My theories on why certain business practices are the way the are.

Why do products (such as deodorant, bathing supplies) say to return the product to the *manufacturer* if you aren't satisfied, not the store?

Returning a product to the store makes the company look bad. The store wasted its money buying the product, because it can't resell a used product. An employee's time was used in dealing with the customer, so it is a double loss. By returning a product to the manufacturer, the store doesn't know you were upset, and will keep buying the product from the company.

Why do movie theaters charge varying amounts (senior citizens, children, etc.)?

It's not to be nice. Essentially, the movie theater wants to charge up to what each person is willing to pay. If they charged $10 bucks for everyone, then only adults would go. By allowing children/seniors (with less income) to get in for $6 they are selling more seats (that could have gone empty). Of course, it doesn't cost any more money to show a movie to an adult, child, or senior. These types of "benefits" are just a form of price discrimination, to maximize profits.

For an amusement park, maybe children are charged less because they can't go on some rides. But that's not the case in a movie theater - it costs them the same amount, no matter who they show it to. The movie theaters are not fully filled with 18-65 year old adults (who can pay $10), so they need incentives for others to come. It costs them nothing to have an extra set of eyes watching the screen. This is like an airplane wanting to fill every seat: it basically costs nothing to add one more passenger.

Why do companies sell coupons? Aren't they just going to lose money?

The point of a coupon/sale/discount clearance is to entice you to buy something that you might not have bought otherwise. When wavering between two cereals, and finally choose to buy Corn Pops because you have a coupon, the Kelloggs wins. They still make a profit, despite the coupon.

The same is true for sales: a store may be trying to clear some merchandise, but another reason is to get you to buy something at that store that you might get elsewhere. If the company is selling you something, they are still making a profit, no matter how good the deal is. The exception is when the company is going out of business or trying to liquidate assets, and then trying to sell at any price to recoup some costs.

What's the deal with "Buy 2, get 1 free"? Doesn't the company lose?

Nope. This is a plan to entice you to buy 2 of a product, when all you really needed was 1. But what about the company's profit margin?

Suppose widgets sell for $1.00 but cost 25 cents, with 75 cents profit for the company. You can buy one widget, giving the company 75 cents. Or, you can buy 2 widgets, and get one free. That cost the company 3 * 25 cents, = 75 cents. But you paid $2.00, so the company makes $1.25 in profit. That's more than the first case.

Yes, in the 2nd case, the company is only making 1.25/3 = 42 cents per widget. In the first case, they make 75 cents per widget. But in terms of total profit, the 2-for-1 deal is better. If I give you the chance to get 100% profit on a penny, or 10% profit on a dollar, what do you choose? Total profit ends up at the bottom line.

This is similar to buying in bulk. When you buy in bulk, the company gets less profit per item. But, the total profit is certainly higher. In addition, there is a certain fixed cost to create a unit. The marginal costs of additional products may be minimal, so the company can afford the low profit per unit, because the cost-per-unit is small as well.

They say that when you buy bottled water, you are really paying for the plastic (since the water costs only a few cents). Thus, the cost of the extra water in a large bottle really isn't important.

Why does the stock market increase when the Fed cuts interest rates? Who cares about the federal funds rate?

The federal funds rate is what banks charge each other for overnight loans. Alone, this is not important -- why does an investor care what banks charge each other? However, banks also use this rate to set the interest rate of their accounts, and other interest rates as well. If the federal funds rate drops, savings account interest rates drop. If the rate is low enough, it isn't worth it to keep your money in a savings account -- it's better to invest it. Thus, money goes into the economy.

Also, as loans get cheaper (lower interest rate), companies are encouraged to take them and expand.

Why do stores have "the customer is always right"? Why take back an item a customer obviously broke?

The profit on a single item is not great enough to warrant the customer getting angry. An angry customer means a lost customer, which means lost future revenue. If you lose the customer and they never go to the store again, you've lost thousands of dollars in sales over the years. In addition, an angry customer might tell his or her friends, which equates to more lost revenue. Conversely, a customer with a good return experience might tell their friends, bringing more business to the store. One reason I like Wal-mart is because of their fast return policy: no questions asked. And knowing this, I shop there (and only return very few items, making my business worthwhile for them).

So, it's best for a store to take the hit by accepting a broken item. However, some stores keep track of customer returns -- people who return "too often" can get blacklisted. Their business is no longer profitable.