they also had an online operation.

I'm not sure that's a reasonable presumption to make, although I can see why you want to make it given that it supports your arguments here...

Agree with IAAG that it isn't nearly as simple as AF62 suggests. These days you'll often find that a bricks-and-mortar retailer never even sees the products that it's selling online! Instead of shipping everything through its own warehouses, it arranges a deal with a third-party online supplier who delivers the goods directly to the customer's door, and then it takes a cut of the profit. Much more efficient, although a whole lot more collateral risk on all sides.

The last time I bought a big-ticket item from John Lewis (a washing machine, I think?), it was delivered to my house by a German wholesaler, and JL supplied only the paperwork and the warranty. It'll be the same if you order a machine from Boots - it'll be delivered by AO.

Now, suppose your garden centre wants to sell me a lawnmower. It can always get a third-party wholesaler to deliver one to my home for £250, but it also needs an additional £25 cut of the action to make the transaction worthwhile. So it could sell the mower to me for £275 online. But if it wants to put the mower through its stores, it will obviously need to arrange its own transport, warehousing, paperwork and (substantial) store overheads to cover, and it probably couldn't afford to price it at less than £325.

No fraud, no price-gouging, honestly - just a different supply model. The reason the retailer even tries to sell the mower in the store at the higher price is that there will always be people walking into a physical shop to buy a new lawnmower because theirs has just broken down and they need a new one before the weekend.

Alles klar??

BJ

[brightncheerful]

The point I am making is that the level of quantity discount which is regarded as normal in a country appears to be a matter of culture rather than anything else, and that this has a substantial effect on the structure of retail markets in different countries. If large discounts are the norm there will be relatively few retail outlets, whereas if such discounts are small there will be a much greater variety of retail outlets.
The figures which you quote, and which I assume are regarded as the norm, suggest that small shops in the UK would have disappeared quite independently of rates and rents, simply because it is almost impossible to compete with a competitor whose cost of supplies is half your own.

.

(My embolden)

Not every shop competes on price. And not every customer buys on price alone. If for example the going rate price for an item in a small shop is £2.99 -upon which it would be reasonable to think an element of profit --why would a competitor want sell at half that price when the profit would be the element of profit on £2.99 plus 50%?

[brightncheerful]

So it is acceptable that consumers are over-charged for the items they need to buy to cover the additional costs that small shopkeepers have? .

Sounds like you think shops are an extension of social services"

They're not. They're in business to make a profit. Business is about helping people in exchange for money. Profit is a) the financial gain for shop and b) the advantage or benefit to the customer.

When a customer talks about a particular shop overcharging, what the customer means is that there is no advantage to that customer in shopping there.

[dealtn]

Thanks Mike. There is clearly a lot more to this than meets the eye.

Dod

You also need to see it from the retailer's perspective. Their "profit" is "number of buyers" x "margin" (crudely). Particularly on low margin products, which certainly applies to fuel, it can be perfectly rational to have a margin of, say 6p per litre that is, say 3 times the margin of a nearby rival. You might get half the traffic of your rival. The majority might be those to whom a short diversion and £2-3 saving makes it worthwhile, yet you capture enough for whom that £2-3 and extra time influence their behaviour differently, to make your business just as profitable.

Supermarkets are the best example of the former as they are content, in the same way as they do with milk, to use fuel as a "driver" of shoppers to their stores to buy other higher margin products. Petrol stations can achieve the same, but opposite, attracting those who are less price sensitive who might also pay high margins for sandwiches, chocolate, coffee etc.

Making assumptions based on your own behaviour about business models isn't a good way of thinking about these things. As has been said above, "pricing" in economics is a complex subject and the Nobel Prizes aren't yet exhausted in this field.

[UncleEbenezer]

Supermarkets are the best example of the former as they are content, in the same way as they do with milk,

Remind me. What exactly do they do with milk? And, given the history, how can I expect to distinguish anything you say from misinformation?

