Wednesday, December 9, 2009

Cheap: The High Cost of Discount Culture

In her book, Cheap: The High Cost of Discount Culture, Ellen Ruppel Shell argues that our drive for low prices and inability to determine product quality has lead to eroding job quality in the US and the rest of the world. Large retailers give us cheap goods, but they also kill the jobs requiring skill and replace them with low-skill minimum-wage jobs.

Parts of this book contain a balanced treatment of issues carefully explaining both sides. Other parts descend into more of a rant that still manages to be thoughtful and entertaining.

While it’s unlikely that any reader would agree with all of the author’s arguments, this book is consistently interesting as it discusses price discounting, behavioural finance, outlet malls, craftsmen, food production, and trade with China.

In the author’s view, most large retailers are a major part of the problem (most notably Walmart), but there are a few large retailers that set a good example (Wegmans and Costco). Walmart pays poor wages and has high worker turnover, but Wegmans and Costco manage to offer low prices while paying much higher wages and treating workers well enough that employee turnover is low.

Here is a sampling of some of the interesting details:

Difficult Decisions

Faced with a difficult decision, we tend to ask ourselves a related question that is easier to answer. But the easier question is usually the wrong question. Rather than decide whether to buy a new pair of shoes, it’s easier to decide whether to get the black ones or red ones.

Rebates

Most of us have seen a product advertised at some price, like $30, only to discover that it is really $50 with a $20 mail-in rebate. Apparently, we make our purchasing decision based on the $30 figure, but most of us don’t send in the rebate: “redemption rates greater than 35 percent are considered marginal by manufacturers and retailers.”

Curiously, setting a deadline for sending in a rebate increases the percentage of customers who send it in. Even stranger is that up to a limit, making the process for sending in the rebate more difficult increases the percentage of customers who send it in.

Workers’ Rights

According to MIT professor Richard Locke, there is “only one force powerful enough to enforce workers’ rights and protection: guilt. And there is only one institution capable of evoking that force: the Vatican.” I’m not too optimistic about this approach. I suspect that improving the lot of workers in China and other countries will happen very slowly as trade brings in wealth. I would prefer to see better working conditions sooner, but I’m not optimistic that this will happen.

Conclusion

The author makes an interesting case that our drive for cheap goods is harming the quality of jobs available in the US and the rest of the world. This book is worth reading whether you agree with the central premise or not.

3 comments:

  1. I wonder how much effect "cheap" has had on quality. I have noticed lately that some things, especially small appliances like coffee makers, toasters, and irons don't seem to last as long as they used to.

    In the area of groceries, some prices have come down, but so have package sizes. I used to buy a 700g package of cheese on sale for $4.99 or so. I'm happy to find it on sale now for the same price, or even $3.97 occasionally. The problem is, the package is now only 500g and the regular (not sale) price can be as high as $8!

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  2. 2 Cents: I know what you mean about the small appliances. For about 5 years we went through a toaster a year. However, the most recent one has lasted for about 5 years. Obviously someone messed up on its design :-)

    The biggest problem I've had has been with buying shirts. The number of choices of material, colour, and style are practically infinite, but for sizing, the usual choices are S, M, L, XL. I don't fit into any of these categories. I'm part XL, part L, and part M or S. Even dress shirts that are sized by neck size and sleeve length don't work for me. I'm a 17-35, and apparently, I'm about 100 lbs. underweight. As a compromise, I wear a 16.5-34, but I can still fit a basketball under this size of shirt. It's been a long time since I was able to buy a shirt that actually fits. It still amazes me that no businesses have started to make shirts that fit someone like me.

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  3. I like the comment about the only place that you will get Guilt from is the Vatican. I'd like to point out that most Religions have their bastions of Guilt (hasn't he ever heard of a Jewish Mother?).

    I am guilty of buying cheap too, most of the time, because sometimes it is hard to figure out what quality something is until you get it.

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