(AP Photo/David Zalubowski)
Everyone loves a good deal, right? What’s wrong with that? Alas, if you care about fostering real product innovation, if you care about building vibrant American enterprises which pay a true living wage to their workers, and if you care about preserving true consumer choice and competition–there’s a whole lot wrong with the American obsession with getting a “great deal.”
I’ve been walking around, feeling somewhat like a Lorax-like “Save the Trees” person, worrying about this idea. I didn’t even have words for my concerns. After all, cheap prices are an American birthright, no? And then I tripped on the great book Cheap, by Ellen Ruppel Shell. I started reading it yesterday. Her messages are so important that I won’t wait to finish the book to begin sharing them. She needs to be heard and understood by anyone who buys anything. Consumer purchases drive 65% of our economy. I consider the discussion of discount culture to be as important as fixing health care, in our economic recovery. And the discussion goes way beyond economics, to the very quality of life.
Here are some excerpts straight from the first chapters of Cheap:
- This first fact is just plain appalling. Read this and weep. ” Factory outlets are America’s number-one tourist destination.” Really? Is getting 50% off of a Banana Republic shirt more compelling than Mount Rushmore? Oh the pain.
- Design used as subterfuge, in creating a disposable society. “In the world of Cheap, “design” has become a stand-in for quality, Companies such as Target, H & M, and Zara offer consumers the look they love at a price they can live with–but at what true cost?….the genius of IKEA and other cheap-chic purveyors is that they have made fashionable, desirable, and even lovable objects nearly devoid of craftsmanship. The environmental and social implications of this are insidious and alarming.”
- We no longer associate real costs and real jobs with prices at retail. Americans habitually fret that we are paying too much. We think paying full price is a sucker’s game. “From Lisa Bolton, a professor at Wharton: “‘There is good reason for this confusion. Most of us have absolutely no idea of what goes into setting a price. Consumers don’t think about the costs behind what they buy. They link price to profit, and they grossly overestimate profit margins.’”
- But we are paying less than ever. ” The fear of inflation-driven price hikes is so deeply ingrained in the national psyche that many of us believe we pay far more for goods and services than our parents or grandparents. We barely notice that prices of most consumer goods–even food and fuel–have been trending downward for decades. The rather astounding facts are these: Compared with the early 1970’s, in 2007 we spent 32 percent less on clothes, 18 percent less on food, 52 percent less on appliances, and 24 percent less on owning and maintaining a car.” (I used to sew a lot of my own clothes, until the early ’80’s. It just doesn’t make sense, economically, any more. Clothes are dirt cheap.)
- “Technology-driven globalization has pushed real prices to rock bottom in almost every category–a trend that verged on the desperate in late 2008 when even tony retailers such as Saks and Nordstrom engaged in an orgy of price slashing so extreme that it threatened to tarnish the reputation of their own brands.”
I know, I know. About now you are thinking, free markets prevail. The strong survive. They are the ones who deserve to prosper. This notion is as old as the hills, and the “haggling rug merchants of Istanbul or the teeming bazaars of Marrakesh.” Are these venerable institutions so different from the big box retailers and online discounters?
Well, yes, the author maintains. “The ancient marketplace was built on a balance of power between buyer and seller that is all but gone today. A cascade of corporate scandals and screwups from Enron to Haliburton to Citibank to Bernie Madoff’s audacious Ponzi scheme has shaken whatever faith we once held in corporate responsibility, and this mistrust has dripped down to the retail level.” As consumers we exact our “revenge” or get “our due” by seeking the maximum possible discounts on….everything.
But in the world of food production, or technological innovation, or furniture building, it is rarely the truly inventive, or quality-concerned, or creatively entrepreneurial company that can fuel massive discounts. It’s the big guys with dominant scale who can, temporarily, sustain such pressure. It’s only temporary. They too lose their R and D budgets, and their staff, and their basic viability too.
Ruppel Shell neatly illustrates her basic premise with this example from George Akerlof, a Nobel Prize winner in economics:
- Gresham’s law: Bad money drives out good. “Imagine that a quart of high-quality milk wholesales for $1.00, and a quart of watered-down milk wholesales for 60 cents. A typical buyer might willingly pay up to 80 cents for the watered-down milk and up to $1.20 for the pure milk. In either case, mutual gains would be made from the transaction: Both the buyer and the seller know what he or she is getting, and both end up with what might be considered a fair deal. But if the customer is unable to distinguish quality, both grades of milk must sell for the same price–about 90 cents a quart. Under this system, honest brokers of pure milk go bankrupt, while corrupt watered-down milk sellers flourish. So logically enough, soon all surviving merchants are watering their milk and pocketing large profits, and consumers believe they are getting a bargain when in fact they are being ripped off.”
She concludes, “In American today, Gresham’s law rules, with sweeping consequences, both obvious and subtle. The way we shop, the way we do business, and the way we think about money all reflect this new reality.”
This, in a nutshell, is why discount culture terrifies me. And this is one reason I am devoting my professional life to creating a connection between products, their stories, and consumers.
How can you willingly pay “full price” if you don’t really understand what you are buying? I truly believe that if people appreciate how special it is to make a an all-natural caramel sauce, or the benefits of an innovative travel accessory from a tiny startup company, or the sustainable practices of a wood turner, they will prefer those choices. But in the sanitized vacuum of most online and bricks and mortar retailers, no one is telling any story but the most obvious one…that of price. A shallow and dangerous story, indeed.
