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?DL