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ESSAY: Total Cost: Costing Out Consumption

If consumer goods were somehow free, the very notion of consumerism would be different.

Extracted from the forthcoming book
Renegade Consumer: The Battle for Your Economic Freedom.
But goods are not free, and our consumption thus has costs—many layers of them. Part of what underlies our acceptance of fostered consumption is conditioning that limits our perception of its costs. It’s less that we make a conscious effort to minimize the numbers than that we allow the commercial world to hide them in plain sight. We allow ourselves to be misdirected on what should be a simple numerical point:
How many dollars will this piece of crap cost me?

Moreso than any household budgeter or savvy shopper, renegades need to learn to see all the costs involved in consumption, not just the most superficial ones. We need to understand that costs go beyond sticker or shelf price. From the misdirection and covert costs that are ignored at the time of purchase to those that can only be understood in terms of decades, renegades must master the art of costing out consumption… that they might better learn to cast it out.

This chapter will steer a little ways into consumer advocacy territory, but I hope to do so without muddying the fundamental difference between renegade and consumer advocate viewpoints. We’re looking far past shopping value and product quality here to the additional costs concealed by sellers and overlooked by buyers. These amounts are often blithely dismissed in general consumer discussion, but they add to consumption costs and pad the bottom line of sellers; that’s renegade territory.

Renegade Personal Finance

The starting point for every renegade of every economic level and individual situation is this: master your personal finances.

You simply cannot judge your current position, much less your likely destination, if you do not have a chart of where you’re at and where you’re headed. If you’re one of the majority who all but throw money in a pile, pull some out when it’s needed and think everything’s fine as long as the pile doesn’t run out… fix that. Now. Pull your finances into order that would make sense to an accountant or tax advisor. Keep them there. Best of all, reconstruct your finances for at least the past year. (And don’t be shocked at how much money you can’t really account for.)

If your life and finances are simple, you might be able to get by with a handwritten budget and finance log. A simple spreadsheet will serve as well, for simple to slightly more complicated financial situations. Most of us, though, should be using a financial management tool to track, total and predict our financial standings. Besides forcing you to look at the entire scope of your income, spending, saving and investments, just the effort of putting it in order can tell you some surprising things about your habits and expectations.

This is not the place to outline how to do personal finance management. I can only say that it’s a place where we stand in agreement with most “concerned consumer” organizations and advocates. Find a web site or a book that matches your level and learn how to use Quicken, Money, Mint or any other tool that makes it easy to map your finances, keep track of them and most importantly be able to continually analyze them.

The renegade goal is to get to such a simple personal finance situation that a yellow pad and a pencil will be adequate to manage them—but nearly all of us need more, at the outset and through the difficult period of transition to fully realized renegade status.

Covert Label & Shelf Costs

Some consumer goods cost exactly what the shelf label, price tag or web display say they do. Nothing hidden, nothing added, nothing that will sneak in before the total is rung; the damage to your wallet is exactly what the tag says it will be.

Far too many purchases, though, are loaded—in every sense of the term—with hidden costs.

Making buyers believe an item costs “only” that sticker price is an essential element in convincing buyers to purchase it, even if they should know better—even if they do know, on some level, that there are additional and often substantial costs hidden by misdirection.

The ubiquitous great-granddaddy of price misdirection is “99 pricing”—knocking prices down a penny or a dollar or so from whole-dollar and rounded amounts. Scholars debate who started this practice and when and where, but there’s no question that the aim is to imply a significantly lower cost. It works well; for most of us it takes special effort to recognize that something costs thirty dollars when the price tag reads $29.98. Moving the decimal point either direction does not change the effectiveness; a $1.99 soda costs two bucks, and houses priced at $299,900 are not really “in the upper 200s.” This well-established blurring of perception allows us to mentally knock off a substantial fraction of the actual price when judging the value of the purchase.

