Tag Archives: economics: capitalism

How Manufacturers Make You Think You’re Saving Money When You’re Spending It

Flashback Friday.

Yesterday I went to Marshall’s to take some photos for this post and overheard a conversation between a teenager and her mother that perfectly illustrated what I was planning on posting about. The teen pulled her mom over to look at a purse she wanted for Christmas. It was $148, but she was making a case to her mom that it was actually a great buy compared to how much it would have been at the original price, which, as she pointed out to her mom, was listed as $368.

Ellen Ruppel Shell discusses this topic at length in Cheap: The High Cost of Discount Culture. Here’s a relevant photo I took:

It indicates that you are getting a great deal by shopping at Marshall’s compared to the original price of the item.

Except that is not, in fact, what they are saying. Look at the image again: the wording is “compare at…” The tags do not say “marked down from” or “original price” or “was.” There is a crucial difference: when you are told to “compare at,” the implication is that the shoes were originally $175, making them a super steal at $49. The “manufacturer’s suggested retail price” (MSRP) gives you the same info.

But as Shell points out, these numbers are largely fictional. Marshall’s is not actually telling you that those shoes were ever sold for $175. You’re just supposed to “compare” $49 to $175. But $175 may be an entirely meaningless number. The shoes may never have been sold for $175 at any store; certainly no specifics are given. Even if they were, the fact that a large number of them ended up at Marshall’s would indicate that many customers didn’t consider $175 an acceptable price.

The same goes for the MSRP: it’s meaningless. Among other things, that’s not how pricing works these days for big retail outlets. The manufacturer doesn’t make a product and then tell the retailer how much they ought to charge for it. Retailers hold much more power than manufacturers; generally, they pressure suppliers to meet their price and to constantly lower costs, putting the burden on the suppliers to figure out how to do so (often by reducing wages). The idea that manufacturers are able to tell Macy’s or Target or other big retailers how much to charge for their items is ridiculous. Rather, the retailer usually tells the manufacturer what MSRP to print on the tag of items they’ll be purchasing (I saw some tags at Marshall’s where it said MSRP but no price had been printed on it).

So what’s the point of a MSRP on a price tag, or a “compare at” number? These numbers serve as “anchor” prices — that is, they set a high “starting” point for the product, so the “sale” price seems like a great deal in comparison. Except the “sale” price isn’t actually a discount at all — it’s only a sale price in comparison to this fictional original price that was developed for the sole purpose of making you think “Holy crap! I can get $175 shoes for just $49!”

The point is to redirect your thinking from “Do I think these shoes are worth $49?” to “I can save $126!” This is a powerful psychological motivator; marketing research shows that people are fairly easily swayed by perceived savings. A sweater we might not think is worth $40 if we saw it at Banana Republic suddenly becomes worth $50 if we see it at Marshall’s (or T.J. Maxx, an outlet mall, Ross, etc.) and are told it used to sell for $80. We focus not on the fact that we’re spending $50, but on the fact that we’re saving $30.

And that makes us feel smart: we’ve beat the system! Instead of going to the mall and paying $368 for that purse, we hunted through the discount retailer and found it for $148! We worked for it, and we were smart enough to not get conned into buying it at the inflated price. Shell describes research that shows that, in these situations, we feel like we didn’t just save that money, we actually earned it by going to the effort to search out deals. When we buy that $148 purse, we’re likely to leave feeling like we’re somehow $220 richer (since we didn’t pay $368) rather than $148 poorer. And we’ll value it more highly because we feel like we were smart to find it; that is, we’re likely to think a $148 purse bought on “sale” is cooler and better quality than we would the identical purse if we bought it at full price for $120.

And stores capitalize on these psychological tendencies by giving us cues that seem to indicate we’re getting an amazing deal. Sometimes we are. But often we’re being distracted with numbers that seem to give us meaningful information but are largely irrelevant, if not entirely fictional.

Originally posted in 2009.

Gwen Sharp is an associate professor of sociology at Nevada State College. You can follow her on Twitter at @gwensharpnv.

The Quinoa Economy

Within the last decade, the grain quinoa has emerged as an alleged “super food” in western dietary practices. Health food stores and upscale grocery chains have aisles dedicated to varieties of quinoa, packaged under many different brand labels, touting it to be a nutritional goldmine. A simple Google search of the word returns pages of results with buzzwords like “healthiest,” “organic,” and “wholesome.” Vegan and health-enthusiast subcultures swear by this expensive food product, and the Food and Agricultural Organization (FAO) even declared the year 2013 International Year of the Quinoa, owing to the grain’s popularity.

