This morning I opened a tub of yogurt and was confronted with the above image...
I was somewhat skeptical. If rewards are easy to get, maybe they are not actually rewards at all, and the word reward is being used to disguise what is really going on. At first I was thinking this was just another example of advertisers luring me into a species of magical thinking in which my specialness (that the company has somehow managed to recognize) allows me to take shortcuts not available to all the other losers out there. It tempts me to believe that what is true for me is different from what is true for the others, because after all, it is my world and the others are bit players in it. Almost all ads play on that sort of solipsism, dissolving the reality of other people's claims, the interdependencies of society, to present a far more convenient world where our consumer decisions are sovereign in the broadest sense -- the only kind of power that is real and worth exerting.
In this particular case, it seems that the yogurt company is wedding the promise of convenience to something that strikes me as rather inconvenient, logging personal information and participating in an online marketing scheme rather than eating yogurt and then going about one's business in life. A reward that comes easy is probably more accurately described as a gift (or even a "free gift"), but this yogurt company wants me to believe that I have somehow already earned the "rewards" they promise, and I all I have to do is enroll in their loyalty program and dutifully record the serial numbers of every tub of yogurt I eat henceforth. I show my loyalty to the yogurt company by reporting on myself to its website, but I don't earn the company's loyalty to me (in the form of coupons on their yogurt) until I have purchased enough of their product.
It seems to me that this is something of a disloyalty program. The yogurt company demands unearned fidelity from me up-front and then teaches me that "loyalty" should be repaid with systematically doled out rewards intended to make loyalty worth one's while. It teaches me the error of being loyal without a reward program; it teaches me that companies don't see themselves as owing anything to the occasional customer, and thus you shouldn't bother to patronize any particular company until they afford an opportunity for you to enroll you and acknowledge your special diligence. I am reminded that the market is not a sphere of inherent trust between parties who share ethical mores about fairness, but instead a sphere of competing loyalties where savvy players are subsidized by suckers who aren't negotiating special favors on the basis of their past behavior. The market doesn't situate us on a level playing field in which the usefulness of what we bring determines its value; instead it is a place where we leverage our reputation and engage in a kind of competitive self-reporting. The market doesn't let one escape the past and it doesn't offer equal opportunities or a level playing field -- it's a place where class advantages and social capital tilt outcomes; it's a place where the burden of the past is reiterated and reinforced, reinscribed again and again so that the pre-existing imbalances between negotiating parties can be reproduced if not exacerbated.
Showing posts with label price discrimination. Show all posts
Showing posts with label price discrimination. Show all posts
Thursday, August 18, 2011
Tuesday, August 9, 2011
Spirit Airlines's carry-on bag policy (14 April 2010)
Spirit Airlines, a regional discount airline in the U.S., will start charging passengers for carry-on luggage. This makes way, way more sense to me than charging passengers to check bags (though Spirit does that too). In the press release, the airline trots out one of economists' classic arguments in favor of price discrimination: It is "offering customers the option of paying only for the services they want and use rather than subsidizing the choices of others." Matt Yglesias thinks this is a step in the direction of a "better world" and cites Paul Krugman's textbook argument about monopolists achieving Pareto efficiency through perfect pricing. Krugman's example of how this is foiled in real life highlights consumers lying to take advantage of deals, which struck me as odd, since I tend to think more of companies imposing opaque fees (things like checking into a hotel and then finding out that parking is an extra $20 -- you hear me, Hartford Hilton?).
I agree with Kevin Drum, however, who argues that having consumers make more price decisions imposes information costs on them, not to mention the wearying psychic toll of added responsibility for finding bargains.
Price discrimination always makes me think of information asymmetries. There seems to be an assumption that consumers know what they want going in and can price themselves in accordingly in a highly price-discriminated scenario. But marketing research has shown that people's decisions are shaped at the point of exchange. Pricing signals are inherently more unreliable for consumers, who know less about what they are getting themselves into than the sellers know about what they are selling. And there is always the noneconomic sense of injustice that stems from the seemingly unequal treatment of the same people paying different prices for the same good. That doesn't feel like a better world; that feels sort of sucky.
I agree with Kevin Drum, however, who argues that having consumers make more price decisions imposes information costs on them, not to mention the wearying psychic toll of added responsibility for finding bargains.
One of the primary causes of personal stress is decisionmaking, and modern life jacks that up every time we're forced to make yet another goddam decision. Do we really want to have to decide if we want the bread or do we just want to enjoy dinner? Do we want a dozen different options on our flight, or would we rather just buy a ticket that includes all the usual stuff? Should credit card apps have 30 pages of legalese attached to them or would a few simple rules about interest rates and annual fees be enough?That seems right to me. Companies want to exploit our fatigue by making it more "convenient" to pay more once we find ourselves more or less tricked into being in the midst of more expensive exchanges.
Choice is good. Most of the time we want it, and economically it's often beneficial. But it can also hide things and make prices hard to compare.
Price discrimination always makes me think of information asymmetries. There seems to be an assumption that consumers know what they want going in and can price themselves in accordingly in a highly price-discriminated scenario. But marketing research has shown that people's decisions are shaped at the point of exchange. Pricing signals are inherently more unreliable for consumers, who know less about what they are getting themselves into than the sellers know about what they are selling. And there is always the noneconomic sense of injustice that stems from the seemingly unequal treatment of the same people paying different prices for the same good. That doesn't feel like a better world; that feels sort of sucky.
Sunday, August 7, 2011
Quality brands as moribund middlebrow propaganda (22 March 2010)
In a recent New Yorker column, James Surowiecki argues that retailers are succeeding by eschewing the middlebrow and either making luxury goods or cheap, "good enough" stuff. I had trouble following some of his logic (I didn't really understand what he was getting at in his point about economies of scale) but I thought this was interesting:
Surowiecki depicts middlebrow shoppers as dupes who mistook brands for indicators of quality while they bumbled in the marketplace, with no inner resources to draw on to tell what's what. The brand reassured them they weren't making a mistake, even if the quality wasn't there. Paradoxically, the wealth of new information available makes the possibility of making a mistake much higher; there's more we should have and could have known, and we can quickly confirm our disappointment online if something goes wrong with something we purchase. A form of decisional paralysis may set in as brands are devalued, or at least come to signify qualities other than quality.
But brands have more work to do besides signal quality. They need to be more flexible in what they can mean, what sort of fantasies they can evoke. They need to have richer personalities (ugh). What is precisely middlebrow is the idea that a brand signals only quality, and that idea is perhaps dead. (Surowiecki's muted nostalgia for it altogether befits the middlebrow magazine he writes for, its own brand an increasingly irrelevant signal of quality as magazines founder.) Instead, the ways in which products denote class distinctions have become more complex; the grammar which retailers and consumers alike must use with products more sophisticated.
In the past, these companies were able to charge a premium price because their brands were taken as signals of reasonable quality and reliability. Today, consumers don’t need to rely on shorthand: they have Consumer Reports and J. D. Power, CNET and Amazon’s user ratings, and so on, which have made it easier to gauge differences in quality accurately. The result is that brands matter less: a recent Nielsen survey found that more than sixty per cent of consumers think that stores’ generic products are equal in quality to brand-name ones. In effect, the more information people have, the tighter the relationship between quality and price: if you can deliver a product or service that is qualitatively better, you can charge top dollar. But if you can’t deliver the quality you can’t get the price.It seems like a good thing if people aren't mistakenly equating brands with merchandise quality. But I wonder whether that has anything to do with information access. It seems like it could reflect an ideological shift, or a shift in the significance of branding.
Surowiecki depicts middlebrow shoppers as dupes who mistook brands for indicators of quality while they bumbled in the marketplace, with no inner resources to draw on to tell what's what. The brand reassured them they weren't making a mistake, even if the quality wasn't there. Paradoxically, the wealth of new information available makes the possibility of making a mistake much higher; there's more we should have and could have known, and we can quickly confirm our disappointment online if something goes wrong with something we purchase. A form of decisional paralysis may set in as brands are devalued, or at least come to signify qualities other than quality.
But brands have more work to do besides signal quality. They need to be more flexible in what they can mean, what sort of fantasies they can evoke. They need to have richer personalities (ugh). What is precisely middlebrow is the idea that a brand signals only quality, and that idea is perhaps dead. (Surowiecki's muted nostalgia for it altogether befits the middlebrow magazine he writes for, its own brand an increasingly irrelevant signal of quality as magazines founder.) Instead, the ways in which products denote class distinctions have become more complex; the grammar which retailers and consumers alike must use with products more sophisticated.
"Manufactured uncertainty" (15 March 2010)
This post at Farnam Street, a behavioral economics blog, raises a point that always rankles me about purposely confusing pricing schemes designed to generate asymmetrical information. This is their take on nickel-and-dime fees the airlines have begun to charge:
This reminds me of an old HBR article from June 2007: "Companies and the Customers Who Hate Them" by Gail McGovern and Youngme Moon. "Companies have found that confused and ill-informed customers, who often end up making poor purchasing decisions, can be highly profitable indeed," they begin, and then detail how management gets addicted to the baffle-the-customer approach. It begins when a price-discrimination schemes go rogue and begin to become deliberately vague, masking the ways in which fees are assessed. And it is abetted when there are natural or contrived hurdles for consumers to jump over before being able to switch to a new service provider. The brains in management realize that their customers have become fish in a barrel and then they open fire.
They single out banks, gyms and cell-phone companies for particular opprobrium: They cite how banks, for example, encourage practices that they can then charge penalty fees for -- overdraft "protection" comes to mind, something Bank of America has surprisingly decided to partially suspend.
The article concludes with advice for how companies might regain the favor of the customers they have abused, but I had the feeling that it was more of a how-to article with an epilogue tacked on for ideological cover -- the way authors would attach some moralizing to their pornography in the 18th century to get it past the censors.
Airlines are unbundling fares. 'Airfares' are lower but there are now fees for luggage, pillows, meals, coffee, and even washrooms (if the CEO of Ryan Air gets his way). What's really happening though, is that airlines are making pricing less transparent to consumers.Voilà: financial innovation. Sometimes this sort of strategy is a divide-and-conquer play, where the customers willing to do the work of figure out the real prices end up getting a better deal than their "lazier" comrades. But generally it is simple obfuscation to circumvent the norm of unambiguous posted prices.
The real purpose of separating costs (unbundling) is to make it harder for consumers to directly compare prices between airlines. It is now almost impossible to directly compare total prices for one airline to another without a lot of thought. Airlines are banking on consumers not doing this hard thinking and choose a flight based on something other than the lowest price.
This reminds me of an old HBR article from June 2007: "Companies and the Customers Who Hate Them" by Gail McGovern and Youngme Moon. "Companies have found that confused and ill-informed customers, who often end up making poor purchasing decisions, can be highly profitable indeed," they begin, and then detail how management gets addicted to the baffle-the-customer approach. It begins when a price-discrimination schemes go rogue and begin to become deliberately vague, masking the ways in which fees are assessed. And it is abetted when there are natural or contrived hurdles for consumers to jump over before being able to switch to a new service provider. The brains in management realize that their customers have become fish in a barrel and then they open fire.
They single out banks, gyms and cell-phone companies for particular opprobrium: They cite how banks, for example, encourage practices that they can then charge penalty fees for -- overdraft "protection" comes to mind, something Bank of America has surprisingly decided to partially suspend.
The article concludes with advice for how companies might regain the favor of the customers they have abused, but I had the feeling that it was more of a how-to article with an epilogue tacked on for ideological cover -- the way authors would attach some moralizing to their pornography in the 18th century to get it past the censors.
