The Culture of Cheapness

According to today's Commerce Department report, retail sales grew very little in October, a mere .2%. Why? Auto sales dropped 2.2%, because as the Wall Street Journal online noted, there's been a "long-lasting up-and-down pattern of activity on car lots, driven by the extension and withdrawal of zero-percent financing and other incentives."

Offer the incentive—and people buy. Take it away—people stop. And because the cycle is so pronounced, people know to wait for when incentive deals are on before they buy as car. Why be a sucker? Zero percent financing is the crack of the car industry. And once both the consumer and the company are hooked, it's very hard to shake it.

This is one of the most pernicious trends impacting our economy. I call it "the culture of cheapness." The early days of the Internet, of course, bred an atmosphere where paying what something actually cost online was anathema and a lot of money and good ideas were lost in the process. In most forms of online advertising, it's still the case that users react negatively to "creative" means of trying to extract money for the content being offered.

Despite the lesson of the crash, our economy still overly rewards cheapness. Wal-Mart. Exhibit A. Dell. Exhibit B. At least "everyday low prices" avoids this see-saw effect that's killing the car business.

How can you deliver value to customers without addicting them to discounts? I've been impressed with eBay and how it has always understood that it offered something of value and charged for it. Can you think of other businesses that stand out in their industries that way?

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5 Comments

  • flora

    Looking around I see how the culture of cheapness took over all the North America. It seems that everyone enjoys buying them without thinking that the products they buy are worth what they are priced. Where is the pride of being American or Canadian? Don't you see the mockery ? We are losing jobs and the ones flooding us with their cheap products are growing economically and very soon they will be the new super-political and economical power of the world. They will dictate the world economy and the world policy and we'll have to play by their rules. It will come the time that we will be happy to be offered the low paid jobs, just to have a job and a source of income for ourselves and our families.
    Why don't we wake up till it's not too late and say "no"?
    Why don't we pay few bucks more and help our own economies flourish?
    It's the time of international trade agreements, and most of the coutries that adhered them did this with all of the best intentions: the mutual benefit. Still, there are others who joined them just to have opened doors for their cheap products which are often the result of intellectual property rights infringement, or the result of childrn's exploitation.
    There are also lots of them proudly mentioning their ISO certification. Have you ever thought why and how so many got the ISO certifications while the quality of the products almost never meets the rigors of these standards?
    Who had the interest of cerifying them ?

    I'm looking around and I'm so sad, I feel trapped and I realize that if we didn't do something till it's not too late, our children and our grandchildren will be the chep labour market. They will line up for $ 0.10/hour jobs or will be guest-workers in Asia from where they will send their savings to their families in North America and to Western Europe to make it easier for them.

  • steve

    What ever happened to the 'culture of quality'? as mentioned earlier, the Japanese have that style. If you ever visit Japan you'll notice how expensive it is, but you'll also notice the higher quality. Remember when 'made in Japan' meant cheap prices and cheap quality? That's not the case anymore.
    So why does the USA embrace the 'culture of cheapness'? Are Americans that poor?
    Not only is this affecting the economy, but it's pervading everything else too. Example: spam.(see first posting with a spam of webaddresses for cheap China products...) People trying to make a fast buck are just flooding us with spam because there's always some idiot who's trying to save a buck and actually falls for the spam-scam.
    It's also contributing to the 'dumbing down of America' IMHO.

    So, how can we get out of that downward spiral???

  • Wes

    The ethos of "value" is fundamental to American culture. This is less the case in such countries as Japan, which embraces new technologies with only secondary consideration to price. Here, most Americans draw as much "utility" or satisfaction from getting a good deal as they do from using the product or service itself. This may come from our historical notion of the "pioneering spirit," our basis in puritan ethics, judeo-christian values, etc..

    This notion of value becomes even more important, and more sought after, when the consumer is less able to draw a distinction between competing products, i.e., the product converges on becoming a commodity. Many automobiles fall into this category. Regardless of some of the feature which differentiate many makes and models, most consumers will not reward manufacturers for quality/features beyond a certain threshold. Manufacturers compound the problem,as did happen with the German telecoms, when they all begin to offer the same set of features, under the mistaken belief they could become more competitive in a broader market. This is known as strategic herding, a surefire recipe for a declining margin.

    I think Saturn was initially successful at seperating their product from the rest of the industry, at least the American car industry. Owning a Saturn had the emotional appeal of belonging to a soft social cult. Their policy of offering a fair price that wasn't subject to negotiation also had appeal. Unfortunately, their quality was only marginally better than GM.

  • Windy Moore

    ps. what was the problem of the first submission?
    a bunch of irrelevant references. the haywire syndrome evidently.

    telematics is the wide area that is giving cars
    intelligence for your information.

    cheers!

  • Windy Moore

    There is a certain uneasiness about the economy.
    Part of the problem is the confusion around the
    war in Iraq, the price of gas, and the basic philosophy, that goes...in hard times or uncertain times..."if its not broke, then keep it"
    The challenge for the auto industry is to keep pushing for better fuel efficiency and the fuel cell engines. Obviously, in a time when gas prices have risen to an all time high- both of
    these innovation mandates have to be pushed in
    manufacturing roll out timetables. If you have
    a car built in 1995, and you are spending xxx
    dollars a year on gas, you will take out your calculator, and add up the pros and cons about buying a new car on 0 financing, for that reason
    and that reason alone. Bringing the cost down
    for autos doesn't mean the cost comes down. For
    rebates and incentives wont pay for extended warrenty programs and the cost of the extravaganza around the digital gagets and add-ons. Sure, a stripped down version will be cheap
    but talk about the phenomenal upgrades, the Sirius radio, or its competitor, and so on- means that the cost of a car depends on how much you want to invest in technological advantages.
    That will never be cheap- not when its the beginning of that cycle, not the middle, nor the
    end.