The journey of the grain — as it makes it to the gourmet kitchen at upscale restaurants in countries like the United States — however, is often overlooked in mainstream discourse. It often begins in the Yellow Andes region of Bolivia, where the farmers that grow this crop have depended on it as almost a sole nutritional source for decades, if not centuries. The boom in western markets, with exceedingly high demands for this crop has caused it to transition from a traditional food crop to a major cash crop.

While critical global organizations like the FAO have been portraying this as positive, they tend to discount the challenge of participating in a demanding global market. Within-country inequality, skewed export/import dynamics, and capitalist trade practices that remain in the favor of the powerful player in these dynamics – the core consumer – cause new and difficult problems for Bolivian farmers, like not being able to afford to buy the food they have traditionally depended upon.

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Meanwhile, growing such large amounts of quinoa has been degrading the Andean soil: even the FAO outlines concerns for biodiversity, while otherwise touting the phenomenon.

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While efforts have been put in place by farmer unions, cooperatives and development initiatives to mitigate some negative effects on the primary producers of quinoa, they have not been enough to protect the food security of these Andean farmers. Increased consumer consciousness is therefore essential in ensuring that these farmers don’t continue to suffer because of Western dietary fads.

Cross-posted at Sociology Lens.

Aarushi Bhandari is a doctoral student at Stony Brook University interested in globalization and the impact of neoliberal policies on the developing world. She wants to study global food security within a global neoliberal framework and the world systems perspective.

The Story of the Shopping Cart

Flashback Friday.

Behold, the taken-for-granted, unexceptional shopping cart:

Until last week I had never truly thought about shopping carts. I mean, I occasionally notice one stranded in an unexpected place, and as a kid I loved the occasional chance I had to push one a bit and then jump on and race down an aisle. But last week I started reading Cheap: The High Cost of Discount Culture by Ellen Ruppel Shell, and it turns out that the story of the shopping cart is fascinating!

So, way back in the day, stores weren’t like they were today. You went in and there was a long counter and you had the clerk show you the wares. If you’ve read some Jane Austen or Laura Ingalls Wilder, you’ve undoubtedly come across a scene where a clerk is showing someone bolts of cloth. That’s how things worked: almost everything was behind the counter; you told the clerk what you were interested in and they showed you your options. You haggled over the price, decided on a nice gingham, the clerk wrapped it for you, and off you went. Most retail outlets worked more or less along these lines (think of a butcher, for instance).

But if you were a shop owner interested in keeping prices down, this situation might be less than ideal. It required a lot of clerks, and experienced clerks who knew all the goods and could be trusted to set an acceptably profitable price for them, too.

Eventually retailers, including F.W. Woolworth, tried putting more products out on display in the store so customers could help themselves. Some customers liked the ability to pick items off the shelves directly, but more importantly, you didn’t need as many clerks, and certainly not such highly-paid ones, if their job was mostly reduced to ringing up the purchases at the register.

Of course, this presents a new problem: how are customers going to carry all their purchases around the store while they make their selections? Well, a basket they could carry over an arm would work. But these baskets had a downside: they didn’t hold much and they quickly got heavy.

As Shell notes, in 1937 a man from my home state of Oklahoma, Sylvan Goldman, came up with a solution. He owned the Humpty-Dumpty grocery store chain (I still remember Humpty-Dumpty!). He and a mechanic he hired came up with a cart on which two shopping baskets could be suspended. And thus the shopping cart — or, as Goldman named it, the “folding basket carrier” — was born. As Goldman suspected, people bought more when they didn’t have to carry a heavy basket on their arm. The folding basket carrier was advertised as a solution to the burden of shopping:

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The only problem was…people didn’t like the new contraptions. From a 1977 interview (via):

I went into our largest store, there wasn’t a soul using a basket carrier, and we had an attractive girl by the entrance that had a basket carrier and two baskets in it, one on the top and one on the bottom, and asked them to please take this cart to do your shopping with. And the housewive’s, most of them decided, “No more carts for me. I have been pushing enough baby carriages. I don’t want to push anymore.” And the men would say, “You mean with my big strong arms I can’t carry a darn little basket like that?” And he wouldn’t touch it. It was a complete flop.

Goldman eventually had to hire attractive models to walk around the store pushing the carts to make shopping carts seem like an acceptable or even fashionable item to use.

Over time the basic design was changed to have a single basket, with a flat shelf on the bottom for large items. The baskets could also then “nest” inside each other (instead of being folded up individually), reducing the amount of space they required for storage.