Saturday, August 6, 2011
Price discrimination watch (10 Feb 2010)
In the world of economic abstraction, prices are believed to find their "true" level, a real-time approximation of a good's actual value (if there is such a thing), by balancing supply and demand. This process of price discovery is a central pillar of free-market ideology; drawing on Hayek, free marketeers read into prices the decentralized distribution of information vital to the development of the economy. Prices let the people on the ground, knowingly or not, translate local conditions into incentives that can be communicated far and wide.
But lots of things jam up the signal, as when prices are "sticky" and can't quickly adjust to shifts in the sovereign consumer's whims. Then, the discussion shifts to price elasticity of demand -- what sort of range of prices are possible for a good. Demand is "inelastic" if it's not much affected by price.
That brings us closer to what retailers' practical experience with prices seems to be: Their primary concern is to figure out how to charge as much as they can from a given customer for a given good. That is, they need to divide their customers into segments that see different menus of prices -- as when Americans in Prague get one menu from restaurateurs, Czechs another. Customers don't like this. It immediately seems unfair once we realize such discrimination is happening. Everybody wants to have the illusion that they are getting the best deal, or if not that, at least the same deal everyone else is getting.
Online retail -- as this CNN piece and this WashPost article by Joseph Turow, both from 2005, detail -- seems like it would be the perfect place to perfect techniques of price discrimination. We create a concrete demographic profile through our trackable online behavior (the sites we visit, the sort of goods we click through to have a closer look at, who we know on Facebook, that sort of thing), which can be used to make assumptions about the prices we can afford to pay. And in the absence of printed price tags or other customers at the scene of exchange (the point of sale), the discriminatory price can be generated on the spot. Think of it as automated haggling that has taken place without your having to go through all the awkward trouble and conflict. You are adequately sized up and the appropriate line in the sand (for retailers, at any rate) is drawn.
Amazon famously and clumsily tried this back in 2000, but users quickly discovered it and protested. Paul Krugman wondered if it might be illegal under the Robinson-Patman Act. Still, there was little reason to expect the issue to disappear. It's too potent a weapon in the retail arsenal, and it seems such a ideal application for all the data now being gathered in our new Web 2.0-powered knowledge economy.
But apparently there is some intramural strife among businesses: This recent NYT article looks at the battle between online retailers and manufacturers over who gets to set prices. The conflict, the article reports, stems from a 2007 Supreme Court ruling that gave manufacturers more power to dictate how prices can be advertised -- in sheer defiance of Hayek. Manufacturers want to stop online retailers from using their goods as loss leaders, tarnishing the brand with cheapness and presumably undermining their ability to price discriminate elsewhere.
But lots of things jam up the signal, as when prices are "sticky" and can't quickly adjust to shifts in the sovereign consumer's whims. Then, the discussion shifts to price elasticity of demand -- what sort of range of prices are possible for a good. Demand is "inelastic" if it's not much affected by price.
That brings us closer to what retailers' practical experience with prices seems to be: Their primary concern is to figure out how to charge as much as they can from a given customer for a given good. That is, they need to divide their customers into segments that see different menus of prices -- as when Americans in Prague get one menu from restaurateurs, Czechs another. Customers don't like this. It immediately seems unfair once we realize such discrimination is happening. Everybody wants to have the illusion that they are getting the best deal, or if not that, at least the same deal everyone else is getting.
Online retail -- as this CNN piece and this WashPost article by Joseph Turow, both from 2005, detail -- seems like it would be the perfect place to perfect techniques of price discrimination. We create a concrete demographic profile through our trackable online behavior (the sites we visit, the sort of goods we click through to have a closer look at, who we know on Facebook, that sort of thing), which can be used to make assumptions about the prices we can afford to pay. And in the absence of printed price tags or other customers at the scene of exchange (the point of sale), the discriminatory price can be generated on the spot. Think of it as automated haggling that has taken place without your having to go through all the awkward trouble and conflict. You are adequately sized up and the appropriate line in the sand (for retailers, at any rate) is drawn.
Amazon famously and clumsily tried this back in 2000, but users quickly discovered it and protested. Paul Krugman wondered if it might be illegal under the Robinson-Patman Act. Still, there was little reason to expect the issue to disappear. It's too potent a weapon in the retail arsenal, and it seems such a ideal application for all the data now being gathered in our new Web 2.0-powered knowledge economy.
But apparently there is some intramural strife among businesses: This recent NYT article looks at the battle between online retailers and manufacturers over who gets to set prices. The conflict, the article reports, stems from a 2007 Supreme Court ruling that gave manufacturers more power to dictate how prices can be advertised -- in sheer defiance of Hayek. Manufacturers want to stop online retailers from using their goods as loss leaders, tarnishing the brand with cheapness and presumably undermining their ability to price discriminate elsewhere.
[Manufacturers] say the competitiveness of the Internet has unlocked a race to the bottom -- with everyone from large corporations to garage-based sellers ravenously discounting products, and even selling them at a loss, in an effort to capture market share and attention from search engines and comparison shopping sites. They also worry that their largest retail partners may be unwilling to match the online price cuts and could stop carrying their products altogether.I've been thinking about that less quote all day, and I still can't make any sense of it. The online retailers don't exist to give products away to thwart manufacturers. What I am missing here?
“If there isn’t that back-and-forth between manufacturer and retailer, it’s just a natural tendency to drive the price down to nothing,” said Wes Shepherd, chief of Channel Velocity, which sells software that allows companies to scour the Web looking for violations of pricing agreements.
Thursday, August 4, 2011
The Ethics of Price Discrimination (5 Jan 2010)
Price discrimination is economics lingo for the retail practice charging customers different prices based on what they are willing to pay. Economists generally have no problems with this; that's just how fairness is defined in capitalist societies. Many consumers, I suspect, find the practice as unpleasant as I do, not merely because it can seem unfair to pay more than somebody else for the same good, but possibly because price discrimination undermines the cherished ideological tenet that there's a "true price" for goods, that useful goods are really worth something definite, and that fundamental use value is indexed to a good's cost. Instead, we learn that the price of many goods is indexed to our gullibility, to our negligence, or to retailers' ability to dupe us.
The price-discrimination game works best when pricing is not transparent -- visit a carpet warehouse, for instance, and try to find a price tag. Consumerism puts an end to the norm of haggling, however, since shopping in a consumer society must function as entertainment, and the shifty confrontations, the agonistic bartering with salespeople unnerves a lot of people. It makes us aware of all the asymmetries, makes us wary of bad deals, makes us aware that we must be willing to walk away with nothing oftentimes to not get ripped off. But consumerism requires a far more passive consumer who feels licensed to say yes to everything, to indulge in the pleasures of impulse purchasing, and take pleasure in the gratification of that impulse as mush as in the thing purchased, which more and more becomes a mere alibi for luxuriating in the retail world, where flattery and fantasy blend and become more salient to us. Shopping becomes an escape from conflict.
Hence, we have become more comfortable shopping with fixed prices, but retailers typically require prices to be less sticky in order to make a profit. They need to increase margins wherever and whenever they can. So there is constant tension between broadcasting a price to draw consumers in, and masking prices to charge consumers according to their class. Several strategies have evolved to address this: They can routinely reprice goods (easier now with automated systems), they can use various menu tricks to get consumers to choose more-expensive options (i.e., offering a ludicrously expensive option to make the second-most expensive option seem reasonable), they can offer loss leaders, they can bury additional fees in the fine print, they can sell the same crap with different labels to different customer classes, they can advertise a discount but not register it at checkout.
I encountered a blend of all this when I bought a TV this past weekend. I first went to P.C. Richard in College Point, in Eastern Queens, and tried to wrap my mind around the profusion of makes and models, all of which seemed largely the same, except for screen size and resolution. Various bells and whistles seemed tacked on to certain brands, but the flat-screen TV basically seems like a commodity to me -- any one would do, and I'd feel best about the one I selected once it was separated from all the others and began to become mine. Still I couldn't bring myself to simply buy the cheapest one on offer. The sale price for a particular model by a brand I have heard of was prominently displayed. I made a note of it, then went to Best Buy, where similar models were far more expensive (Best Buy is not always the best buy, apparently; they seemed to be banking on their mere reputation as a bargain retailer at this point.) So I went to the P.C. Richard in my neighborhood, and was baffled to find that the same sale model from the College Point store was priced $100 higher. I asked about it, and the salesman immediately matched the price I had seen at the other store. Then he tried to sell me a set of cables for $50. (It turned out I needed the cables to connect my laptop to the set, but you can get them on Amazon.com for under $20.) I was also buying a humidifier that was advertised on the showroom floor at $19, but when it was rung up, it defaulted to $25. I had to look over the salesman's shoulder at the register to notice this and have him correct it.
My point is that the TV purchasing process was riddled with opportunities for me to be lazy and get charged more as a result. My need for perpetual vigilance is no less than it would have been had I been required to haggle for it, only the illusion of stable prices was there to discourage me from worrying about anything. Should I yearn for a return to a haggling economy? Should I feel like I beat the system, or is that just more ideology reconciling me to the system? Should I point to the metaphoric scoreboard and celebrate the "bargain" I received at others' expense? Should I shop exclusively at flea markets and bazaars? Can any sort of regulatory intervention stop deceptive practices, or will retailers always find a new loophole or semi-deceitful practice to differentiate customers and dupe them according to their ignorance? Was it me? Was it you? Questions in a world of blue.
Corporations seem designed to maximize profit by exploiting every possible opportunity in a depersonalized economy. Any accommodation a big company happens to give a customer is the probably result of a probability calculation modeled on an analyst's spreadsheet. The message that corporations "care" about us is cooly manufactured in marketing departments as a sales tool and is blended with efforts to expedite price discrimination, to separate us into a million individuals cutting our own deals with that much less collective bargaining power.
If all competitors in an industry de facto collude to make customers miserable, so much the better -- just look at major U.S. airlines and cell-phone-service providers, or at the banks and credit-card companies. And look at health care, in which pricing transparency does little to contain costs. ("The evidence suggests the benefit of transparent pricing is limited, particularly when insurance companies are involved." Hmm -- I guess that's probably coincidental.)
Mike Konczal's recent post about businesses preying on the "cognitively weak" looks at some of the antisocial incentives of financial firms. Imagining himself an evil bank executive, he surmises he might be thinking along these lines, targeting old people whose brain function is fading:
It doesn't take much for price discrimination to become plain old discrimination. Businesses want prices to differentiate the smart from the foolish to maximize the exploitative potential in society, whereas the rest of us want prices to indicate the social value of things so we can make more of what we need and stop making stuff we don't want. The result is a war over the meaning of prices, played out in the medium of information. Companies use disinformation and marketing to conceal beneficial or money-saving information from consumers, resulting in prices that can't be relied upon to mean much of anything.
The price-discrimination game works best when pricing is not transparent -- visit a carpet warehouse, for instance, and try to find a price tag. Consumerism puts an end to the norm of haggling, however, since shopping in a consumer society must function as entertainment, and the shifty confrontations, the agonistic bartering with salespeople unnerves a lot of people. It makes us aware of all the asymmetries, makes us wary of bad deals, makes us aware that we must be willing to walk away with nothing oftentimes to not get ripped off. But consumerism requires a far more passive consumer who feels licensed to say yes to everything, to indulge in the pleasures of impulse purchasing, and take pleasure in the gratification of that impulse as mush as in the thing purchased, which more and more becomes a mere alibi for luxuriating in the retail world, where flattery and fantasy blend and become more salient to us. Shopping becomes an escape from conflict.
