A fascinating peek into the inner workings of capitalism – manufactured demand in the making

Years ago, my Dad had reason to take the cylinder head off the engine of his car and regrind the valves.He showed me the engine running without the rocker cover, and it was fascinating – the busyness of something we take for granted many a day. I’ve never forgotten that insight into the workings of something so commonplace, yet so hidden from everyday sight.

So it is with the works of capitalism at times. Many companies exist now to create wants in their customers’ minds, which they can then address. One of the secrets to retiring early, indeed to financial freedom of all sorts, is to avoid being sucked in, and here is a beautiful example of the process of need creation in the making. Sheer genius!

A decent piece of chocolate is a very good thing indeed. Thing is, with gustatory pleasures as well as most consumer goods, the relationship between quality and cost aren’t directly connected. They go something like this:

genral form of quality versus price for consumer goods
general form of quality versus price for consumer goods

Now the trouble is that the price axis is logarithmic – each step roughly doubles the price of the previous step, whereas quality is linear. This reflects the fact that most improvements are subject to diminishing returns. Most of the win is had early on, though there is a rump of cheap and nasty crap that is not really fit for purpose at the bottom end below a price of 1 unit. Most of the quality improvement is to be had in the steep rise of the curve between 1 and 2, and then it flattens out as the price skyrockets. Now what a company wants to do is create a sense of want and desire in you, so you ignore the fact that the price is skyrocketing but the quality isn’t really much better than lower down the scale.

Fortunately, humans are social animals, and we ascribe value to scarcity, all sorts of fancy trimmings and plumage irrelevant to the item in question, and we are suckers for a good story. Plus we don’t have the time these days to really think about what we are buying, so we make mental shortcuts and analogies with similar patterns elsewhere. As well as these foibles, there are, of course, the age-old things we inherited from the animal kingdon – the value of a peacock’s feathers are not in their great utility, but in showing the female that even carrying all that conspicuous consumption around, the peacock doesn’t get eaten. That same applies to bankers swilling Dom Perignon to excess. It’s not the champagne they are valuing, it is the fact that drinking it to excess shows they are rich enough not to worry about the price 😉

What a great piece of marketing puffery - Coastal Ecuador, Hacienda Iara 100% Organic Dark
What a great piece of marketing puffery – Coastal Ecuador, Hacienda Iara 100% Organic Dark

Allow me to introduce you to Exhibit A. The Hotel Chocolat corporation, and more specifically their Single Estate Rabot 1745 collection, welcome to the £7 bar of chocolate. I first came across this in the Torygraph, who basically line-printed the press releases with a moducum of added spin by the looks of it. However, I was tickled. A few years ago I read Jason Vale’s Chocolate Busters which sensitised me to how chocolate is promoted, and I thought of that book when I saw this.

You can picture the scene now. Somewhere in a three star corporate hotel near an airport somewhere, a newly appointed Head Honcho of Hotel Chocolat is organising a hothouse workshop, on how to enhance the brand, and drive profitability. In short, to create some value that can be sold to more willing punters. A bunch of guys in off-the-peg suits show up with those wheeled cases with their laptops in. In the morning, the Head Honcho addresses his droids, and tells them this hothouse will come up with thrity-six Innovative Ideas to Revamp the Brand and Drive profitability. Their bonuses depend upon it…

The trouble with meetings like this is that time is so short, and the leadership usually such arrogant peacocks that there’s no time to actually reflect on whether some of the ideas that come out of the pressure-cooker hothouse are actually any good. We’ve all had those ideas that seemed good at the time, but on reflection of a few days or weeks were actually quite ghastly. However, this one isn’t so bad, perhaps Hotel Chocolat don’t do things that way. Perhaps they have stand-up meetings of no more than 15 minutes, or something like that. The basic idea was

Why don’t we make chocolate more like wine. Let’s give it a massive big backstory and raise the perceived value. There’s only so good chocolate can get for 99% of our potential customer base, but everyone is a sucker for a great story!

And so the new marketing was born.

The Story

Hotel Chocolat: – I’d have guessed established in the 1990s, and that was a good guess. Companies House tells me that it was incorporated in 1993. Good move on changing the name in 2003 to Hotel Chocolat from Chocexpress Ltd, which made me titter, that sounds so low-rent compared to the image Hotel Chocolat is trying to project now 😉

I was actually warmed up to be sceptical by the marketing strapline “British cocoa grower and chocolatier”. It’s very nouveau-riche and pretentious  – Cocoa doesn’t grow in Britain and we have confectioners, not chocolatiers. That dissonance matters, particularly if you are trying to create a patina of established competence with

Rabot 1745: rare and vintage

The implication is that there is an esteemed heritage going back to days of Empire. It’s bollocks, of course, but adds a haze of antiquity, without ever claiming anything really goes back that far 😉

The label: a classic piece of spin and flummery. That’s the beauty of taste, it can’t be measured. I could say it tastes like angel tears and pulverised unicorn horn with a soupcon of plum and be just as right 😉

A charmer with a smouldering intensity. Quickly floods the mouth with super-mellow but deep cocoa, roast nuts, vintage leather and cream.