The Baby Boom ushered in the final major design change, a seat for kids:

Notice in the illustration above how small the cart is compared to what we’re used to today. I remember as a kid going to the local grocery store, and the carts were quite small; eventually a big warehouse-type grocery store came to the nearest city and their baskets seemed gigantic in comparison. Because obviously, if people will buy more if they have a cart instead of a full arm-carried basket, they’ll buy even more if they have a bigger cart — not just because there’s more room, but because it seems like less stuff if it’s in a bigger cart. Restaurants discovered the same principle — people will want bigger portions if you give them bigger plates because it visually looks like less food and so they don’t feel like they’re over-eating.

Without enormous carts, Big Box discounters and wholesale club stores couldn’t exist. You can’t carry a box of 50 packages of Ramen noodles, 36 rolls of toilet paper, a box of 3 gallons of milk, enough soup for the entire winter, and a DVD player you just found on sale around without a huge cart.

So there you have it: labor de-skilling + marketing – stigma of feminine association + Baby Boom + profits based on increased purchasing of ever-cheaper stuff = the modern shopping cart!

I love it when I learn totally new stuff.

Originally posted in 2009.

Gwen Sharp is an associate professor of sociology at Nevada State College. You can follow her on Twitter at @gwensharpnv.

Are Economics Majors Anti-Social?

Yep. Economics majors are more anti-social than non-econ majors. And taking econ classes also makes people more anti-social than they were before. It turns out, there’s quite a bit of research on this, nicely summarized here.  Econ majors are less likely to share, less generous to the needy, and more likely to cheat, lie, and steal.

In one study, for example, economists Yoram Bauman and Elaina Rose noted the consistent finding that econ majors were less generous and asked whether the effect was do to selection (people who are anti-social choose to take econ classes) or indoctrination (taking econ classes makes one more anti-social). They found that both play a role.

Students at their institution — University of Washington — were asked at registration each semester if they’d like to donate to WashPIRG (a left-leaning public interest group) and ATN (a non-partisan group that lobbies to reduce tuition rates).  Bauman and Elaina crunched the data along with students’ chosen majors and classes. They found that econ majors were less likely to donate to either cause (the selection hypothesis) and that non-econ majors who had taken econ classes were less likely to donate than non-majors who hadn’t (the indoctrination hypothesis).

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What should we make of these findings?

Sociologist Amitai Etzioni takes a stab at an answer. He argues that neoclassical economics isn’t a problem in itself. Instead, the problem may be that there are no “balancing” classes, ones that present a different kind of economics. In other part of the academy, he argues — specifying social philosophy, political science, and sociology– there is “a great variety of approaches are advanced, thereby leaving students with a consolidated debasing exposure and a cacophony of conflicting pro-social views.”

Being exposed to a variety of views, including ones that question the premises of neoclassical economics, may be one way to make economists more honest and kind. And doing so isn’t just about sticking one to econ, it’s an issue of grave seriousness, as the criminal and immoral behavior of our financial leaders is exactly what triggered a Great Recession once… and could again.

Cross-posted at Pacific Standard.

Lisa Wade is a professor of sociology at Occidental College and the co-author of Gender: Ideas, Interactions, Institutions. You can follow her on Twitter and Facebook.

Industry’s Influence on Trade Policy

President Obama continues to press for a form of fast track approval to ensure Congressional support for two major trade agreements: the Trans-Pacific Trade Partnership Agreement (with 11 other countries) and the Trans-Atlantic Trade and Investment Partnership Agreement (with the entire European Union).

Both agreements, based on leaks of current negotiating positions, have been structured to promote business interests and will have negative consequences for working people relative to their wages and working conditions, access to public services, and the environment.

These agreements are being negotiated in secret: even members of Congress are locked out of the negotiating process.  The only people that know what is happening and are in a position to shape the end result are the U.S. trade representative and a select group of 566 advisory group members selected by the U.S. trade representative.

Thanks to a recent Washington Post post we can see who these advisory group members are and, by extension, whose interests are served by the negotiations.  According to the blog post, 480 or 85% of the members are from either industry or trade association groups.  The remaining 15% are academics or members of unions, civil society organizations, or government committees.  The blog post includes actual names and affiliations.

Here we can see the general picture of corporate domination of U.S. trade policy as illustrated by the Washington Post.
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In short, corporate interests are well placed to directly shape our trade policies.  No wonder drafts of these treaties include chapters that, among other things, lengthen patent protection for drugs, promote capital mobility and privatization of public enterprises, and allow corporations to sue governments in supra-national secret tribunals if public policies reduce expected profits.

Cross-posted at Reports from the Economic Front and Pacific Standard.