Hence, we have become more comfortable shopping with fixed prices, but retailers typically require prices to be less sticky in order to make a profit. They need to increase margins wherever and whenever they can. So there is constant tension between broadcasting a price to draw consumers in, and masking prices to charge consumers according to their class. Several strategies have evolved to address this: They can routinely reprice goods (easier now with automated systems), they can use various menu tricks to get consumers to choose more-expensive options (i.e., offering a ludicrously expensive option to make the second-most expensive option seem reasonable), they can offer loss leaders, they can bury additional fees in the fine print, they can sell the same crap with different labels to different customer classes, they can advertise a discount but not register it at checkout.
I encountered a blend of all this when I bought a TV this past weekend. I first went to P.C. Richard in College Point, in Eastern Queens, and tried to wrap my mind around the profusion of makes and models, all of which seemed largely the same, except for screen size and resolution. Various bells and whistles seemed tacked on to certain brands, but the flat-screen TV basically seems like a commodity to me -- any one would do, and I'd feel best about the one I selected once it was separated from all the others and began to become mine. Still I couldn't bring myself to simply buy the cheapest one on offer. The sale price for a particular model by a brand I have heard of was prominently displayed. I made a note of it, then went to Best Buy, where similar models were far more expensive (Best Buy is not always the best buy, apparently; they seemed to be banking on their mere reputation as a bargain retailer at this point.) So I went to the P.C. Richard in my neighborhood, and was baffled to find that the same sale model from the College Point store was priced $100 higher. I asked about it, and the salesman immediately matched the price I had seen at the other store. Then he tried to sell me a set of cables for $50. (It turned out I needed the cables to connect my laptop to the set, but you can get them on Amazon.com for under $20.) I was also buying a humidifier that was advertised on the showroom floor at $19, but when it was rung up, it defaulted to $25. I had to look over the salesman's shoulder at the register to notice this and have him correct it.
My point is that the TV purchasing process was riddled with opportunities for me to be lazy and get charged more as a result. My need for perpetual vigilance is no less than it would have been had I been required to haggle for it, only the illusion of stable prices was there to discourage me from worrying about anything. Should I yearn for a return to a haggling economy? Should I feel like I beat the system, or is that just more ideology reconciling me to the system? Should I point to the metaphoric scoreboard and celebrate the "bargain" I received at others' expense? Should I shop exclusively at flea markets and bazaars? Can any sort of regulatory intervention stop deceptive practices, or will retailers always find a new loophole or semi-deceitful practice to differentiate customers and dupe them according to their ignorance? Was it me? Was it you? Questions in a world of blue.
Corporations seem designed to maximize profit by exploiting every possible opportunity in a depersonalized economy. Any accommodation a big company happens to give a customer is the probably result of a probability calculation modeled on an analyst's spreadsheet. The message that corporations "care" about us is cooly manufactured in marketing departments as a sales tool and is blended with efforts to expedite price discrimination, to separate us into a million individuals cutting our own deals with that much less collective bargaining power.
If all competitors in an industry de facto collude to make customers miserable, so much the better -- just look at major U.S. airlines and cell-phone-service providers, or at the banks and credit-card companies. And look at health care, in which pricing transparency does little to contain costs. ("The evidence suggests the benefit of transparent pricing is limited, particularly when insurance companies are involved." Hmm -- I guess that's probably coincidental.)
Mike Konczal's recent post about businesses preying on the "cognitively weak" looks at some of the antisocial incentives of financial firms. Imagining himself an evil bank executive, he surmises he might be thinking along these lines, targeting old people whose brain function is fading:
Hitting up people with a lifetime of savings suffering from dementia is some real, serious money we can tap as a revenue source. Indeed, someone who forgets what they were doing between reading “Bullshit Surcharge: $40″ on their statement and calling the customer support number to complain is our ideal customer -- it’s the person who will be most profitable to us going forward.To hard-liners free-marketeers, who tend to argue that companies are ethically bound to take advantage of their customers' foibles when they can get away with it, this is just price discrimination working its magic. The weak are punished, and the wise are thereby subsidized. It's financial innovation at its best. As Konczal explains, those who
are excited about how the current financial service industry excels because it punishes the ignorant and irresponsible: on what specific grounds could you not have to embrace, much less oppose, the Evil Rortybomb Plan above? I got a sense of proportionality in those arguments, that the most ignorant should have to pay the most. I don’t think anyone would argue against the idea that those suffering from dementia will be the most ignorant of their actual situations and most irresponsible in the sense that they aren’t capable of being responsible. The extra fees and traps they pay will in part also go to those enjoying extra bonuses and continued free financial services. It’s a win-win from this point of view, no? One must be consistent.
It doesn't take much for price discrimination to become plain old discrimination. Businesses want prices to differentiate the smart from the foolish to maximize the exploitative potential in society, whereas the rest of us want prices to indicate the social value of things so we can make more of what we need and stop making stuff we don't want. The result is a war over the meaning of prices, played out in the medium of information. Companies use disinformation and marketing to conceal beneficial or money-saving information from consumers, resulting in prices that can't be relied upon to mean much of anything.
Tuesday, August 2, 2011
Black Friday (24 Nov 2009)
Economist Arnold Kling has an explanation for Black Friday -- not the Steely Dan song, but the crazy retail sales. He argues that the experience of shopping on Black Friday has been purposely made miserable, so that people who are willing to pay more for gifts will wait and pay more later. In other words, another example of price discrimination working its stratifying magic.
Temporary sales are often a tool for price discrimination. If you need something now, you have to buy it whether or not it is "on sale." But if the purchase is discretionary, you may only buy it "on sale." The store keeps its prices high ordinarily, in order to pick up profits from the price-insensitive shoppers. The store puts items "on sale" on rare occasions, hoping to pick up profits from price-sensitive shoppers. Unfortunately, they lose profits from price-insensitive shoppers who happen to come in the day of the sale.Once you start thinking about the retail world in this way, it is hard not to recognize this logic occurring always and everywhere -- an insight that for me is followed by frustration and melancholia. We commonly tend to think of social stratification as something that is reinforced by lineage and upbringing and by raw bank-account figures, but it plays out more significantly in everyday exchanges with the institutions of consumerism, rearticulating itself in that moment that you pay $4 for a coffee or when you wait 45 minutes in a fast-food drive-thru. Price discrimination is how the hierarchies of capitalist society perpetuate themselves even as they seem to dissolve in the pseudo equities of purchasing power.
The beauty of holding sales on "Black Friday" is that stores know that many price-insensitive shoppers will stay away in order to "avoid the crowds." So you can get revenue from price-sensitive shoppers without sacrificing profits from price-insensitive shoppers.
Thursday, July 21, 2011
Exploitation as business model (10 June 2009)
I was happy that credit-care-reform legislation passed, but admittedly, Arnold Kling, writing for the Atlantic's business site, seems to have a point here. He cites a number of examples from an old Fast Company article of consumers falling for really bad sales pitches from Capital One, and then concludes:
Many readers of the article were appalled by the consumer exploitation implicit in this data-driven marketing that seemed to impress the magazine. I can certainly understand wanting to protect consumers from such exploitation.That's true; there will always be ill-informed, ignorant, negligent, or just plain stupid people who will constitute the prey of unscrupulous businesses. But that unfortunate situation shouldn't lead us to conclude that all businesses should be allowed to operate so that they increase the number of ignorant and negligent by making the most of asymmetrical information. It seems that the credit-card business is one in which competitors have no incentive to compete by providing lucid explanations to customers -- it's much like the cell-phone-service business, where there's de facto collusion to offer consumers only opaque and confusing plans and take advantage of inadvertent fees and contract-breaking hassles. So with credit cards, the government is stepping in not to try to legislate away stupidity or consumer laziness, but to try to create a business environment that discourages companies from making a business model out of making society more miserable.
My concern, however, is that ultimately consumers with low intelligence and low conscientiousness are inevitably going to be exploited. If you remove one means of exploitation, another will arise.
With tighter credit card regulation, my guess is that credit card companies will stop exploiting some of the consumers with low intelligence and/or conscientiousness. Instead, these consumers will be exploited by other lenders or by merchants. But I doubt that legislation or regulation can stop the exploitation of such consumers altogether.
Thursday, July 7, 2011
The Aldi alternative (20 August 2008)
It seem as though the economic slowdown will last long enough to effect real change in consumer behavior, something that no amount of anti-consumerist blog posts seems likely to have accomplished. Some of this will play out at a macro level. Merrill Lynch analyst David Rosenberg argues that to eliminate the hangover of debt fostered during the credit boom, consumers will have to pay it down, meaning the "savings rate is going to be forced higher." According to Rosenberg, that means "that fashions are going to change. It means frugality is going to set in. We're going to be living in smaller houses, driving smaller cars and living more frugally. It's not going to be the end of the world; it's going to be a necessary process to truly embark on getting the balance sheets down to more comfortable levels so that we can actually embark on the next cycle." (via Paul Kedrosky.) As David Roche declares in this FT editorial, now "it's a Wal-Mart world rather than a luxury branded goods one."
This shift to a more savings-oriented mentality will of course manifest most obviously where inflation has been most noticeable. As high gas prices have shown, traits long described as inherent to the American character actually prove malleable under the pressure of outrageous costs. Housing and automotive markets are indeed already changing, and even if oil prices drop precipitously -- as they are now giving signs of doing, which incidentally, is not a sign that the economy is likely to improve, but an indication that overall economic growth has slowed, curbing demand -- those changes may establish new definitions of what "normal" is. Extreme commuting will recede from the threshold of acceptability and be considered again to be way beyond the pale. We can only hope that these mental shifts stick even after we have begun to "embark on the next cycle" but that doesn't seem to be the way of human behavior. Otherwise those "cycles" may not need to occur. But instead, consumers prove all too willing to be led into status-consumption trends that are as profitable for manufacturers as they are conspicuously wasteful an inefficient in use -- like driving SUVs. Or they get caught up in expensive branding, whose use lies only in its signaling function. In a era of frugality, the need to signal one's identity perhaps becomes far less pressing than we pretend it is in flush times. Does that mean that during recessions, everybody becomes more the same, since they lack the luxury goods with which to differentiate themselves? Shills for the "substance of style" would probably have us believe that is so.
I remember when I was a kid in the 1970s and our family started shopping at a discount grocery store, Jewel-T, where you had to bring your own bags for the groceries and everything on the shelves was some peculiar "no-frills" brand. No-frills goods came to be a kind of brand of their own, making a memorable appearance in the film RepoMan. The point there was that society was going to make you conform and be a no-frills person, but I think the opposite effect was achieved, in that the characters weren't upstaged by brands. Perhaps the same could happen for us as branding is forced by recession to recede.
With regard to the future of identity-based consumption, it's worth looking at the effects higher food prices will have on how we consume and what we regard as normal consumer behavior. Currently, it is normal to expect an exhaustive selection of foods, with competing brands in each category leading to the stocking of redundant goods. Middle-class consumers want the broadest selection, the thinking goes, as this allows them the greatest expanse over which to exercise their most cherished freedom -- of choice. Economist James Galbraith mocks this concept of economic freedom in his most recent book, The Predator State: "Is the freedom to seek a wide variety of goods and services at wildly varying prices, from the upscale boutique to the mall to the factory outlet, really on a par with any other meaning of freedom?" The rhetoric distorted the significance of the Soviet Union's demise: "A great many Westerners saw a yearning for 'freedom' in what was, for many, not much more than the wish for a better diet and stylish clothing." Such a concept of freedom is not much freedom at all, as the current Russian and Chinese regimes would seem to indicate that you can have lots of good shopping in spite of an authoritarian government.