Even the keenest price-spotters are routinely tripped up by a universal application of this knockdown. Consider that gas is something consumers choose by a penny or two’s difference at nearly every purchase; we will pull into a Gulf instead of the Mobil across the street if the sign shows as little as a one-cent difference. Isn’t it odd, then, that no one ever notices or mentions that every gallon sold is actually a penny more … that “9/10 cent” on the end is ubiquitous, invisible and forgotten. It’s astounding how universally overlooked this tiny but universal surcharge is. (There is no reason, tax- or accounting-based, for this fractional charge; it’s not there by legislation or to be precise about tax amounts. It’s just... there, and so fixed that most signs and pumps have no provision for changing that last digit.)

Renegades need to follow the lead of all careful shoppers and never let any form of “99 pricing” make them misjudge an item’s cost.

Learn to read shelf prices as the real whole-dollar amount. Automatically round gas prices up a penny from the bold numerals. Both are a good start on costing out goods, and good practice for all that follows… and just a good practice.

Another frequently overlooked consumer cost is almost as invisible to most people as consumerism itself: sales tax. Only five U.S. states have no sales tax; the rest hover around five to six percent and where city and county additions are permitted, the total can be eight to ten percent. It could be argued—and often is, from a government perspective—that sales taxes are not part of consumer cost consideration. (Usually because the money goes into your own “pocket of public benefits”—which has some truth to it, but is neither here nor there. If you didn’t buy, you wouldn’t pay this amount.) However, sales taxes are an inflexible and inescapable part of consumer buying except in certain narrow categories; they are money out of your pocket directly proportional to your consumer spending. If you can’t walk out of the store without paying that surcharge, it becomes as much a part of the cost as the sticker amount. Sales taxes must be considered as part of the consumer spending equation, but we’ve been conditioned by both sellers and government to omit them when judging the cost and value of a purchase. (“…plus tax,” the ads barely whisper, and then only where required to do so.)

Covert Contract & Finance Costs

The costs above are hidden only by something like a magician’s misdirection: they are there for the seeing if only the buyer thinks to look. The next tier of deceptive consumer-good costs is often actively hidden by sellers—if not buried anonymously in the final total, then obscured until the final purchase contract or invoice is presented, which is long after most sales are effectively concluded. Consumer protection laws keep trying to bring such fees, charges, add-ons and costs to the fore in contracts and sales agreements, but far too many costs get rolled into monolithic pricing.

Few consumer goods have more of these added costs that are more carefully obscured than vehicles. From every maker and every dealer, buying a car or other general road vehicle involves paying a significant premium over the bold pricing on the windshield (which is itself often an example of 99 pricing.) These added costs are frequently ten percent or more of the vehicle’s price but left out of the buying equation until the final contract is presented.

To begin with, vehicles are subject to sales tax, which can be a huge bite and is rarely brought into the discussion until the contract is presented. Then there is an initial registration and license plate fee. Some states charge property tax on vehicles, which is both an initial cost and an ongoing one. Various special taxes may apply to certain models or types of vehicle, luxury tax and “gas guzzler” taxes being the most common.

Then the dealer has to make sure to extract every possible fee for facilitating, enabling and concluding the sale. Few new vehicles are sold without a delivery or “destination” charge that nominally covers shipment of the vehicle from the plant to the dealer—a whole chapter could be written about the deceptive and excessive nature of this required additional cost. (In a nutshell, do you pay a separate shipment charge for any other retail item, despite the obvious fact that it too had to be shipped to the seller? Do you pay the same flat rate regardless of the actual cost of shipping… which might be nil for dealers within a few miles of the auto plants?) Then there’s a charge for “dealer prep”—meaning you’re paying the dealer to strip all the protective plastic off the doors and hood, fit the various accessories like floor mats that are shipped in a box in the vehicle’s trunk, put a little gas in it and give it a wash. Finally, there’s my personal favorite: you get to pay the employee in the end stall to push a button and print out the reams of paper associated with your purchase: the “documentation fee.”

The dealer’s margin on the sale isn’t good enough; these charges that appear out of nowhere on the final sales agreement have to be used to pad it, with almost total deceptiveness. You didn’t bargain for the car on the drive-away total; you bargained on an almost fictitious subtotal, then had the dealer pile on additional profit when the partial deal suited him. Unless you’re in a vanishingly small minority of buyers, you all but brushed off these added charges—often $1,000 or more in all—in your eagerness to finally get the hell out of there with your new car.

