As a recent college graduate I found that stores open 24 hours per day were an unmixed blessing. I could write code until 2:00 am, stop by a store on my way home, and pick up a pint of Haagen-Daz coffee ice cream for immediate consumption. Now that my life is more intertwined with family it turns out that CVS being open all night simply means that the window for potential required errands has been expanded. Visiting D.C. this weekend I had the opportunity to make a late-night visit to CVS to purchase a toothbrush for one of my traveling companions; she had neglected to pack hers in Boston. As I walked back through a pouring rain I reflected “How could this [non-electric] toothbrush have cost $6.29? It contains the same amount of plastic as a toy that comes free with a Happy Meal.” Later, I poked around on the Web and discovered that hotels can buy those toothbrushes (admittedly crummy) that they give away to guests for less than 10 cents. A Colgate-branded toothbrush is about 45 cents (quantity 144).
So Question 1 for tonight is how is it possible in our competitive economy for a toothbrush to cost $6.29?
Question 2 is why there aren’t high quality generic LEGO bricks available. The LEGO patents have expired (and in fact perhaps should not have been very broad (source)). Given how popular LEGO is with kids, and the number of kids in the U.S., and the supposedly ruthlessly competitive nature of our economy, why aren’t there huge boxes of LEGO-compatible bricks available for slightly more than it costs to mold and package them?
Our economy is efficient enough that people buy generic versions of heart medicine. Why hasn’t a similar market developed for generic LEGO? (http://en.wikipedia.org/wiki/Lego_clone lists a bunch of clones, but none seem to be popular or cheap enough that you could start building living room furniture out of the bricks.)
CVS is a convenience store. You are paying for the convenience, not the toothbrush per se. If you get them in packs from Costco or Target, they are way cheaper.
As for LEGO, there are knockoffs like Megablocks, but quality is poor and the bricks fit poorly. The market for generic LEGO clones is a commodity one caught in a race to the bottom. Just like Windows PC manufacturers seemingly can’t get buyers to pay a premium for better components & design (Apple has an astonishing 90% market share in computers priced above $1000), I suspect parents who care enough to give LEGO will pay for the real thing.
#1 – you are paying $6 for a toothbrush because keeping that store open and staffed is not cheap and anyone buying at that time and place is less likely to be price sensitive.
#2 – Lego has tended to do two things well: manufacture to exacting tolerances so pieces always fit others and firmly so; selling the story and culture, not just the toys themselves. Recently I’ve found their quality slipping, sometimes every brick of the same type from a set will fail in the exactly the same way after a month or so of building and rebuilding. But they’ve been “selling the dream” better, I think my sons have watched more from http://city.lego.com/en-gb/movies/ than anything on TV or DVD or elsewhere on the Internet.
It has amazed me how bad generic brand Lego is. We bought or were given, I can’t remember, a big box of duplo compatible stuff. It was a little bit more bendy than real Lego but worst of all, it was small enough for a toddler to choke on. They had made a single type of piece one square bit smaller than the real duplo. This makes me think that all the companies that might have tried to duplicate Lego have discovered that getting the design right is difficult and that it is probably more expensive to make than it would seem.
As for toothbrushes, I thinks they are just fleecing us.
But who plays with the straight, standard Lego blocks anymore? Seems like 98% of the sets out there are the themed sets with unique parts.
I had a set of Lego clones called Brix Blocks, back in the ’70s.
There are cheap lego clones available – off brands at the dollar store. But kids want the ones that have been marketed to them or that tie in with movies/tv shows (which get a cut). Legos are not special in this regard – look at the toy section at any big box store and you’ll see lots of molded plastic sold for much more than its manufacturing costs would suggest, whether it’s in the form of action figures, toy cars, Lego, or whatever.
I think the people who would really want big boxes of high quality cheap bricks (not heavily marketed sets) are grownup geeks, and I don’t know if there are enough of them to make it worthwhile. It certainly wouldn’t be a huge business, and it would probably have to be internet or specialty shop only – it wouldn’t be worth the shelf space at Walmart. Still there may be an opportunity here that nobody’s taken advantage of.
Megabloks Probuilder line is purported to be as good as Lego, yet much cheaper, but it doesn’t seem to have been a huge hit.
I suspect the markup on toothbrushes is related to the idea that anybody buying one is in desperate straights. I use an electric, however when I travel I have a drawer full of free toothbrushes that have come courtesy of our dentist. 4 people in the family x 2 visits a year = 8 free toothbrushes a year. I treat them like disposable tools – throwing one away after using it 4 or 5 times on a weekend trip.
I was reading a post by a former LEGO employee once describing their manufacturing system. Evidently their manufacturing tolerances are smaller than most aerospace needs, so that any piece manufactured today will fit any piece that they have ever manufactured, perfectly. They also use a relatively unusual plastic, evidently, to ensure a tight fit when pieces are snapped together, but can still be pulled apart when needed. Something about the shear moduli, I don’t remember the exact explanation. Also, because their tolerances are so tight, they need to dispose of and recreate their production line molds very frequently, which is legitimately very expensive. In short, they have good profit margins, but their product is unquestionably the best in the field. Think Apple vs Acer/Toshiba.