But the absurd-cornucopia model of retailing may be in for difficult times, as consumers begin to value price over brands and options. BusinessWeek has an article about American discount grocers this week, and the shift in consumer expectations:
Likewise, this Economist article details the headway so-called hard discounters like the German retailer Aldi have made recently in the U.S. The sudden appearance of an Aldi in one's neighborhood is not a happy thing -- it suggests the neighborhood is becoming impoverished, and that next will come Factory 2 U and MacFrugal's and a bevy of 99-cent stores and perhaps some predatory payday lenders. Many bourgeois progressives would prefer an independently owned health-food store, or perhaps Aldi's apparent antithesis, Wegmans. Yes, Wegmans has a huge prepared-food area with a sushi chef and the stores are the size of basketball arenas, but only Aldi has the potential to change the way we conceive of shopping on a mass scale, undermining the principles around which our ideology of shopping is currently organized. It may not reverse the damage that big-box retailers have wrought, but it synthesizes the irrevocable fact of Wal-Mart with a more aggressive approach to retailing to produce a potentially revolutionary shift, pointing toward an almost radically different kind of consumerism, maybe even a post-consumerism. That must sound like crazy talk.
It's the hard discounters anti-aesthetic that has prompted my flight of fancy. This is how the Economist article begins: "It is as far from the charming ideal of French farmers’ markets and small family-owned shops as you could imagine: strip lights glare down on a narrow range of products in ugly packaging, displayed in cardboard boxes piled on the floor and on low shelves." Note the shift from an shopping as experience, as end in itself, to shopping as a kind of utilitarian practice, unadorned and perfunctory. Play that out on a large scale, across retail markets, and perhaps a experiential space is reopened where fantasia shopping was once squatting. Moreover, retailers are finding it to be better business to provide goods rather than experiences:
What Aldi represents is a kind of perverse top-down anti-consumerism, rejecting the consumption of brands and seeking to replace it with the consumption of goods again.
This shift to a more savings-oriented mentality will of course manifest most obviously where inflation has been most noticeable. As high gas prices have shown, traits long described as inherent to the American character actually prove malleable under the pressure of outrageous costs. Housing and automotive markets are indeed already changing, and even if oil prices drop precipitously -- as they are now giving signs of doing, which incidentally, is not a sign that the economy is likely to improve, but an indication that overall economic growth has slowed, curbing demand -- those changes may establish new definitions of what "normal" is. Extreme commuting will recede from the threshold of acceptability and be considered again to be way beyond the pale. We can only hope that these mental shifts stick even after we have begun to "embark on the next cycle" but that doesn't seem to be the way of human behavior. Otherwise those "cycles" may not need to occur. But instead, consumers prove all too willing to be led into status-consumption trends that are as profitable for manufacturers as they are conspicuously wasteful an inefficient in use -- like driving SUVs. Or they get caught up in expensive branding, whose use lies only in its signaling function. In a era of frugality, the need to signal one's identity perhaps becomes far less pressing than we pretend it is in flush times. Does that mean that during recessions, everybody becomes more the same, since they lack the luxury goods with which to differentiate themselves? Shills for the "substance of style" would probably have us believe that is so.
I remember when I was a kid in the 1970s and our family started shopping at a discount grocery store, Jewel-T, where you had to bring your own bags for the groceries and everything on the shelves was some peculiar "no-frills" brand. No-frills goods came to be a kind of brand of their own, making a memorable appearance in the film RepoMan. The point there was that society was going to make you conform and be a no-frills person, but I think the opposite effect was achieved, in that the characters weren't upstaged by brands. Perhaps the same could happen for us as branding is forced by recession to recede.
With regard to the future of identity-based consumption, it's worth looking at the effects higher food prices will have on how we consume and what we regard as normal consumer behavior. Currently, it is normal to expect an exhaustive selection of foods, with competing brands in each category leading to the stocking of redundant goods. Middle-class consumers want the broadest selection, the thinking goes, as this allows them the greatest expanse over which to exercise their most cherished freedom -- of choice. Economist James Galbraith mocks this concept of economic freedom in his most recent book, The Predator State: "Is the freedom to seek a wide variety of goods and services at wildly varying prices, from the upscale boutique to the mall to the factory outlet, really on a par with any other meaning of freedom?" The rhetoric distorted the significance of the Soviet Union's demise: "A great many Westerners saw a yearning for 'freedom' in what was, for many, not much more than the wish for a better diet and stylish clothing." Such a concept of freedom is not much freedom at all, as the current Russian and Chinese regimes would seem to indicate that you can have lots of good shopping in spite of an authoritarian government.
But the absurd-cornucopia model of retailing may be in for difficult times, as consumers begin to value price over brands and options. BusinessWeek has an article about American discount grocers this week, and the shift in consumer expectations:
TNS Retail Forward, which tracks retail trends, published a study in July that found at least one-fifth of consumers have switched their shopping to discounters for food and household essentials. They're accepting less product selection in return for lower prices. As Todd Hale, a senior vice-president at Nielsen, notes: "Everyone wants value."
Likewise, this Economist article details the headway so-called hard discounters like the German retailer Aldi have made recently in the U.S. The sudden appearance of an Aldi in one's neighborhood is not a happy thing -- it suggests the neighborhood is becoming impoverished, and that next will come Factory 2 U and MacFrugal's and a bevy of 99-cent stores and perhaps some predatory payday lenders. Many bourgeois progressives would prefer an independently owned health-food store, or perhaps Aldi's apparent antithesis, Wegmans. Yes, Wegmans has a huge prepared-food area with a sushi chef and the stores are the size of basketball arenas, but only Aldi has the potential to change the way we conceive of shopping on a mass scale, undermining the principles around which our ideology of shopping is currently organized. It may not reverse the damage that big-box retailers have wrought, but it synthesizes the irrevocable fact of Wal-Mart with a more aggressive approach to retailing to produce a potentially revolutionary shift, pointing toward an almost radically different kind of consumerism, maybe even a post-consumerism. That must sound like crazy talk.
It's the hard discounters anti-aesthetic that has prompted my flight of fancy. This is how the Economist article begins: "It is as far from the charming ideal of French farmers’ markets and small family-owned shops as you could imagine: strip lights glare down on a narrow range of products in ugly packaging, displayed in cardboard boxes piled on the floor and on low shelves." Note the shift from an shopping as experience, as end in itself, to shopping as a kind of utilitarian practice, unadorned and perfunctory. Play that out on a large scale, across retail markets, and perhaps a experiential space is reopened where fantasia shopping was once squatting. Moreover, retailers are finding it to be better business to provide goods rather than experiences:
“It’s the best business model for retail in the world,” says Philippe Suchet of Exane BNP Paribas in Paris. Discounters stock a fraction of the goods that a normal supermarket offers, resulting in fewer suppliers, a high volume of purchases and sales, and massive economies of scale. “You would find 16 brands of tomato ketchup in a normal big supermarket,” says Paul Foley, managing director of Aldi in Britain. “In my store you will find a choice of one.” Discounters mostly sell their own private-label goods, which are more profitable than branded goods, where the brand owner takes a big cut, and also more efficient—having bar codes in exactly the same place on every product, for instance, says Mr Foley, means faster checkouts.A choice of one? That sounds like communism! No wonder the management at Aldi is "intensely secretive" -- they are probably dirty Reds!
What Aldi represents is a kind of perverse top-down anti-consumerism, rejecting the consumption of brands and seeking to replace it with the consumption of goods again.
Wednesday, July 6, 2011
Connoisseurship and snobbery (30 July 2008)
Felix Salmon linked to this article about the fraud of wine connoisseurship.
Perhaps in the past, wine tasters could pretend to a comprehensive expertise, but with the globalization of the wine trade, that kind of mastery has become impossible.
I always have the impulse to link to these sorts of essays, which expose connoisseurship as essentially phony, without any basis in some kind of objective form of discrimination. Maybe I've read too much postmodernist theory, or suffer from living in postmodern times, but it's hard to recognize an objective basis for critical authority: the credibility of the critic always seems to be more at stake than the nature of the work being evaluated. (Apparently I have become a pretty committed relativist, or rather, I've become infected with anti-elitist tendencies which find expression in an urge to want to democratize aesthetic judgment.) Would anonymous reviewing ameliorate this? Without a particular critic's established ethos to supply credibility, the question of why one should take any particular opinion seriously would be inescapable. We don't have time to give every piece of anonymous criticism the same shot -- when we have the urge to consult a critic, we need criteria for selecting which ones to pay attention to. These criteria will inevitably take the form of branding, capitalism's preferred solution for helping customers sort through a surfeit of information.
When I indulge the urge to denounce connoisseurship, I usually focus on the critics who seem preoccupied with their own egos, with monetizing their personal brand and masking their commercial motives with bogus paeans to art's objective purity or beauty. But perhaps I shouldn't blame these connoisseurs who are merely meeting a demand for their style of opinionmaking. When connoisseurship springs up in regard to a particular type of experience, it indicates an influx of gullibility, and a sudden social need for authoritative voices. This happens when the experience in question ceases to be undertaken for its own sake and becomes enlisted in status-driven posturing. Yes, the connoisseurs exploit and exacerbate the insecurity which generate the initial demand for their dubious services, but ultimately, no consumers are required to take critics seriously. But we always choose to, because critics help police class boundaries, and give us parameters with which to locate ourselves in the social hierarchy, which on an official level supposedly does not exist. It's important not to lose sight of the fact that taste never transcends politics to achieve some sort of objectivity, nor is it a totally subjective matter of merely personal import; it draws up class boundaries while preserving the illusion of self-determination that's central to capitalist ideology, since social mobility as a motive requires ambiguous class boundaries. Critics and connoisseurs dispense sumptuary laws, because the state, under capitalism, cannot.
It follows that critics and connoisseurs are only as credible and convincing as their class allegiances are obvious. Connoisseurs have no choice but to be snobs.
In 1976, an esteemed all-French jury gathered in Paris for a blind tasting to compare eight of France's greatest wines against a dozen upstarts from California. In an upset worthy of Hollywood, the United States trounced France, winning top honours in both the red and white categories.
Now, Hollywood has finally found its way to the story. Not one but two films based on the so-called Judgment of Paris will duke it out for attention this year....
The event's significance has predictably been interpreted the same way ever since: California had vaulted its way into the wine stratosphere. True. But if there's justice, the films will also be a reminder – in these boom times for wine snobbery – of a message far more overdue.... Without the benefit of a glance at the label, wine connoisseurship is so much hot air and bluster.
Perhaps in the past, wine tasters could pretend to a comprehensive expertise, but with the globalization of the wine trade, that kind of mastery has become impossible.
There is no myth about wine more enduring than that of the Olympian taster, the man or woman who can, with one sip, instantly peg a wine down to the vineyard, harvest year and grape blend. Such legendary stunts, when not actually apocryphal, almost always sound more impressive than they are.This is suggestive of what Morgan Meis argues in the essay I linked to yesterday: "It is difficult simply to keep up with the vast global cultural output, let alone to make determinations and judgments."
Scratch the surface and you'll usually find the field of potential wines was implicitly very limited. Until about 40 years ago, when Bordeaux and Burgundy were the be-all and end-all, the “blind wine” was virtually always pulled from a tiny list of well-known estates in the hearts of those regions – the Moutons, the Cheval Blancs and the Romanée-Contis. If you had tasted enough of those wines from a bunch of recent vintages (not difficult and not a financial hardship in those pre-hyperinflation days), you could acquit yourself pretty well. There was no fear, say, of somebody slipping in a Chilean cabernet (a style of wine, incidentally, that defeated Bordeaux once again in a repeat of the Paris tasting a few years ago using an all-European jury).