Somewhere in between expressing your interest in “that one” and the contract being presented for signature, you likely were aggressively upsold on vehicle accessories—comfort and performance packages, audio system upgrades, navigation and entertainment systems, and all the other high-profit crap car sellers have been wheedling people into buying for a hundred years. (It’s straight advocacy to say to, but let’s just say that you shouldn’t ever sit down with a car salesman without having done your homework and decided—based on cost and need—exactly what model, features, accessories and extras you wanted.)

Then you were upsold on the dealer extras—special paint and interior treatments, extended warranties, security features like engraving all the glass with an ID number, premium floor and cargo mats… the list is as long as a J.C. Whitney catalog. You are likely to be told that some of these are required by the maker or dealer or that catch-all, “policy.” If you’ve done your homework on the purchase, you know which if any of these actually add value… and the answer is likely “none of them.” They are all gravy for the dealership, add-on profit at hardly any actual cost. Reject any you cannot justify in hard economic terms—in hard renegade terms.

Then we get to the final tool of the big-ticket seller: the payment terms. It is a verity of consumer education and a concrete rule for renegades to never, ever look at acquisitions in terms of payments. Nothing matters but the final cost, be it out the door, on 90 days’ easy credit, or over 30 years of a mortgage. Allowing a salesman to even speak in terms of the payment amount or how an upsell, fee or accessory “only costs so much” in terms of the payment amount means you are on the losing end of the battle. As with all else, you should have done your financial homework and know the payment range for your expected purchase, and fitted that into your personal economics, and ideally have already settled the financing with your own bank. Letting the payment be a factor in purchase negotiations—be it for a car, house or other major purchase—may be the most dangerous mistake a consumer can make. [1] It is an error no renegade should ever find themselves committing.

Here’s the bottom line, the take-away from this specific discussion: when you buy a big-ticket item that involves a sales contract, don’t allow there to be any covert costs. Demand an all-in, out-the-door price right from the beginning. Make them present a draft contract with all these little padded extras and fees in place. Argue every one of them; if they are “required by the dealership” or “head office” or “policy,” then deduct them from the sticker price in your bargaining. If “policy” requires a documentation fee, policy can have it… as long as it comes off the profit end, not yours. Only by considering the total cost of a purchase can you—the renegade consumer—determine its real value.

The final advice here applies to the beginning: never walk into a big-ticket seller’s dealership unless you are prepared to walk out at any moment, no matter what stage the negotiations are at, no matter what inducement or threat they use to get you to stay. Keep one foot on the sidewalk outside; there is no more valuable bargaining tactic or better way to control the negotiation.

Let’s move on before we get too far down consumer advocate lane. It’s a good place to visit, but renegades don’t live there.

Covert Ongoing Costs

Some consumer products have no significant ongoing costs. What’s paid for them at the time of purchase is all the buyer will ever have to pay for them, or nearly so.

Many consumer products, however, will have ongoing costs. A good number will require electricity to function; if the demand is intermittent or a matter of only a few dozen watts, the cost can be dismissed as negligible. Items that draw 100 watts or more and will do so over extended times are another case; it would be useful to make at least a quick calculation to see if the cost of running such a device is in line with its usefulness or value. Which raises some associated points: how often is a product is used, for what duration, and over what effective lifespan? As we’ll see a little further on, knowing or making an educated guess at all three is essential for judging value of products that have ongoing costs. You should never buy a product without a good handle on the total cost over its lifespan, not just on its acquisition price.

Many buyers do this routinely with one purchase: vehicles, again. Even naïve buyers are conscious of mileage ratings and use them to judge the purchase; whatever other flaws the car or choice might have, they are thinking about the extended cost of keeping it powered. Some major appliance buyers take the above advice and compare the estimated power costs for various models. Extending this thinking to all repeating or ongoing costs for all products is an essential renegade tool for determining the real value of an acquisition.