Short story: The battle of the cocoa bean is ongoing in Ecuador. The less flavoursome but easier-to-grow CCN-51 variety has been taking over from the delicious and indigenous Arriba Nacional, the one used here.

Harvest: 2012 Roasting time: 35 min @135 C. Refining & Conching: 65hrs.

(label backstory, from the website)

 Ecuador was once the world’s powerhouse of cocoa back in the late 1800s, but a disease wiped out many estates in 1919. This estate, known as Hacienda Iara, was re-planted with the fine Arriba Nacional cocoa from the more protected interior of Ecuador and is run on organic principles. An easier to grow, but less flavoursome cocoa variety known as CCN-51 has recently been taking over the country’s crop, but a fight back has started to maintain the true ‘Nacional’ cocoa taste, characterised by an intense cocoa flavour with a subtle jasmine/floral note and relatively low acidity.

I wasn’t able to substantiate this with research on the web. The whole CCN-51 and Nacional seems to be a shimmering chimera, and depends on who you are reading 😉 But I do accept this isn’t my area of expertise.

The Price: £7 for 70g, that’s 10p a gram. Tesco sells Galaxy for 1.2p a gram and a good match for this would seem to be something like Green and Black’s Organic Dark at 2p a gram. We’re clearly straddling that knee point of the graph.

Let’s take a look at what’s happened here. I’d hazard a guess that the value price chart looks something like this

all that yellow value has been created by marketing
all that yellow value has been created by marketing

Basically a huge amont of perceived value has been created by the guys in the suits creating a story that people will buy. It’s because of things like this that many of us find that our Wants grow to about 110% of the size of our take-home pay. We’re suckers for a great story, and we get caught up in it and buy into it.

Don’t get me wrong, I am sure Hotel Chocolat’s Hacienda Iara Organic Dark is probably a very decent chocolate. But chocolate just isn’t worth the extra 8p/g  a throw to me, compared ot the Green & Black’s version at 2p/g, which is about as far as I need to go with chocolate. Life is too short to go around paying more for the Story than for the Stuff. I try to just pay for the steak, not the sizzle, because there’s a limit to how much steak you can have before you just don’t want any more. Not so for the sizzle 😉



17 thoughts on “A fascinating peek into the inner workings of capitalism – manufactured demand in the making”

  1. Hi again:

    As I read this I’m munching on my ” all natural ” swiss dark chocolate with a guarantee of 72% cocoa. I find this reassuring as I want to enjoy the anti-oxident advantages of dark chocolate. Part of the reason for this rising price of chocolate has to do with the ” choclatiers ” ( is that like rentiers or clothiers ? (I had a brother who was a “clothier” at one time. Shakespeare would have had so much fun with this “frenchified” frump.)Anyway, the choclatiers wanted to stop all the lesser confectioners from calling their chocolate chocolate. So, as I recall, the Eurounion decided that you had to declare, in the name of transparency your cocoa content. How much of your chocolate is really chocolate? And so it all began.Is there really an anti-oxident effect. I don’t know but I like dark chocolate ( in small quantities ) and I look at the cocoa content. That’s the story I’m buying but I can buy Carrefour chocolate with a higher cocoa content for a lot less than what I paid for the pretty Swiss packaging of this bar, but I digress. Caveat emptor. Viva Ecuador !


  2. Hi Ermine

    Great post. My day job still has me working in industry where all this value add by marketing really does still exist. It reminds me of a phrase I was once told that I’ll never forget – “There is no relationship between cost and price”. If the majority of people just knew this small phrase it would be a very different world we’d live in.

    I then leave the day job and head back to my frugal life. A life that has opted out of consumerism and where I know longer even notice marketing or advertising. When I buy its based on value only because I don’t even read the marketing.

    This simple (well it seems simple to me now) life change means all the marketing in the world can occur and my savings towards financial independence continue unabated at the rate of 55-60% of earnings. No “posh” chocolate for me.



  3. Ermine, you’re right to call out this marketing flummery, I dont have time to read half a page of waffle to find out if the chocolate I’m eating is any good or not.
    I avoid this nonsense by only buying food clearly labelled as “artisanal” e.g. artisanal coffee. Unfortunately this kind of transparent, informative labelling is rarely seen outside the City of London.
    Pret a Manger are however making an effort in the provinces with their artisanal bread range, so now even the turnip heads can understand at a glance why a cheese roll costs £4 .


  4. Nathan,

    I say old chap ‘turnip head’ is a tad strong, we grow squashes and gourds out here now, you know!!

    Plus, what actually does ‘artisanal’ mean on a food label anyway? It sounds no better than all the other labels such as ‘farm fresh’, ‘natural’, ‘select’ etc, etc. They”ve been proven to mean, er, ‘nothing’….