I always have the impulse to link to these sorts of essays, which expose connoisseurship as essentially phony, without any basis in some kind of objective form of discrimination. Maybe I've read too much postmodernist theory, or suffer from living in postmodern times, but it's hard to recognize an objective basis for critical authority: the credibility of the critic always seems to be more at stake than the nature of the work being evaluated. (Apparently I have become a pretty committed relativist, or rather, I've become infected with anti-elitist tendencies which find expression in an urge to want to democratize aesthetic judgment.) Would anonymous reviewing ameliorate this? Without a particular critic's established ethos to supply credibility, the question of why one should take any particular opinion seriously would be inescapable. We don't have time to give every piece of anonymous criticism the same shot -- when we have the urge to consult a critic, we need criteria for selecting which ones to pay attention to. These criteria will inevitably take the form of branding, capitalism's preferred solution for helping customers sort through a surfeit of information.
When I indulge the urge to denounce connoisseurship, I usually focus on the critics who seem preoccupied with their own egos, with monetizing their personal brand and masking their commercial motives with bogus paeans to art's objective purity or beauty. But perhaps I shouldn't blame these connoisseurs who are merely meeting a demand for their style of opinionmaking. When connoisseurship springs up in regard to a particular type of experience, it indicates an influx of gullibility, and a sudden social need for authoritative voices. This happens when the experience in question ceases to be undertaken for its own sake and becomes enlisted in status-driven posturing. Yes, the connoisseurs exploit and exacerbate the insecurity which generate the initial demand for their dubious services, but ultimately, no consumers are required to take critics seriously. But we always choose to, because critics help police class boundaries, and give us parameters with which to locate ourselves in the social hierarchy, which on an official level supposedly does not exist. It's important not to lose sight of the fact that taste never transcends politics to achieve some sort of objectivity, nor is it a totally subjective matter of merely personal import; it draws up class boundaries while preserving the illusion of self-determination that's central to capitalist ideology, since social mobility as a motive requires ambiguous class boundaries. Critics and connoisseurs dispense sumptuary laws, because the state, under capitalism, cannot.
It follows that critics and connoisseurs are only as credible and convincing as their class allegiances are obvious. Connoisseurs have no choice but to be snobs.
Thursday, June 30, 2011
Ostentatious gastronomy (3 June 2008)
I'm reflexively skeptical of elaborate menu copy -- the lush descriptions of the novel combinations of ingredients (often hyperspecified -- not just cucumber but compressed English cucumber) and unfamiliar modes of preparation for which loan words from French are required. Part of this is because this sort of language betokens expensiveness. I start to suspect I am paying for the sumptuous prose, which has set itself as mediating screen for the food, rather than for the food itself. Eating is inherently a democratic activity -- everyone has equal claim to being right about what they like -- but these menus are trying desperately to obscure that fact, make dining into a region of insecurity, identity formation, and class distinction.
But a larger part of my problem is that these menus make me feel stupid. I don't have the vocabulary necessary to understand them, and autodidact that I am, I hate to ask for explanations. Confronted with the incomprehensible descriptions that I can't really ignore, I often feel like a provincial rube, and I feel like this is by design -- I'm the sort of person the restaurant wants to feel excluded so that the target audience can enjoy their distinction a little bit more. I don't aspire to be sort of person who seeks that form of distinction, so I end up feeling completely alienated, annoyed at the existence of people who are impressed with ostentatious gastronomy; and my mouth refuses to taste what's there in the food as a way of expressing my very pointless protest.
I know that is mostly irrational paranoia, and that this is the sort of situation in which I should be applying Nassim Nicholas Taleb's dictum to reserve skepticism for the big questions -- not for the ulterior motives of small-time restaurateurs. They have the benign motive of wanting to make dining into an aesthetic experience and sharing the chef's artistry, but I don't want to eat aesthetically, so I get flustered by attempts to encourage me to do so. I don't want the chef to be an artist; I don't want to be able to discuss dining as I might talk about a movie or a well-written poem. Not only do I lack the discernment to recognize the chef's effort, but I almost feel negated by the chef's assertion of ego into my attempt to meet my fundamental need for nourishment.
Aestheticization of eating turns something primal into something that other people can judge you for -- if they can deem your ability to eat, to sustain your life, flawed, it is almost like they can reject your right to have any private sensations whatsoever. Shouldn't some aspects of life be beyond stylization? Shouldn't there be reserves of experience that remain direct, beyond the reach of self-consciousness, because they are so basic to our needs as humans? Do I have this backward? Are our fundamental needs the first to become complexly intertwined with society's need to fabricate and perpetuate hierarchies? (Maybe I need to read some Levi-Strauss or something on this point.)
One's tastes in food are extremely personal; they are perhaps the primary way to assert one's individuality. When one surrenders fussiness and learns to trust in the sophisticated concoctions of other self-appointed culinary artists, as expressed in menu copy, one cedes a huge territory on which one can establish identity. When you buy into the complicated menu, no substitutions, no longer can you say to yourself, "I choose what I will eat, for me and me only; my force of will alone will decide what's appropriate to stick in my body approvingly." You are trusting instead that someone else knows better than you about those extremely intimate and ultimately inexpressible and unsharable sensory experiences you will have in your mouth and your stomach.
I have a hard time making the leap, which in many ways feels like the leap to maturity. Instead I have this narcissistic view of food (it's all must be made personally for me, how I want it, because only MY ideas are valid about what I will eat), which requires those who make it to be anonymous, and that their methods be straightforward, transparent, and easily replicable. I want the food's deliciousness to be a reflection of my own ingenuity for choosing to eat it, not the special genius of the cooks who prepared it.
But a larger part of my problem is that these menus make me feel stupid. I don't have the vocabulary necessary to understand them, and autodidact that I am, I hate to ask for explanations. Confronted with the incomprehensible descriptions that I can't really ignore, I often feel like a provincial rube, and I feel like this is by design -- I'm the sort of person the restaurant wants to feel excluded so that the target audience can enjoy their distinction a little bit more. I don't aspire to be sort of person who seeks that form of distinction, so I end up feeling completely alienated, annoyed at the existence of people who are impressed with ostentatious gastronomy; and my mouth refuses to taste what's there in the food as a way of expressing my very pointless protest.
I know that is mostly irrational paranoia, and that this is the sort of situation in which I should be applying Nassim Nicholas Taleb's dictum to reserve skepticism for the big questions -- not for the ulterior motives of small-time restaurateurs. They have the benign motive of wanting to make dining into an aesthetic experience and sharing the chef's artistry, but I don't want to eat aesthetically, so I get flustered by attempts to encourage me to do so. I don't want the chef to be an artist; I don't want to be able to discuss dining as I might talk about a movie or a well-written poem. Not only do I lack the discernment to recognize the chef's effort, but I almost feel negated by the chef's assertion of ego into my attempt to meet my fundamental need for nourishment.
Aestheticization of eating turns something primal into something that other people can judge you for -- if they can deem your ability to eat, to sustain your life, flawed, it is almost like they can reject your right to have any private sensations whatsoever. Shouldn't some aspects of life be beyond stylization? Shouldn't there be reserves of experience that remain direct, beyond the reach of self-consciousness, because they are so basic to our needs as humans? Do I have this backward? Are our fundamental needs the first to become complexly intertwined with society's need to fabricate and perpetuate hierarchies? (Maybe I need to read some Levi-Strauss or something on this point.)
One's tastes in food are extremely personal; they are perhaps the primary way to assert one's individuality. When one surrenders fussiness and learns to trust in the sophisticated concoctions of other self-appointed culinary artists, as expressed in menu copy, one cedes a huge territory on which one can establish identity. When you buy into the complicated menu, no substitutions, no longer can you say to yourself, "I choose what I will eat, for me and me only; my force of will alone will decide what's appropriate to stick in my body approvingly." You are trusting instead that someone else knows better than you about those extremely intimate and ultimately inexpressible and unsharable sensory experiences you will have in your mouth and your stomach.
I have a hard time making the leap, which in many ways feels like the leap to maturity. Instead I have this narcissistic view of food (it's all must be made personally for me, how I want it, because only MY ideas are valid about what I will eat), which requires those who make it to be anonymous, and that their methods be straightforward, transparent, and easily replicable. I want the food's deliciousness to be a reflection of my own ingenuity for choosing to eat it, not the special genius of the cooks who prepared it.
Turning goods into experiences (2 June 2008)
Taking off from a remark in the NYT foodie blog that "the same plate of pasta goes down a lot easier at $12 -- it even tastes better at $12 -- than it does at $16," Felix Salmon wonders why the same is not true of wine, which we think tastes better when we know it was more expensive (at least according to a study described here).
Marketing is primarily an exercise in achieving the transformation of goods into experiences: trying to make a routine shopping trip feel like a once-in-a-lifetime opportunity; trying to make us think of ourselves and the kind of people we can become rather than the good itself and its limited capabilities; trying to convince us that a good confers distinction, making ownership of it into an accomplishment in its own right. (An antidote to this is the pursuit of scoreboard -- of bargains for their own sake.) Is it worth the effort to be skeptical of this sort of marketing? The danger is that these ersatz experiences with a price tag could supplant noncommercial experiences, which become devalued relative to those experiences being hyped. When experiences become purchasable in a market society, "real" experiences are only those with the imprimatur of the marketplace. Just as certain products seem more legitimate when they are bought in a "real store" (I'd rather get my socks from Macy's than from a random dude on the corner of 76th Street and Broadway), experiences may become subject to the same bias.
everybody has wine insecurities. If we know that wine quality is inversely correlated with price, then why do we feel guilty bringing a cheap bottle of wine to a dinner party? Probably because if it turns out not to be very good, the "but it was quite expensive" defense is a reasonable one. When navigating a strange and scary and unfamiliar land - which is how most people feel when they enter a wine shop - one grasps at anything one knows, which means that people (a) buy brands they recognize, and (b) navigate by price, in the absence of any other means by which to narrow down the selection.By "accompanying palaver" Salmon may mean the Grand Guignol absurdity of fine dining, but it seems to apply equally to all forms of marketing copy for consumption goods of nebulous utility. In these instances, we consume the copy, not the good. With pricey wine, we consume the experience of ourselves spending on something extravagant. It's generally to retailers' benefit to transform goods into experiences, which are subject to a different emotional and economic calculus. With experiential goods, there's hardly any standard by which we could tell whether or not we were ripped off. So we feel safer spending on them, and the rewards they supply us are immeasurable. That's perhaps why Nassim Nicholas Taleb, the author of The Black Swan, says (in this Times of London profile) "Scepticism is effortful and costly. It is better to be sceptical about matters of large consequences, and be imperfect, foolish and human in the small and the aesthetic." Skepticism deprives us of the ability to fool ourselves into thinking our unique experiences are worth any price. We can't know with any confidence what the real value of the experience it is, only that it diminishes if we start doubting it. If it creeps into our head that the wine is a ripoff, we enjoy it less than we would if were thinking we were giving ourselves an expensive treat. Skepticism makes us aware of hype as hype rather than letting hype serve its role of amplifying our experience of our own time. We only get to live once, and there is little good in regarding that time as inadequate or inferior to some lost time we would have preferred.