Vehicles, of course, require continuing registration, insurance and maintenance costs beyond the simpler matter of fuel and operating expenses. A buyer who does not thoroughly research insurance costs (including those demanded by a financing service) can get a nasty surprise after they are committed to a vehicle with outsized rates. That high-performance package might cost a lot more, over time, than the line item on the window sticker.

Many consumer products require refills, replacement parts and—speaking of power—expendables like batteries. It’s important to evaluate the cost of those elements over the expected useful life of the item. Products that can use generic consumables—such as AA batteries from any maker or mop heads from a variety of sources—are going to be less costly than ones that require proprietary (often junk-locked) replacements such as fitted batteries, proprietary blade cartridges or coffee pods, wipe cloths that attach in a unique way, etc.

Even when an entire class of products requires a manufacturer-sourced replacement, such as a printer ink or toner cartridge, there can be considerable variation in operating cost, often covert if not hidden. Some printers, for example, use an exotic cartridge shared with few other models. Those will be proportionately more expensive and remain so, and may never have generic or third-party equivalents. The narrow market may even mean that replacements become more expensive after a few years. There will be other printers that do the same job with a standard cartridge shared across dozens of models and available from secondary suppliers; these will be proportionately less expensive and likely less so as time goes on. The disparity is so pronounced and so inversely related to printer cost—the cheaper the shelf price of the printer, the more likely it uses costly cartridges—that buyers can follow the wasteful but cost-effective practice of buying the cheap printer and then discarding it when the cartridges run out; it is cheaper to find a replacement at loss-leader price than to refill it.

Such printers—and all equivalent products that use replaceable supplies—are nothing more than highly technological junk-lock products. Renegades should look closely at the comparative and actual cost of refill or recharge components where they are unavoidable, and be willing to trade off higher initial cost or features for substantially lower long-term expense.

Any product that requires a specific kind of ongoing support, service, subscription or other running cost needs to be evaluated in terms of those costs as much as the initial purchase. Mobile phones are perhaps the number one product in this category, not just in ubiquity but in how many subscribers completely overlook the total costs. For one thing, the nominally fixed rates for voice, text and data are often subject to taxes and surcharges that can increase the base monthly cost by quite a bit. Most subscribers completely overlook that the “free” or deeply discounted phone offered as a shiny techno-carrot is more than adequately paid for by the total contract of $1,500, $2,000 or more—so much so that savvy users buy the phone at retail, subscribe to a lower cost service and save $1,000 or more over the same term. (They are then also free to change their service terms at any time instead of being locked in for a contract term.)

Many contracts begin with short-term discounts on the rates but rise to a higher level after six to twelve months. One common and often truly deceptive product is cable TV combined with internet and phone service in bundled pricing. Look carefully at the terms of such bundles. The loss-leader pricing is often for a short term, and long before the contract period ends the monthly cost has increased considerably—sometimes doubled, or more. The increased costs persist evermore, unless the subscriber goes through the hassle of swapping providers—assuming any competing service is available.

There are not always good alternatives for services like home internet, cellular phones, cable TV or other consumer products that straddle the line between service and goods. The only way to get the maximum possible value from such purchases, though, is to look at them much as we did vehicle purchases above: look at all the prices, the real-world costs and the final total over time to judge the real value of the product or service.

Total Cost: Figuring the Real Price

Let’s stop there and summarize all this into one concept: What really matters is the actual, out-the-door, in-your-home, put-to-initial-use cost of items you buy.

As a renegade, you need to stop thinking of this amount in terms of the sticker, shelf or sale price and start thinking of it as the inclusive cost we’ve sketched out. Price, taxes, fees, financing charges, initial supplies, accessories… add it all up to get the real figure, Total Cost. Without this fully-rounded figure, it’s too easy to underestimate the cost and value of consumer items, and thus too easy to justify their purchase.

Get in the habit of adding up Total Cost automatically, and never let a banner price be the basis for your decision-making.

James Gifford (sig)



[1] Such misdirection and shortsightedness on a mass scale was at the core of the 2007-8 housing meltdown.