Sunday, February 05, 2006

The non-foolishness of paying for convenience

Two friends threw a party last night, and I arrived early to help prepare things. That didn't turn out as expected, but it's another (and very long) story. I went with one to get ice, and he bought six bags for $1.69 each at the local grocery store.

When we returned, his mother-in-law demanded to know (not just asked) how much we spent. Then she yelled at him: "You're a fool! You could have gotten it at the community center for nothin'!" What she really meant was, we could have gotten the ice without paying any money, which is not the same as zero cost. We would have had quite a cost, actually. We would have had to walk in rain and chilly winds, carrying coolers to another of the triplet apartment buildings, then lugging them back laden with ice. Since she wouldn't have been the one doing it, it was easy for her to say "nothin'." By the way, she's also the same who believes people are "entitled" to government help.

Now compare that to the $10.14 (plus gas) that my friend spent on ice. In fact, we might have spent more time driving than had we walked to the other building, but it was certainly easier and more comfortable. Was it worth the money? He thought it was. The principle of scarcity tells us that the more you have of something, the more of it you'll be willing to trade for something you want that you have little (or none) of. Since my friend works, $10 is worth less to him than to his retired mother-in-law; conversely, $10 worth of items are more desirable to him than to his mother-in-law. In this case, $10.14 was worth getting ice more conveniently.

The grocery store we went to offers home delivery, up to two carts full for $8.95, and $4.95 for each additional cart. The store would not offer that if it didn't calculate that it could make at least as much profit (per resources expended) than selling groceries. And of course, it wouldn't continue to offer the service if people weren't willing and able to pay for that convenience.

We rationally pay for convenience all the time, whether it's the $1.25 20-ounce Coca-Cola at the checkout counter, an "overpriced" pack of gum, crude oil or Microsoft software. Nothing is "overpriced" so long as people are willing to pay what the sellers demand. On New Year's Eve, I stopped by a full-service gas station and paid $2.79 per gallon. I could driven to self-serve stations half a mile down the road and filled up for $2.59, but that gas station was right on the way, and the next closest one would have been a detour. Since I was running late, it was worth paying a few dollars more to save several minutes, and to have someone endure the cold dampness in my place.

I didn't pull out a calculator and determine how much my time was worth at that moment (that would have been too costly, anyway), but being rushed, a few dollars suddenly lost a lot of value relative to the ease and speed of filling up very near the entrance to the Saw Mill Parkway. Humans are amazing creatures in how we can quickly judge the value of our time. Once, I couldn't find the two-cent stamps that I thought I'd brought to work, so I simply put two 37-cent stamps on an envelope that needed to go out that day. With very little thought, I knew that paying 35 cents more was worth not the time to walk a few blocks down to the nearest post office. Actually I found the stamps a few minutes later, but by happenstance. It wouldn't have been worth my time to actively search for them.


Blogger Scorpius said...

The grocery store we went to offers home delivery, up to two carts full for $8.95, and $4.95 for each additional cart. The store would not offer that if it didn't calculate that it could make at least as much profit (per resources expended) than selling groceries.

I think it goes deeper than that. I once worked in a grocery store and the manager gave me a little insight in how they work. One thing you should know is that many items in a grocery store are sold, on an individual level, at a loss. This is because they are popular items and the store wants a "draw" to get people in and then spend money on net-profit items while they are picking up the former item. I can see them offering conviences at a loss to draw customers in.

Monday, February 06, 2006 12:27:00 AM  
Blogger Perry Eidelbus said...

That's very true. Retail stores like to advertise loss leader items. Better to provide, say, $12 worth of delivery service for $9, and profit off the rest, rather than not making the sale at all.

Nine dollars for two carts would probably be profitable for this area. The store would deliver nearly every time to the nearby Co-Op City apartment buildings, which are within a mile. Driving takes just a few minutes, but that's a pain when walking back groceries. Lots of people there don't have cars for various reasons, like the expense, the very limited parking, and the availability of public transportation.

Monday, February 06, 2006 12:48:00 AM  
Blogger CaptiousNut said...

Ice....very funny.

My father accompanied me to the liquor store before a party I threw and went apoplectic when I bought 6 bags of ice.

When he is entertaining a large group, he spends the entire week beforehand making ice - two trays at a time, every 2 hours or so.

Thursday, February 09, 2006 9:23:00 PM  

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