Very few people, by contrast, are insecure when it comes to food. They know what they like, and while they might well be willing to pay a lot of money for a great meal, they're generally even happier when they pay very little money for a great meal. What's more, if there's one big secular trend in the restaurant world, it's away from the three-star gourmet palaces of old, where you dressed for dinner and were served ostentatiously expensive food like Lobster Thermidor on fine china by obsequious waiters, and towards much more low-key shops which concentrate on the food more than the theater and which pride themselves on doing great things with formerly déclassé ingredients.
Interestingly, it's the grander, more high-theater holdouts which still tend to have the magnificent wine lists full of really expensive bottles. Maybe the more casual places know that without the accompanying palaver, a great wine won't seem quite as magnificent.
Marketing is primarily an exercise in achieving the transformation of goods into experiences: trying to make a routine shopping trip feel like a once-in-a-lifetime opportunity; trying to make us think of ourselves and the kind of people we can become rather than the good itself and its limited capabilities; trying to convince us that a good confers distinction, making ownership of it into an accomplishment in its own right. (An antidote to this is the pursuit of scoreboard -- of bargains for their own sake.) Is it worth the effort to be skeptical of this sort of marketing? The danger is that these ersatz experiences with a price tag could supplant noncommercial experiences, which become devalued relative to those experiences being hyped. When experiences become purchasable in a market society, "real" experiences are only those with the imprimatur of the marketplace. Just as certain products seem more legitimate when they are bought in a "real store" (I'd rather get my socks from Macy's than from a random dude on the corner of 76th Street and Broadway), experiences may become subject to the same bias.
Having more money vs. buying cheaper goods (20 May 2008)
Prompted by James Surowiecki's most recent New Yorker column, the econoblogosphere has been discussing this paper about purchasing power and income inequality. Says Surowiecki, "In a recent paper on the effect of trade with China, the University of Chicago economists Christian Broda and John Romalis estimate that poor Americans devote around forty per cent more of their spending to 'non-durable goods' than rich Americans do. That means that lower-income Americans get a much bigger benefit from the lower prices that trade with China has brought." Broda and Romalis's University of Chicago colleague Steven Leavitt (of Freakonomics fame) chimes in, highlighting the counterintuitive idea that "Inequality has not grown over the last decade — at least not very much. What we think is a rise in inequality is merely an artifact of how we measure things." Which in turn delights Cato Institute scholar Will Wilkinson, who's anxious to rebut critics of rising income inequality: "If you think economic inequality matters, that’s because you think relative economic well-being matters. If you think economic well-being matters, then what you care about is consumption, not income. So what you’re worried about, my egalitarian friend, is consumption inequality. If the trend in consumption inequality is flat, will you please make a note of it?" That's all in line with the libertarian ideology that holds that we can't jeopardize the outsize rewards reaped from capitalism's "creative destruction" with any sort of regulation lest we hamper society's "dynamism." (That's also why unreconstructed Randians like Alan Greenspan don't want to do anything to forestall bubbles.)
Somewhat bizarrely, Leavitt argues (perhaps following the paper's argument, though the abstract draws few interpretive conclusions) that because the lower-income bracket's basket of goods has seen less inflation than the basket of goods typical for wealthier people, that inequality between the two groups has been mitigated. Felix Salmon questions the numbers here, but there seems to be a strange methodological assumption as well. Poor people haven't chosen to buy the cheapening goods before the fact; they by them because they have to, because they are already cheap and not because they prefer them. So they may experience less inflation, but their stagnant incomes mean they don't have the ability to price themselves into a different (and possibly more satisfying, more status conferring) level of consumption. I don't know about you, but wouldn't you want the rich person's basket anyway, assuming you could afford it? Would you prefer clothes from SoHo boutiques or from Factory 2 U? Leavitt's logic seems to be that you can enrich yourself de facto by buying cheap things, a la the Ernest and Julio Gallo commercial where the sybarite fat cat drinking cheap wine purrs, "How do you think I got so rich?" I don't feel particularly rich when I go to the 99-cent store to buy recycling bags and am surrounded by mind-boggling amount of cheap crap available -- instead I feel thankful that I don't have to do my ordinary shopping there. It reminds me why it's so comforting to be in luxury-retail zones, where clutter and sensory assault is minimized and precious retail space is wasted conspicuously. Less, in certain contexts, is much more. I'd suppose I would rather be in a position to enjoy fewer luxuries and revel in the experience they provide than be in a position where I couldn't even dream about buying such experiences at all.
As economist Lane Kenworthy argues
Somewhat bizarrely, Leavitt argues (perhaps following the paper's argument, though the abstract draws few interpretive conclusions) that because the lower-income bracket's basket of goods has seen less inflation than the basket of goods typical for wealthier people, that inequality between the two groups has been mitigated. Felix Salmon questions the numbers here, but there seems to be a strange methodological assumption as well. Poor people haven't chosen to buy the cheapening goods before the fact; they by them because they have to, because they are already cheap and not because they prefer them. So they may experience less inflation, but their stagnant incomes mean they don't have the ability to price themselves into a different (and possibly more satisfying, more status conferring) level of consumption. I don't know about you, but wouldn't you want the rich person's basket anyway, assuming you could afford it? Would you prefer clothes from SoHo boutiques or from Factory 2 U? Leavitt's logic seems to be that you can enrich yourself de facto by buying cheap things, a la the Ernest and Julio Gallo commercial where the sybarite fat cat drinking cheap wine purrs, "How do you think I got so rich?" I don't feel particularly rich when I go to the 99-cent store to buy recycling bags and am surrounded by mind-boggling amount of cheap crap available -- instead I feel thankful that I don't have to do my ordinary shopping there. It reminds me why it's so comforting to be in luxury-retail zones, where clutter and sensory assault is minimized and precious retail space is wasted conspicuously. Less, in certain contexts, is much more. I'd suppose I would rather be in a position to enjoy fewer luxuries and revel in the experience they provide than be in a position where I couldn't even dream about buying such experiences at all.
As economist Lane Kenworthy argues
Consumption is worth paying attention to. But income is important in its own right because it confers capabilities to make choices. What matters, in this view, is what you are able to buy rather than what you want to buy. If a rich person with expensive tastes gets an extra $100,000, she can continue buying high-end clothes and gadgets. Or she can choose to purchase low-end Chinese-made products and save the difference. Suggesting that if she opts for the former there has been no rise in inequality is not very compelling.
Manufacturing neuroticism (16 May 2008)
I am on the record as being against customer service. It seems to me a trick to get us overinvested in shopping as a place where we can exercise our will to power. So when Yves Smith asks, in this post about a few ideas for new consumer-service businesses, "Do we want to foster customer neurosis?" I believe the answer is yes. Of course we do. Retailing is essentially the art of making insignificant choices seem paramount, and getting people hooked on the "thrill" of making such discriminations. Total neuroticism is the art practiced at its highest form and is a state of mind marketing in general is always preparing us for, stoking our fantasies of omnipotence and our insecurities about not belonging to group of preferred customers or whatever. (That is part of the logic behind retailers' loyalty programs -- those stupid cards you have to flash to get the sale price on items, like you are part of some elite cadre of special shoppers. Though the main reason for them, I always thought, was to track what you purchased and use that to compile demographic data to sell to manufacturers and advertisers.)
Perplexed by services for helping customers get the best rooms or seats within a hotel or particular flight, Smith asks "Is this much information really empowering, or does having such fine grading merely make some people unhappy when they don't get what their little website says is the best?" It certainly supplies the illusion of power and an opportunity to discriminate. I think it allows for the pleasure of making petty judgments, becoming ersatz insiders, and scoring insignificant victories over peer shoppers on a scoreboard that the insecurity mongers conjure out of thin air. Basically, when we as customers become fussy children, the retailers become our parental authority figures, granting or withholding the love we crave, even as we foolishly believe we are in control because we are being fussed over.
In a consumer society, shopping isn't about satisfying some set of wants extrinsic to the market arena -- it is about entering the arena and having our wants stoked and then satisfied, with our competitive juices stoked and our fantasizing mind fully engaged. Shopping is itself an experiential good; anything we take happen to take home from us is often just a souvenir.
Like Vaughn at Mind Hacks, I'm generally skeptical of neuroscientific research of the brain-lights-up-therefore-it's-true variety, but for what it's worth, this WSJ piece today explains that shopping is like crack smoking:
To a larger and larger degree, the wants occur after we have already decided to go shopping; they are not the impetus. So we don't start by wishing we could be "getting a better room" but we enter the sphere of services and discover that we can and then want to. The key for marketers is to keep us in that sphere -- a mental space more than a physical space -- where we are searching for things to buy, with buying becoming how we remind ourselves of our being.
Perplexed by services for helping customers get the best rooms or seats within a hotel or particular flight, Smith asks "Is this much information really empowering, or does having such fine grading merely make some people unhappy when they don't get what their little website says is the best?" It certainly supplies the illusion of power and an opportunity to discriminate. I think it allows for the pleasure of making petty judgments, becoming ersatz insiders, and scoring insignificant victories over peer shoppers on a scoreboard that the insecurity mongers conjure out of thin air. Basically, when we as customers become fussy children, the retailers become our parental authority figures, granting or withholding the love we crave, even as we foolishly believe we are in control because we are being fussed over.
In a consumer society, shopping isn't about satisfying some set of wants extrinsic to the market arena -- it is about entering the arena and having our wants stoked and then satisfied, with our competitive juices stoked and our fantasizing mind fully engaged. Shopping is itself an experiential good; anything we take happen to take home from us is often just a souvenir.
Like Vaughn at Mind Hacks, I'm generally skeptical of neuroscientific research of the brain-lights-up-therefore-it's-true variety, but for what it's worth, this WSJ piece today explains that shopping is like crack smoking:
Research shows that people often do get a high from shopping -- the brain releases chemicals such as dopamine or serotonin when a person is stimulated by discovering something new, such as a handbag. Sometimes, aspects of the shopping experience such as friendly sales clerks, eye-catching displays or aisles that are easy to navigate can trigger brain activity that brings about these "euphoric moments," says Dr. David Lewis, director of neuroscience at Mindlab International, a United Kingdom-based consultancy whose clients include athletes, retailers and advertising companies. "The brain is turned on by novelty."The writer sums up that "For the consumer, such studies serve as an important reminder that these euphoric moments do exist but they aren't necessarily triggered by the desire to own a particular item." I'm starting to believe that we convince ourselves we want some specific thing as an alibi so that we can enjoy the shopping experience as a whole. Like when I would sit down for some "writing" because I knew that would lead to cigarette breaks.
To a larger and larger degree, the wants occur after we have already decided to go shopping; they are not the impetus. So we don't start by wishing we could be "getting a better room" but we enter the sphere of services and discover that we can and then want to. The key for marketers is to keep us in that sphere -- a mental space more than a physical space -- where we are searching for things to buy, with buying becoming how we remind ourselves of our being.
Tuesday, June 28, 2011
Jettisoning aesthetic fundamentals (18 April 2008)
This Felix Salmon post made me wonder about the occasional claim that selling out can be some kind of high ironic art form. And it also shed some light on how musicians could perhaps capitalize on selling out's currently fashionable profile.
The first thing musicians should do is stop making their own music. Salmon writes,
In this rarefied realm, artists are brand managers and recognized as being better investments because of it. Svengali music producers once played this role in pop music perhaps, and that was probably what Warhol had in mind in promoting the Velvet Underground. He would guarantee the quality and reap the reputational rewards. Quality of music, as with the contemporary art, is sort of beside the point, as are any questions of authenticity. So bands should somehow figure out how to capitalize on not having to actually make the music they are selling as their creation -- electronic music and DJ-style laptop music are good steps in this direction. As long as your craft as a musician is not displayed and can't be evaluated, and your brand floats on pure assertion and chutzpah. It's the equivalent of the wealthy eschewing work to send the message about their exalted class status. For haute artists, actually making art is beneath them. By becoming brands, artists can preempt any attention that their individual works might garner: As Salmon explains, "The normal mode of looking at art is reversed: you don't think 'I like that, I wonder who the artist is' but rather 'Oh, there's a Koons, I wonder if I'll like it'.