Around 2002/3 was a peak of pressure on the supermarkets. They stood accused by farmers, press, and government of colluding to push the price down and underpay the perpetual-underdog farmers. Intense pressure to do the decent thing and pay more.

In 2007, the Office of Fair Trading fined supermarkets and processors for milk price fixing in 2002/3. But it hadn't been fixed too low, it had been fixed too high, at the expense of consumers!

Most of them accepted a plea bargain[1]. But Morrisons and Tesco fought the OFT on it, at which point it gets too complex to follow. Something was overturned in 2011.



[1] Yeah, that's not technically what it's called, but the effect is the same.

[AF62]

AF62,

Delivery at no extra cost, if you don't mind.
It isn't free.
Thanks.

W (the logistics industry professional).

Obviously from the retailers point of view but from the consumers point of view, if I can buy a product to take away but the delivered cost is the same then the delivery is free to me!

I am not sure if it has been mentioned but simple supply and demand will sometimes result in a higher price, for example in the price of fuel. I can never understand how a BP filling station can sell any fuel at say £1.20 when Asda half a mile away sells it at £1.10. OTOH on a main highway a filling station can get away with selling the self same fuel on the same day for £1.35 as there is not another one for 50 miles in either direction.

Dod

See above - slightly. Filling stations don't all buy in at the same price - so the price they charge isn't based on a a flat playing field. That doesn't of course totally explain why two fuel staions oppsite each other with different prices has customers frequenting the more expensive one anyway. That's just some people's "Whatever" attitude to fuel pricing I guess.

didds

You are absolutely correct that the filling stations don’t all buy at the same price, but also there Is the issue that all is not what it may seem to be with the brand of the filling station and the control the fuel companies have.

Filling stations operate under a variety of models -
- Owned and operated by the fuel company
- Owned by the fuel company but leased to an independent operator and run under that brand with a fuel supply agreement
- Owned by an independent but fuel is supplied to it under a fuel supply agreement so runs under that brand
- Owned by the fuel company but the store operated by an independent with the fuel company selling the fuel and the independent the goods
- Owned by the fuel company but the store operated by an independent with the fuel company owning the fuel on site, and at the moment you put it in your tank selling the fuel to the independent and them to you
- Owned by the fuel company with an independent simply supplying the operating staff and taking a fee for doing so

In all the above the site would appear to the person driving up in their car be the same brand.

However even with the the independents the fuel supply agreements control the price as the agreements tend to be drafted so they allow the independent to make a profit on the fuel within a set range (usually up to around 3p a litre) irrespective of the underlying cost of the fuel, but to penalise them if they try to undercut the local competition.

The joke with one fuel company I dealt with which has coffee shops on site, was if you went in and bought a tank of petrol and a cup of coffee, they made more profit selling you the coffee than the petrol.

[GrahamPlatt]

Doesn’t mean they weren’t gouging the farmers as well though.

Sorry, that was replying to UncleEbeneezer.

[AF62]

And before anyone mentions overheads, the online company was themselves a garden centre with physical premises where I presume the item was available at the same price, just they also had an online operation.

I'm not sure that's a reasonable presumption to make, although I can see why you want to make it given that it supports your arguments here...

Agree with IAAG that it isn't nearly as simple as AF62 suggests. These days you'll often find that a bricks-and-mortar retailer never even sees the products that it's selling online! Instead of shipping everything through its own warehouses, it arranges a deal with a third-party online supplier who delivers the goods directly to the customer's door, and then it takes a cut of the profit. Much more efficient, although a whole lot more collateral risk on all sides.

The last time I bought a big-ticket item from John Lewis (a washing machine, I think?), it was delivered to my house by a German wholesaler, and JL supplied only the paperwork and the warranty. It'll be the same if you order a machine from Boots - it'll be delivered by AO.

