The Price is Wrong

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I love a bargain as much as the next person. But there comes a time when you have to ask, "Why is it that I ever paid full price for anything? Or thought that 25 percent off was a good deal?" And the question going forward, for many retailers, is, "How do we ever get people to engage in this folly of overpaying for our goods in the future?"

The fundamental problem is that once you've established a new bottom for a given commodity, or even for a luxury item, how do you now convince people that you were just kidding? It's hard. Almost impossible. I have recently retreated from the musical instrument business. The hard facts are that a basic guitar of reasonable quality has never cost less. If you look at the price tag, it is about the same numerically as guitars were in 1955, about $200 for a basic instrument, made at that time in the U. S. of A. Now a basic guitar, made in the Republic of China, could cost as little as $79 or $99, and $200 gets you a well-made, perfectly functional instrument. This may not be something you want to show off to your friends, but then again it could be, since so many of these instruments play beautifully and sound just as good. So what is it that justifies a higher price? After all, all those guitars are made out of about the same amount of chopped-up tree plus a handful of magnets, wire and a few components. Why do some cost thousands and others less than a hundred?

The answer is the elusive "value added." And this is where the damage has been extreme. Ignoring guitars for a moment, think about luxury goods like handbags and high fashion. Much like the guitar, they are all made out of a handful of raw materials, and even the fanciest of them require little more labor to produce than the simplest of designs. But design is the decisive factor when it comes to value added; what you're paying for is simply high concept, or at least higher concept than the handbag hanging next to the outrageously expensive one at one-tenth the price. And when times get tough, priorities and values suddenly get rearranged. How much more is it worth to flash some obviously-designer piece of conspicuous consumption, versus how badly do I not want to appear in public with the same handbag I last showed up with? And even further, who really cares? If you take the mania out of the fashion game, all the high-end names are left quite literally, 'holding the bag.' Which brings us back to 70 percent off. Why in God's name were prices so high to begin with if they can take 70 percent off and still afford to advertise? Is it simply a desperate strategy for survival, or has the obscene profit margin that these companies have operated with simply laid bare? Perhaps a bit of both, but the lesson to consumers is quite simply this: you've been paying far too much for everything. There's even a surplus of milk. Perhaps it's time to dicker with your grocer for a better deal. And it could be decades, if ever, that we retrace our way to that frothy economy that knew no bounds as far as luxury was concerned, damn the consequenses to our budget. For companies that have reported record profit quarter over quarter, it could be a rough road ahead. They may have beaten all the excess spending out of the consumer for quite some time to come. Thinking once more about guitars, the manufacturer Gibson likes to bring out very limited edition guitars that cost a couple thousand dollars, and often more. The very fact that they only produce 100 of a given issue is supposed to boost their value. And during the heady years they rarely stumbled. But now that even the deposed titans of Wall Street are counting their beans and global markets are under duress, the idle, monied club of guitar collectors around the world are pulling back. Suddenly even the rarest of new issues looks like little more than a chopped up tree and a handful of components.