Pop music has worked along similar lines for a long time; megastars' albums always attract notice and comment regardless of their quality, because they have had their significance to our zeitgeist preordained. And quality is subjective and irrelevant, particular in the face of the very large numbers involved with the top tier of performers.
Salmon wonders whether "these brands might suffer enormously when the art market crashes, just because their values are supported more by branding than by aesthetic fundamentals." Of course, if you have learned the lessons of deconstruction, you know that there are no aesthetic fundamentals, so certainly you shouldn't spend any time worrying about them. What you do have to consider is market positioning and creating the appropriate class associations. For musicians this means selling out to the right sorts of advertisers and so on. Or simply selling out, period, establishing cultural zeitgeisty significance in that way. Bands with grand ambitions will likely begin actively promoting their promotional duties.
The first thing musicians should do is stop making their own music. Salmon writes,
if you think of the artists who are famous for having assistants make their art for them, starting with Andy Warhol and moving on through the likes of Damien Hirst and Takashi Murakami, there's no indication that taking away the artist's touch has any kind of negative effect on the value of the art. If anything, the opposite seems to be true.
Part of the reason is that these artists have turned themselves into businesses. Both artists and collectors have at this point embraced the idea that there's nothing wrong with artists being motivated by money, and indeed they've created something of a virtuous cycle: an artist creates the kind of art that rich collectors want, which fuels demand for that artist, which drives up his prices, which makes him even more desirable, and so on. Eventually, collectors, especially hedge-fund managers, start buying an artist like they might a momentum stock: they place faith in the management of the company to continue to maximize shareholder value. And in doing so, of course, they only drive prices higher.
In this rarefied realm, artists are brand managers and recognized as being better investments because of it. Svengali music producers once played this role in pop music perhaps, and that was probably what Warhol had in mind in promoting the Velvet Underground. He would guarantee the quality and reap the reputational rewards. Quality of music, as with the contemporary art, is sort of beside the point, as are any questions of authenticity. So bands should somehow figure out how to capitalize on not having to actually make the music they are selling as their creation -- electronic music and DJ-style laptop music are good steps in this direction. As long as your craft as a musician is not displayed and can't be evaluated, and your brand floats on pure assertion and chutzpah. It's the equivalent of the wealthy eschewing work to send the message about their exalted class status. For haute artists, actually making art is beneath them. By becoming brands, artists can preempt any attention that their individual works might garner: As Salmon explains, "The normal mode of looking at art is reversed: you don't think 'I like that, I wonder who the artist is' but rather 'Oh, there's a Koons, I wonder if I'll like it'.
Pop music has worked along similar lines for a long time; megastars' albums always attract notice and comment regardless of their quality, because they have had their significance to our zeitgeist preordained. And quality is subjective and irrelevant, particular in the face of the very large numbers involved with the top tier of performers.
Salmon wonders whether "these brands might suffer enormously when the art market crashes, just because their values are supported more by branding than by aesthetic fundamentals." Of course, if you have learned the lessons of deconstruction, you know that there are no aesthetic fundamentals, so certainly you shouldn't spend any time worrying about them. What you do have to consider is market positioning and creating the appropriate class associations. For musicians this means selling out to the right sorts of advertisers and so on. Or simply selling out, period, establishing cultural zeitgeisty significance in that way. Bands with grand ambitions will likely begin actively promoting their promotional duties.
Friday, June 24, 2011
Grounded planes (11 April 2008)
There's all sorts of chaos at American airports right now mainly because American Airlines had to ground a bunch of planes over a particular flaw in a particular jet model. This juxtaposition in the NYT report seems telling:
Reading about this unfolding crisis, and thinking about the unpleasantness of taking any flight (it's almost worse than the bus, at this point, and rife with at least as many indignities) tempts one to become nostalgic about the old days when airlines were heavily regulated and air travel was a true luxury good. Every trip was made somewhat special by the high price of tickets, and the airline service was apparently geared toward making the trip feel like a stay in a high-end hotel. Protected against competition (and protected against having to drive downmarket, sacrificing everything to low price in order to maximize customer volume), the airlines may have been lazy about being efficient, but the arrangement imposed discipline on travelers, who had to choose much more carefully where to go and what to blow their travel budget on.
Air travel now become a good that's vaguely similar to homeownership, with air travel presented as almost an end in itself, a "right" that should be extended to everyone by making it affordable -- in other words, by cutting corners on safety, diminishing service quality, implementing confusing and highly discriminatory pricing schemes (i.e. you pay whatever you are tricked into paying as true prices disappear into a haze of promotional flim-flam and frequent flier discounts). Everyone shouldn't expected to travel by air, anymore than everyone shouldn't automatically expect to own real estate. There are other ways to travel, and other ways to secure shelter, that suit the variety of situations people find themselves in.
American’s chief executive, Gerard J. Arpey, tried to address concerns, saying that the inspections were no cause for alarm.What a curious coincidence that a Texas company and a Texas president should be spinning this instance of reckless endangerment on the part of business. This is pure irresponsible innuendo, but would anyone be shocked to discover that the FAA had been stocked with Bush cronies who believe regulatory agencies' primary function is to help business evade regulation and make more money? And that only increased congressional oversight ended the party?
“Irrespective of F.A.A. oversight, no one would put a plane in service that wasn’t safe,” he told The Fort Worth Star-Telegram. “I put my kids on these airplanes all the time.”
The White House also tried to assure passengers that planes were safe.
“Right now, we have a very safe airline transportation system,” a White House spokesman, Scott Stanzel, said. “That is not by accident. That is due to the work of the F.A.A. and the airlines to make sure that safety is first and foremost front of mind.”
Reading about this unfolding crisis, and thinking about the unpleasantness of taking any flight (it's almost worse than the bus, at this point, and rife with at least as many indignities) tempts one to become nostalgic about the old days when airlines were heavily regulated and air travel was a true luxury good. Every trip was made somewhat special by the high price of tickets, and the airline service was apparently geared toward making the trip feel like a stay in a high-end hotel. Protected against competition (and protected against having to drive downmarket, sacrificing everything to low price in order to maximize customer volume), the airlines may have been lazy about being efficient, but the arrangement imposed discipline on travelers, who had to choose much more carefully where to go and what to blow their travel budget on.
Air travel now become a good that's vaguely similar to homeownership, with air travel presented as almost an end in itself, a "right" that should be extended to everyone by making it affordable -- in other words, by cutting corners on safety, diminishing service quality, implementing confusing and highly discriminatory pricing schemes (i.e. you pay whatever you are tricked into paying as true prices disappear into a haze of promotional flim-flam and frequent flier discounts). Everyone shouldn't expected to travel by air, anymore than everyone shouldn't automatically expect to own real estate. There are other ways to travel, and other ways to secure shelter, that suit the variety of situations people find themselves in.
Wednesday, June 22, 2011
Secrets of the Emperors Club (12 March 2008)
Perhaps you are wondering, as I am, why Eliot Spitzer needed to pay $4,300 for a prostitute. I'm no sex-trade expert, but surely the sex couldn't be 43 times better or the woman 43 times better looking than the average $100 hooker. My initial thought was that purchasing expensive women to have sex with is a way of making love to your own net worth, which is probably far more arousing than mere flesh could be when you have reached certain rarefied heights of social prominence. By paying far more for them than anyone would have to, one asserts a kind of profligate power of sheer wastefulness that supplants the tired pleasures of sex, which any poor slob can enjoy -- perhaps this absurd expenditure compensates for the inability to consume hookers conspicuously. It's akin to the phenomenon of wine seeming to taste better when we believe it cost more money.
But Tyler Cowen has a different theory.
I wonder if people happen upon such a strategy subconsciously, or if actual extortion is involved.
But Tyler Cowen has a different theory.
It's not so hard to explain:In other words, Spitzer had to pay an extreme amount to ensure the prostitute's silence and trustworthiness. Sort of the same reason umpires make a lot of money, to discourage them from fixing games.
"The conditions under which transactors can use the market (repeat-purchase) mechanism of contract enforcement are examined. Increased price is shown to be a means of assuring contractual performance. A necessary and sufficient condition for performance is the existence of price sufficiently above salvageable production costs so that the nonperforming firm loses a discounted stream of rents on future sales which is greater than the wealth increase from nonperformance. This will generally imply a market price greater than the perfectly competitive price and rationalize investments in firm-specific assets. Advertising investments therefore becomes a positive indicator of likely performance."
That's Klein and Leffler, JPE, 1981
I wonder if people happen upon such a strategy subconsciously, or if actual extortion is involved.
Friday, April 29, 2011
Egalitarian customer service (26 Dec 2007)
This item from BusinessWeek about Southwest Airlines' recent adjustments highlights a dilemma between treating people fairly and treating them equally:
Hence Southwest customers don't like that some customers can buy or travel their way into preferential treatment. Part of what travelers had paid for in flying Southwest, apparently, is the leveling experience of having to scramble for seats at departure time. It was a way to purchase an ersatz egalitarianism, since it stood in stark contrast to the first-class, second-class, etc., seating systems at other airlines. Getting that first row seat on a Southwest flight because you camped out at the gate and earned it was a way of erasing extraneous advantages, of getting a perk that is ordinarily unreachable to those who can't afford to spend a fortune. What Southwest offered was an escape from money-based meritocracy, an escape from having what you are willing to spend serve as a proxy for your worthiness. Of course, most of these same consumers want precisely the opposite from their employers -- they want to be rewarded specially for their merit and for their special talents. Perhaps this inconsistency is a way that consumerism helps capitalist democracies smooth over the perpetual conflict between justice and equality, or to put it another way, between equal opportunity and equal outcomes. As part of the production cycle, we want meritocracy, we want disparate outcomes to reflect our different abilities, ambitions, and efforts. But in the consumption cycle that occurs simultaneously, we want the illusion of egalitarianism, of an equal outcome regardless of effort or ability -- we want the shortcuts and the conveniences to the feeling that no one else's money is better than our own.
But that doesn't take into account positional goods, which people consume to specifically destroy the spirit of egalitarianism. Positional goods allow us to express the class prerogatives and inherited advantages that distort our opportunities in general in the realm of consumption, where the market would seem to afford the same opportunities to all. The illusion of the democratic marketplace is useful to a point -- to keep a class-riven society complacent through the magic of purchasing power -- but beyond that point it is far more lucrative to exploit class insecurities, to manufacture scarcity and sell the thrill of exclusivity while fattening profit margins.
When Southwest Airlines (LUV) rolled out its new business fares and boarding procedures in early November, the carrier's blog quickly became crowded with comments. Nearly 500 impassioned remarks have been posted recently about the changes, which shook up Southwest's longstanding first-come, first-served boarding policy. The old method often meant long waits in line at the gate. The new way assigns passengers a specific place in line and gives priority to frequent travelers and people who pay extra for "business select" fares. Families with small children who don't check in early now wait longer to board.To me, these sound like sensible changes. Who wants long waits at the gate? Isn't waiting in the insane security line with your shoes off and your pants falling down indignity enough? First-come, first-serve makes sense on the Greyhound (though watch out for the ex-cons), but when you pay hundreds of dollars to travel somewhere, you should be able to book a seat. It makes much more sense to fill the seats in the order that they are purchased, or (most economists would likely argue) to use variable pricing to induce customers to pay extra for the privilege of securing advantageous seats. What is most fair, in terms of being most economically efficient, is to let each seat fetch whatever airlines can get for them. But when you sit beside someone on the same flight, enjoying a comparable square foot of personal space, and find out they paid hundreds of dollars less than you for the opportunity, this doesn't seem so fair. It seems like some kind of discrimination has taken place and that you've been had. At that point, a customer is likely to think, What, is he better than me? Why should he pay less than me for the same thing? Same goods, same price: It seems the democratic way.