And John Lewis will charge you the same price for that washing machine whether you buy it through their website or in store.

Now, suppose your garden centre wants to sell me a lawnmower. It can always get a third-party wholesaler to deliver one to my home for £250, but it also needs an additional £25 cut of the action to make the transaction worthwhile. So it could sell the mower to me for £275 online. But if it wants to put the mower through its stores, it will obviously need to arrange its own transport, warehousing, paperwork and (substantial) store overheads to cover, and it probably couldn't afford to price it at less than £325.

No fraud, no price-gouging, honestly - just a different supply model. The reason the retailer even tries to sell the mower in the store at the higher price is that there will always be people walking into a physical shop to buy a new lawnmower because theirs has just broken down and they need a new one before the weekend.

Alles klar??

BJ

All that is great in theory but can you actually point to a store which does charge different prices in store and online?

It just doesn’t happen because if you do try to charge more in store then although you might make the occasional distress purchase, more often people use you as a ‘try it and see’ showroom and then go home and buy it online - and you hope they buy it from you rather than a competitor who is cheaper as they are online only and don’t have the expense of the ‘try it and see’ showrooms.

[dealtn]

Supermarkets are the best example of the former as they are content, in the same way as they do with milk,

Remind me. What exactly do they do with milk? And, given the history, how can I expect to distinguish anything you say from misinformation?

Around 2002/3 was a peak of pressure on the supermarkets. They stood accused by farmers, press, and government of colluding to push the price down and underpay the perpetual-underdog farmers. Intense pressure to do the decent thing and pay more.

In 2007, the Office of Fair Trading fined supermarkets and processors for milk price fixing in 2002/3. But it hadn't been fixed too low, it had been fixed too high, at the expense of consumers!

Most of them accepted a plea bargain[1]. But Morrisons and Tesco fought the OFT on it, at which point it gets too complex to follow. Something was overturned in 2011.



[1] Yeah, that's not technically what it's called, but the effect is the same.

Supermarkets are low margin businesses. Like Petrol, mIlk is a product that is both widely consumed, and has a price that is visible and known by a large number of potential consumers, who have the ability to shop in multiple places.

As such supermarkets are happy to compete on price with each other on both products to an extent they don't on other products to drive turnover through their stores. Basket size is the key component on profitability so if people arrive at their till because they know they have bought cheaper petrol, or milk, than available elsewhere that is a good thing from a supermarket's perspective, even if the margin on petrol, or milk, is low.

Now if you want to have a discussion on Milk pricing generally, and its history including the Office of Fair Trading enquiry into Dairy and Derivative products as far back as 2002, I'm sure that will be both interesting and educative. I am sure I will learn more from such. But maybe you can start another thread on that rather than this one, which I will gladly join.

Hopefully my replies both here, and on any additional thread, won't contain any misinformation, although I am sure someone will soon tell me if that is the case.

[JohnB]

And we've not mentioned price wars, where a company with deep pockets accepts loses now to gain market share and close down opposition. I suspect many high street chains and their backers are considering that strategy now their rivals are struggling.

And I can see new entrants taking on property at fire-sale prices and staffing with new hires on poor terms. Only a brand protects you from them, and if you buy purely on price...

[AF62]

And we've not mentioned price wars, where a company with deep pockets accepts loses now to gain market share and close down opposition. I suspect many high street chains and their backers are considering that strategy now their rivals are struggling.

Interestingly Primark have specifically said they won’t be doing this, instead preferring to store their unsold stock for a year.

https://www.bbc.com/news/business-52874532

And I can see new entrants taking on property at fire-sale prices and staffing with new hires on poor terms. Only a brand protects you from them, and if you buy purely on price...

I can’t see how the fire sale property prices and the terms for the new hires are relevant for the consumer, unless you are suggesting it will impact customer service. However many established brands perform abysmally even though they pay high prices for rent and have good terms for staff.

Anyway there is always s75 to fall back on.