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How to pay LESS for your purchases DESPITE the recent increase in VAT

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legal warning: The information here should not be understood legally as financial advice. If you believe anything on this site is in error, please contact me. I am always open to corrections, new ideas, and new opinions...

In order to understand what I am about to explain, I need to bust one myth.  The price of an item has little to do with the cost.  The price of an item reflects the image and, most importantly, how much the consumer will pay.  Cost is only used to determine IF the item should be sold, based on the price it can be sold for and its profitability.

So how can you spend less?  Go to a neighborhood where people don’t spend as much money.  Prices for most items are cheaper in poorer neighborhoods Because (1) these people don’t have the money to spend and (2) the corporations are trying to get as much money as they can from each demographic, corporations have to charge less in these areas in order to get a sizeable profit.

This is not limited to food items.  Electronics (space heaters, extension cords, converters), toys, clothes, and furniture are incredibly cheaper in poorer neighborhoods.  And there is usually little to no quality difference; most items are even from the exact same brands.

Back when I was in Yeshiva in Har Nof, I went to Mea She’arim to buy a heater, because I found that in Har Nof (a middle last area) the heater cost ₪ 100, while in Mea She’arim (a poorer area) it was only ₪ 30.

But won’t you have to pay more anyways because of the increase in VAT?  Not necessarily.  An increase in taxes does not always fall on you, even if the government says it will.  When a tax is levied, the greater burden of the tax will fall on the more inflexible of the buyer and seller.  The explanation is pretty long and involves too much math, but to summarize, if you can go to a cheaper supermarket, the original seller will have to decrease his price, thus absorbing more of the tax.  So by shopping in the poorer neighborhood, you are not only saving yourself money, but causing your local seller to decrease prices, and begin to unburden yourself of the VAT tax.


4 Comments

  1. Gidon Ariel says:

    Could you elaborate on the first paragraph, perhaps with examples? What you wrote sounds important but is not clear.

    • jonnydegani says:

      When a company decides the image of a product, part of that image is how much it sells for. For example, Cleopatra soap wanted to have the image of a better quality soap bar, so the priced their product high. Dunkin Donuts likes to be the everyman’s coffee so they price low. Some companies even offer the exact same product with different prices in order to hit different demographics – for example, Lee jeans are expensive whereas Wrangler are cheaper – even though they are owned by the same company and are nearly identical. Corporations have to make several names for themselves in order to pull this off. Gap Inc. owns Gap, Old Navy, and Banana Republic – they all offer the same things but by differentiating the items by price and name they can get more money out of different people from different demographics. Companies will then do things to the differentiate the clothes lines more – for example gap may decide that only Banana Republic should get the nice stitching because it needs to have that expensive look. An Old Navy Shirt may get the weird stitching even if it costs more, just so that it looks like a less expensive clothing item.
      Now the question becomes how much of the product to produce. Based on the cost of the Old Navy shirt and how much it will sell for at various levels of supply, the company will choose how much of the product to make and how profitable to make this item for the company. Once again, a plethora of actions are possible – Zara likes to always have a shortage so you are under high pressure to buy whereas Target believes the more the merrier – it is all a matter of the strategic choice of the company.
      In marketing, you try to get the most money out of every individual person (hypothetically of course). Let’s say my product costs ₪ 1 to make. Then I meet two people who want to buy my product. One would pay up to ₪ 10 for the item and one would be willing to pay ₪ for the item. My goal in marketing is to find a way to get all ₪ 14. By shopping in a poor area, you make yourself look like the person willing to pay only ₪ 4, and you end up saving ₪ 6.
      So in short, one uses the cost of the product to determine if he should try to make some sort of business with this product. Once the choice has been made to sell a product, price becomes a marketing issue. The only way to save while shopping is to break through the marketing and get the lowest price possible.

  2. Gidon Ariel says:

    Jonny, May I suggest we exchange links? We seem to be kindred spirits:-)

    http://atzmai.wordpress.com/

    • jonnydegani says:

      I just looked over your blog. I am trying to help my wife go aztmait as a entertainer/storyteller for children. I find the stuff you have recorded there to be very helpful and interesting.

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