As for the toothbrush, you bought it at a 24 hour CVS in Washington, DC. Get some at Target or the grocery store next time before you travel and bring extras for the less conscientious of your companions.
http://www.reddit.com/r/geek/comments/14ccan/lego_super_star_destroyer_now_available_at_target/c7buwv0?context=1
The above link says that legos are built to 5/10,000th of an inch tolerances and current bricks still fit with bricks from the ’70s. I don’t know if that’s the whole reason they can charge what they do, but I thought it was interesting nonetheless. I’m trying to thing of other products that still ‘fit’ 40 years later. Maybe Craftsman sockets.
http://www.amazon.com/Colgate-Extra-Medium-Toothbrush-4-Count/dp/B003U5Y2HO/ref=sr_1_2?ie=UTF8&qid=1379946503&sr=8-2&keywords=colgate+toothbrush
First item that came up on amazon for ‘colgate toothbrush’ – $0.92 per (pack of 12)
Lego furniture is cheap when factored into the cost of acquiring engineering talent. The way I understand it, the market is poisoned by low quality clones, and the cost of making high precision moulds rises steeply with the level of precision that’s required. There’s a thriving market in military knockoffs — Lego has a policy of not making modern military sets.
As far as the toothbrush, there’s always the dollar store where you can usually pick up a pack of 5 for a buck or a a hospital where it can cost $1000.
“Apple has an astonishing 90% market share in computers priced above $1000”
Citation needed – this is likely wrong by about an order of a magnitude.
It seems to me that CVS recently increased prices on many commodity-type items, e.g. dental floss, laxatives, and others.
Why does CVS charge $200 for ten Viagra pills? On-line pharmacies in Canada charge as little as $1 per pill for generic viagra.
The economic concepts behind your two questions:
1. http://en.wikipedia.org/wiki/Price_elasticity_of_demand
2. https://en.wikipedia.org/wiki/Product_differentiation
Not that these articles answer your specific questions, but it can be helpful to know what these things are called in the economics literature.
Unlike when we were kids in the 1970s, plain old square Lego bricks are a *very* small part of the Lego market. Visit any Target, and you’ll find tons of Lego kits, which are essentially assemble-it-yourself toys, rather than sets of plain Lego bricks. I think the size of the market just isn’t worth it.
In addition, as pointed out elsewhere, making these Lego bricks turns out to be a little more difficult than expected.
@anon-
I’ve heard that stat before as well, but didn’t dig further.
Here’s a Toms Hardware article from 09 citing NPD (which I believe accounts for almost all US Non-Walmart retail) http://www.tomshardware.com/news/Apple-Mac-PC-Marketshare-macbook,8332.html
“Apple Has 91 Percent of Premium ‘PC’ ”
Admittedly in 09 I believe Netbooks were still quite en vogue, which dropped the average PC price down quite a bit. This may have had something to do with Apple commanding so much of the above $1k mark?
Off-brand LEGOs are fun but pieces fit together poorly, sometimes too tight for a little kid.
My nephew cried after spending several hours building a masterpiece with generic Lego then seeing it crumble because of the poor fit of the pieces. Who wants to see their kid cry because of a lousy product?
I think the fact you paid the $6 for the toothbrush shows there is a market for them at this price. I can’t imagine this was the cheapest brush in the store, so I imagine you also paid for the fancy design (which may or may not function better than a very basic toothbrush).
I work in Washington, DC. After reading your post I went into a CVS to see what toothbrushes I could find. I work near the Air & Space Museum. I found a store brand toothbrush for 99 cents and lots of toothbrushes for less than $3 including national brands.
I’ve read that the reason why Lego came to dominate the plastic brick market in the ’70s and ’80s is because they were better at manufacturing them than anyone else, even in high cost Denmark. Apparently the margins are slim and it’s not easy to make a profit.
Lego started to struggle in the late 1990s when video games started to proliferate. Thankfully their first official tie-in product was launched around that time (Star Wars) and that was a huge success. They’ve also had great success with their own computer games, which I’m sure have much better margins than the actual Lego sets do.
Phil,
As a fledgling parent, I have noticed most moms and dads won’t go generic brand for toys. I don’t know why, maybe they feel guilty buying their children “cheap” toys?
Maybe it’s a status thing among toddlers??
@Matt Fuerst: 2009-vintage Netbooks are irrelevant to the discussion, since none of them cost over $500, let alone $1000, unlike modern-day Ultrabooks, and thus they don’t get to play. I seriously doubt someone who would have considered a $1000+ Windows laptop would settle for a Netbook (and in fact no one else is either, which is why Netbooks have essentially died off as a category), the real substitution effect comes from mainstream laptops priced in the $500-$1000 range.
Windows represents 90% of personal computer operating system installations, yet only 10% of computers over $1000. The problem is that a $1000+ Windows PC is a very hard sell, even when it comes with a premium design and materials like the Toshiba Kirabook, Sony Vaio Pro, Asus Zenbook or Samsung Series 9. Windows consumers settle for lesser $500 laptops with similar CPU specs (disregarding heavy weight, poor battery life, inferior screens and other compromises) because it’s “good enough”. Apple has captured the kind of consumers willing to pay a premium, e.g. over $3000 for a Retina MacBook Pro.
I know why Lego is expensive!!
The company Lego has to pay for all the lawsuits they get when somebody steps into Lego and hurts his/her foot.
I have Lego bricks from the 1970s (my childhood) that fit perfectly to the ones my daughter just bought a few months ago. So yeah, I suspect it’s those extremely tight tolerances that make the whole enterprise work.