Martin Hart-Landsberg is a professor of economics at Lewis and Clark College. You can follow him at Reports from the Economic Front.

Chart of the Week: Big Pharma Spends More on Marketing than Research

Pharmaceutical companies say that they need long patents that keep the price of their drugs high so that they can invest in research. But that’s not actually what they’re spending most of their money on. Instead, they’re spending more — sometimes twice as much — on advertising directly to doctors and consumers.

Data from the BBC, visualized by León Markovitz:

2“When do you cross the line from essential profits to profiteering?,” asked Dr Brian Druker, one of a group of physicians asking for price reductions.

Lisa Wade is a professor of sociology at Occidental College and the co-author of Gender: Ideas, Interactions, Institutions. You can follow her on Twitter and Facebook.

Designing for Profit: On “Instructions for Use”

Flashback Friday.

When companies offer instructions as to how much of their product to use, what do you think drives their decisions as to what advice to give?

Theory 1:  They give the best advice.

Theory 2:  They give reasonably good advice, erring on the side of you using more product versus less.

I’m with Theory 2.  The quicker you go through their product, the more frequently you have to purchase it, and the richer they get.  So they have an interest in your over-using their product.

Dan Myers agrees.   He put up a great example of this on his website, Blue Monster. He writes:

When you buy laundry detergent these days, the cap usually serves as a handy measuring cup… Now, if you were a company that wanted to get people to use it up as fast a possible (read: waste as much of it as possible) so you could get some more out of them, what would you do? Well, having a devious mind myself, I’d make the cup bigger that it needs to be hoping people would consistently use more than they need. Especially given that people are more likely than not to fill the cup up to the top.

And that is exactly what you get on with the TIDE packaging. The cap, shown here, has three measuring lines in it: 1, 2, and 3. All of these are significantly lower than the top of the cap.

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Furthermore, if one actually takes the time to read the instructions on the bottle, the 1 line is for “medium” loads, the 2 line is for large loads, and the 3 line is not even mentioned!!!

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Why is it there if it isn’t mentioned? I say that it’s because for those who actually look at the cup instead of just filling it up, they want to give you the impression that 1 is small, 2 is medium, and 3 is large–thereby getting you to use more than necessary every time you launder. Scam Masters!!!

In another illustration, Myers videos himself brushing his teeth with the liberal swirl of toothpaste seen in your average advertisement. The result is a hilarious excessive frothing. A blob of toothpaste the size of a pea is likely sufficient for most of us, but toothpaste companies would probably prefer that you overdo it.

Relatedly, I’ve always been suspicious of how gas stations order the gas by quality/expense. Sometimes it goes cheaper on the left to expensive on the right, which is what you’d expect because we read left to right, but sometimes it’s reverse. Do people sometimes hit the far left button, assuming it’s the cheap gas, and accidentally spend more than they have to? I bet they do.

There must be hundreds of examples of this kind of trick.

This post originally appeared in 2009.

Lisa Wade is a professor of sociology at Occidental College and the co-author of Gender: Ideas, Interactions, Institutions. You can follow her on Twitter and Facebook.

The Environmental Costs of Valentine’s Day Roses

Flashback Friday.

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An article at Scientific American draws attention to the environmental cost of the commodification of flowers as a symbol of love.  Carolyn Wheelan writes:

[Roses] are… fragile and almost always flown to the U.S. from warmer climes in South America, where roughly 80 percent of our roses take root; to warm the hearts of European sweethearts, they are most often imported from Africa. They are then hauled in temperature-controlled trucks across the U.S. or the Continent and locked up overnight in cold boxes before their onward journey to the florists of the world… sending the roughly 100 million roses of a typical Valentine’s Day produces some 9,000 metric tons of carbon dioxide (CO2) emissions from field to U.S. florist.

When flowers aren’t shipped in to cooler climates, they must be grown in greenhouses, like the Yuzhny Greenhouse Farm in Russia pictured above.  Some flower farms take the form of vast arrays of greenhouses that use energy to maintain a microclimate out of synch with the climate in which they are situated.

The SciAm article does a good job of pointing out that not all flower farms are equal and there are lots of more and less environmentally- and socially-conscious choices.Fair trade, worker-conscious, organic, and otherwise environmentally-friendly flower companies claim to offer an alternative.  Florverde, for example, advertises its flowers as “for the earth, for the workers, for you”:

Originally posted in 2009. h/t Jezebel.

Lisa Wade is a professor of sociology at Occidental College and the co-author of Gender: Ideas, Interactions, Institutions. You can follow her on Twitter and Facebook.