I don’t know if you’ve noticed this in the news recently, but Mrs. SSC pointed this out to me and then I found plenty more articles about it.
The short story is this (disclaimer, I’m no financial analyst): Japan economy was faltering and they wanted to boost revenue to help strengthen it. They did this by enacting a tax hike from 5% to 8% back in April. Many predicted their Gross Domestic Product (GDP) would grow by ~0.5% or so, and initially it seemed to be working. However, with the latest numbers that came in the countries spending contracted by 7% which led to a contraction of GDP by 1.6%!
Yes, the Japanese have a price point. Their sales tax increased 3% and instead of stimulating the economy with the continued spending like previous quarters, the spending slowed up and shrank. As one person pointed out, You lose the benefit of the tax revenue if you can’t collect it and people aren’t spending money. Their price point is when their sales tax hit 8%. At 5% sales tax, they were spending just fine, but raise it a mere 3% and suddenly they’re rethinking purchases, delaying purchases and deciding they don’t need a lot of their GDP. Evidently, about 7% worth less.
This reminded me of a similar situation. Our local grocery store has pre-made hamburgers, not just shaped ground beef, but with mixes like blue cheese/black pepper, hatch chili’s and spices, or bacon and cheddar. You get the idea. They sell these for $6 for two patties. Yes, yes, all of you frugal minded folks reading this are thinking, “My God, why would you pay $6/lb for 2 hamburgers?! You can make them yourself for less!” Well, you’re right or at least I can make them for almost the same cost. I tried with the bleu cheese burgers and even my own pepper and spice burgers, and except for our homegrown pepper additions, when I priced out all the cost of ingredients, it was really close to their price. The point is, I am fine paying ~$0.50 more for the convenience of not dirtying up mixing bowls, and having to mix it myself, “You bet I’ll pay for that”.
BUT!!! Then they raised the price to $7…. Unbeknownst to them, they found my price point, and it was just a dollar more.
At $6 for the 2 burgers, I was fine and could justify the extra spend but $1 more, and it’s too rich for my blood! Wow, $1 more is too rich for my blood. Well, let’s think about that, because is it all about the extra dollar spent? No. It’s more the principle that I can make the same thing for less in either case, but with the extra $1 added, it just feels like it’s too much. I can’t pay that and feel good about it, so now I make my own. Are they as tasty and convenient? Well, not as convenient, and I haven’t gotten the texture right yet with the bleu cheese burgers, but they’re just as tasty and delicious.
Similar to craft beer. I’m no beer snob, but I can appreciate good beer, and usually have some of my own brewed in the fridge. However, I can’t justify paying $18 for a 12 pack of craft beer. It’s a price I can’t pay and feel good about, so I don’t. A week ago, the same store had a New Belgium Sampler 12 pack on sale for $13, and it was really hard to not buy 2, since it was such a good deal. I mean, the Budweiser or Miller products I also purchase are that same price and those are pretty unexciting mass-produced beers. So when a tastier beer is available for the same price, Hell yeah I’m getting that instead.
My point is I found it interesting that as a country, all of a sudden the Japanese found that they didn’t need 7% of the stuff they were buying. Again, I’m no financial anything, so go easy on how I might have gotten it all wrong, but it reminds me of our grocery post, where it was easy to find ways to not spend as much on “extravagances”. Not from being forced to, but from looking at what you spend and finding ways to cut back. After having this goal of FIRE dangling in front of me, I find it’s easier to find more and more areas where I can save or not spend because it’s going towards a goal of one day not having to work for anyone but me.
Have you experienced this, where you are used to buying something at a certain price and when it increases you just can’t justify it anymore? What are some things you found your price point on?