  5. Ah yes, the logistic curve explains a lot in life. I’m sure your analysis is spot on, even if the ordinate isn’t obviously measurable. Currently enjoying a Jacob’s Fruit Club biscuit and not averse to the occasional Green & Black, but L’ll be giving Hotel Chocolat a miss.


  6. MarkyMark, From my infrequent visits to the capital I’d say artisanal means something very specific, either “300% markup” or “run”.

    As far as chocolate goes Lidl is my friend.


  7. Many years go I remember watching the ads on TV and counting the number of products I actually used. The number turned out to be four – one I can’t remember, one was for a brand of cat food my cat liked, one was for
    the TV licence and the other one was for either eggs or milk, I forget which. (Why
    advertise eggs or milk? I’m not suddenly
    going to increase my consumption just because
    I’m being to told to go to work on an egg).
    I strongly suspect the result would not be much different.


  8. Hit the nail on the head with your quality/cost graphs. The problem is when quality becomes difficult to accuratly define.

    Fortunatly I first discovered the high price increase for low quality gains at the top end of the graph at a young age. Building my first computer and sourcing the parts, it was very easy to compare the well documented specs of each part and realise that if A was 100x speed and B was twice as much but 105x speed.. you’d be a fool to buy B.


  9. One of my favourite TED talks is by an advertising exec. If you have a spare 16 minutes, watch this:

    If you don’t have a spare 16 minutes, cancel what you had planned and watch it. (His other talks are good too.)

    His main point is that the value added by making a product desirable _is_ real, which is an interesting idea.

    At the lower end of the scale, that’s crystallised in the “Vimes theory of boots” in the Discworld books, which I’ll paraphrase:

    The rich guy buys one good pair of boots for $100 and keeps them for 10 years, where they remain comfortable and waterproof. The poor guy spends $20 on a bad pair of boots which fall apart every 12 months. At the end of the decade he has spent twice as much _and has wet feet_!


  10. Green & blacks isn’t great quality chocolate and just as much marketing spin. Try doing a blind taste test.
    Its already halfway up your yellow line.


  11. @g now I’ve written this I’ve come across chocolatier several times. So the Frenchified fop may have some basis despite my cynicism!

    @RIT, Win I still find it’s an active fight re marketing. Most of the win is by taking deliberate steps to avoid it. If I have a requirement I’ll go out and search for it. I envy you the ability to transcend it rather than avoiding the fight!

    @raluca I wondered about the vintage leather tpp/ Several bits of the marketing message rang hollow to me. But Hotel chocolat is breaking new ground here!

    @Nathan, £4 for a cheese roll, ouch 😉 Pales into insignificant against the Dom Perignon, however.

    @Reue I found the 80:20 rule worked for tech, though I ocnfess nto always being senisble enough to stick with it at times. The first 80% of the performance seems to be had at 20% of the cost because everyone else is in that space. it’s the enxt 20% that’s an arm an a leg. Things where there’s a subjective call seem to be a low unto themselves however!

    @Greg I watched that, thanks for the link. The adman’s value is real to me as a shareholder, no problem. Not sure I buy his line on it from a consumer’s POV. And I’m not sure I want to go back to work to pay for it, if I’m not capable of perceiving it unprompted! However, he has some point in many types of goods. Take music, in fact the arts in general, these are pure intangible value, and yet life would be much poorer for their loss. Even things like fashion, though again I’d rather others pay to sharpen up the world rather than me!

    @Mucgoo I’ve never had that one, I’m a co-op guy on chocolate 😉 I selected that one for brand name and price, it’s by definition only 1/4 of the way up the line compared to HC 😉 I will stick my neck out and say it’s a fair way better than the Galaxy/Dairy Milk end, however.


  12. I totally agree about the intangible value of culture. I hate the obsession in the media and in politics about money, particularly GDP. If we had 20% lower GDP but with people living happy healthy lives with more free time, would that be so bad?

    We even have a philistine culture secretary who is demanding that organisations show “value of culture to our economy”. Seriously?

    I remember reading a piece a few years ago whingeing about the taxpayer cost of having a giant robotic elephant stomping around London. I just thought “isn’t it awesome to live in a country where we can see such spectacles for free” and “how on Earth did I manage to miss that”!


    We need to spend public money on cultural enterprises that don’t make money. Business certainly won’t do it, or at least not so everyone can go and see it. Otherwise we’ll be left with stuff that is cheap to produce and is popular, e.g. mindless reality shows on ITV, rather than the niche cultural shows on BBC4.

    Similarly, while I’ve never been to an opera and very few plays, I understand the need to support them, particularly if done through the don’t-understand-probability-tax. Otherwise all we would have would be pantomimes! (Of course, were pantomimes threatened, I’d support money to them!)

    Finally, I cut through the park on my way to work and feed the ducks. It puts me in a good mood ahead of my tough and fairly long day. It costs me almost nothing and the guys that tend the gardens there are far more deserving of respect than people who move other people’s money around. Morons like Katie Hopkins would want to fill it with rides and stalls, charging entry of course, but they are totally missing the point of what it’s about.


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