Hence Southwest customers don't like that some customers can buy or travel their way into preferential treatment. Part of what travelers had paid for in flying Southwest, apparently, is the leveling experience of having to scramble for seats at departure time. It was a way to purchase an ersatz egalitarianism, since it stood in stark contrast to the first-class, second-class, etc., seating systems at other airlines. Getting that first row seat on a Southwest flight because you camped out at the gate and earned it was a way of erasing extraneous advantages, of getting a perk that is ordinarily unreachable to those who can't afford to spend a fortune. What Southwest offered was an escape from money-based meritocracy, an escape from having what you are willing to spend serve as a proxy for your worthiness. Of course, most of these same consumers want precisely the opposite from their employers -- they want to be rewarded specially for their merit and for their special talents. Perhaps this inconsistency is a way that consumerism helps capitalist democracies smooth over the perpetual conflict between justice and equality, or to put it another way, between equal opportunity and equal outcomes. As part of the production cycle, we want meritocracy, we want disparate outcomes to reflect our different abilities, ambitions, and efforts. But in the consumption cycle that occurs simultaneously, we want the illusion of egalitarianism, of an equal outcome regardless of effort or ability -- we want the shortcuts and the conveniences to the feeling that no one else's money is better than our own.
But that doesn't take into account positional goods, which people consume to specifically destroy the spirit of egalitarianism. Positional goods allow us to express the class prerogatives and inherited advantages that distort our opportunities in general in the realm of consumption, where the market would seem to afford the same opportunities to all. The illusion of the democratic marketplace is useful to a point -- to keep a class-riven society complacent through the magic of purchasing power -- but beyond that point it is far more lucrative to exploit class insecurities, to manufacture scarcity and sell the thrill of exclusivity while fattening profit margins.
Wednesday, April 27, 2011
Haggling (25 Oct 2007)
In BusinessWeek (which you may not recognize since its strange retro redesign) is an article about auto dealerships moving toward a "one-price" system, meaning the price the salesperson quotes you is actually what they intend to sell the car for, rather than being merely the opening act in a negotiation melodrama that will be followed by hard-sell histrionics, faked meetings with managers, some good cop/bad cop, and finally a deus ex machina deal. According to the auto dealerships, which create the bulk of their margins by mystifying the base price and burying its customers in bullshit, some people actually preferred the old system: "Dealers experimented with this before during the 1990s, only to be deluged with complaints from traditionalists who felt they weren't getting a good deal unless they had the satisfaction of seeing a salesman cut the price right before their eyes." I'd hazard that these "traditionalists" were so accustomed to distrusting car salesmen that they wouldn't accept that a given price from a salesman was anything but a ripoff. No one can possible prefer a system where pricing is more opaque -- car sales is the classic example of asymmetrical information distorting the market. If the salesman can assure that he always knows more than the customer, he can always work to maximize the rip-off. Or to translate into economic terminology, the salesman can make sure price discrimination works with maximum efficiency and buyers pay as much as they are willing to, not as little as the salesperson will accept. The haggling scheme is great for customers who can bargain on a fair playing field, as perhaps they might have been back when the deals were for horses and not theoretically identical machines. You could look in the animal's eyes and into its mouth (unless of course it was a gift horse), get a sense of its spirit, get a feel for how it would hunt. For men in Trollope novels at least, this is an essential skill, a way to demonstrate one's savvy, one's practical worldliness. (This in no way justifies Trollope's interminable fox-hunting sequences.) Some of this may have survived into car negotiations, as the article's author suggests, but that was long ago, before it became apparent that the situations weren't analogous.
Americans may have become too passive of shoppers to tolerate much haggling, which ceased to be a meaningful part of our culture early in the 20th century, when department stores lured customers with promises of haggle-free purchasing. In effect, we have been deskilled as consumers, and lead ourselves to market like lambs to slaughter.
This expectation has made prices much more sticky -- they can't adapt to inflation and to fluctuations in the values of currencies. Canadians are being punished by sticky prices right now -- to cross the bridge to Niagara Falls costs you $2.00 American and $2.50 Canadian, even though the dollars have recently achieved parity. When you are talking about a few cents per unit here or there, sticky prices don't seem too big a deal, but car dealers are faced with losing more like hundreds of dollars per sale at least, most of which probably hits the commission-earning salesman's paycheck. But there is considerable psychological comfort in fixed prices, because you don't have to feel like someone else got a better deal than you and your rights as a consumer-citizen were somehow grossly violated.
Americans may have become too passive of shoppers to tolerate much haggling, which ceased to be a meaningful part of our culture early in the 20th century, when department stores lured customers with promises of haggle-free purchasing. In effect, we have been deskilled as consumers, and lead ourselves to market like lambs to slaughter.
This expectation has made prices much more sticky -- they can't adapt to inflation and to fluctuations in the values of currencies. Canadians are being punished by sticky prices right now -- to cross the bridge to Niagara Falls costs you $2.00 American and $2.50 Canadian, even though the dollars have recently achieved parity. When you are talking about a few cents per unit here or there, sticky prices don't seem too big a deal, but car dealers are faced with losing more like hundreds of dollars per sale at least, most of which probably hits the commission-earning salesman's paycheck. But there is considerable psychological comfort in fixed prices, because you don't have to feel like someone else got a better deal than you and your rights as a consumer-citizen were somehow grossly violated.
Friday, January 21, 2011
Scalping Hannah Montana (12 Oct 2007)
Is the culture industry responsible for democratizing better access to the celebrities it manufactures in the mass media? Or to put that more plainly, should every kid have just as much of a chance of seeing Hannah Montana live as they do of seeing her on the Disney channel or hearing her sing on the radio? In the Financial Times yesterday, John Gapper analyzed the problem of ticket brokers cornering the market in Hannah Montana tickets, which are apparently as highly demanded as Tickle Me Elmos and Cabbage Patch Dolls were in their day.
Is equal access to a pop star who appeals across the classes to children of all income brackets a standard of fairness that mass media generates, along with the illusion of equality that the quasi-egalitarian nature of wide distribution evokes? Because so many have access to celebrities in the media, consumers may develop the expectation that access to them is an entitlement, and ever more intrusive coverage of celebrities would seem to only enhance that expectation. In line with that expectation, promoters set the prices at a rate that they think demonstrates their intentions of making them affordable for middle-class fans (whom they don't want to alienate), but this only prompts ticket brokers to buy as many as they can and resell them. As Gapper explains, "The courts have not yet decided whether these tactics are illegal or merely unpleasant. It clearly puts Ticketmaster at a disadvantage to banks that allocate shares to investors in IPOs because it has lost control of who gets scarce tickets."
The notion of fairness embedded in free-market economics would require that we let markets determine the value of things by letting prices rise in order to find the equilibrium between supply and demand. This rids us of "artificial" constraints, and lets whoever wants something badly enough (desire being measured by a willingness to spend) get it. But when you don't have money to spend, you can't express desire through a willingness to spend it. Instead, you have to express it by either (a) working hard to get more money, or (2) complaining to authorities who might then intervene in markets on your behalf. Thus, parents want to force tour promoters to restrict access to tickets, so that more non-brokers have the ability to buy them at face value, which the secondary market proves are far too low.
Markets are often regarded as inherently democratic in the way they bring goods to more and more consumers and allow consumer-citizens to feel they have the same rights because they shop in the same store. But the prevalence of abundant, quasi-democratically distributed goods tends to make the demand even more fierce for positional goods, and what the frenzy over Hannah Montana tickets suggests is that they have become, essentially, as much a positional good as oceanfront property. What makes them valuable is the very fact that not every kid can have one, and kids may be learning very early not merely the hard lesson of scarcity's effect on prices, as Gapper suggests, but the peculiar excitement of winning the snob game of having something other people want -- as well as the corollary notion that it's more important to have something others envy than something you personally enjoy. In fact, kids may not be too young to absorb the cynical idea that they should condition their own preferences in accordance to those of their peers. It's never too early to learn that only the very naive can believe that their tastes are wholly their own.
So popular is the show with tweens that the Hannah Montana/Miley Cyrus tour is a red-hot ticket. Tickets with a face value of up to $64 each are selling for an average of $232 on StubHub, an internet trading site. That is higher even than average secondary prices for the Bruce Springsteen and The Police tours, although the latter charged up to $250 per ticket.
Fair enough, you may think. Companies such as Google initially set the price for shares in IPOs and from then on the secondary market decides. When demand outstrips supply, prices rise. The same goes for bands: they sell tickets at face value through a distributor (in this case Ticketmaster). Prices then fluctuate on secondary sites such as StubHub.
But thousands of parents who failed to snag Hannah Montana tickets from Ticketmaster are not so phlegmatic. Nor are the attorneys-general of Arkansas, Connecticut, Missouri and Pennsylvania. They are apoplectic.
Is equal access to a pop star who appeals across the classes to children of all income brackets a standard of fairness that mass media generates, along with the illusion of equality that the quasi-egalitarian nature of wide distribution evokes? Because so many have access to celebrities in the media, consumers may develop the expectation that access to them is an entitlement, and ever more intrusive coverage of celebrities would seem to only enhance that expectation. In line with that expectation, promoters set the prices at a rate that they think demonstrates their intentions of making them affordable for middle-class fans (whom they don't want to alienate), but this only prompts ticket brokers to buy as many as they can and resell them. As Gapper explains, "The courts have not yet decided whether these tactics are illegal or merely unpleasant. It clearly puts Ticketmaster at a disadvantage to banks that allocate shares to investors in IPOs because it has lost control of who gets scarce tickets."
The notion of fairness embedded in free-market economics would require that we let markets determine the value of things by letting prices rise in order to find the equilibrium between supply and demand. This rids us of "artificial" constraints, and lets whoever wants something badly enough (desire being measured by a willingness to spend) get it. But when you don't have money to spend, you can't express desire through a willingness to spend it. Instead, you have to express it by either (a) working hard to get more money, or (2) complaining to authorities who might then intervene in markets on your behalf. Thus, parents want to force tour promoters to restrict access to tickets, so that more non-brokers have the ability to buy them at face value, which the secondary market proves are far too low.
Markets are often regarded as inherently democratic in the way they bring goods to more and more consumers and allow consumer-citizens to feel they have the same rights because they shop in the same store. But the prevalence of abundant, quasi-democratically distributed goods tends to make the demand even more fierce for positional goods, and what the frenzy over Hannah Montana tickets suggests is that they have become, essentially, as much a positional good as oceanfront property. What makes them valuable is the very fact that not every kid can have one, and kids may be learning very early not merely the hard lesson of scarcity's effect on prices, as Gapper suggests, but the peculiar excitement of winning the snob game of having something other people want -- as well as the corollary notion that it's more important to have something others envy than something you personally enjoy. In fact, kids may not be too young to absorb the cynical idea that they should condition their own preferences in accordance to those of their peers. It's never too early to learn that only the very naive can believe that their tastes are wholly their own.
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