Sunday, July 16, 2006

The non-foolishness of paying for convenience, part II

Friday night at the Foundation for Economic Education, I was talking with one of the professors who conducts the summer student seminars and promised to send him a link to my entry on NYC's flower district. Brad left a comment criticizing FTD's business practice, and I continued things over at the Liberty Papers.

I hadn't noticed a couple of ignorant responses to my own. One came from a florist who is obviously miffed that FTD cuts into his profit margins. But of course: who wouldn't want to eliminate all "middlemen" and reap the full profit? "If you want REAL FLOWERS, seek out and find, A REAL FLORIST!" My friend received "REAL FLOWERS" that were just beautiful, and she'd be the first to dispute anyone who alleges they weren't "REAL." Moreover, it wouldn't have made a damn bit of difference had they come directly from a local florist, because ultimately it's the product that matters most.

It's foolish to claim that consumers are foolish to spend $30 plus $10 shipping because going straight through a florist would chave cost only $30. Microeconomics tells us that I was willing to pay $40 for the flowers, regardless of the total cost's individual components. Think about it: if a dozen roses, delivered, were only worth $30 to me, then why did I pay $40 for everything? Since I valued the entire product (which includes delivery) at $40, if there were no FTD, supply and demand tell us that florists would eventually charge higher prices. Perhaps not $40, because FTD doesn't

The guy's complaint boils down to the same as from the "mom & pop" stores who can't compete against Wal-Mart: they no longer make as much profit. Could you hear him crying any more loudly? If he's not making as much as he thinks he should, then he shouldn't do business with FTD. Perhaps he doesn't, but clearly he has many competitors who don't mind. And I don't mind going through FTD, which for me is easier than looking for a local flower shop.

The second, also a florist himself (and thus with an axe to grind), uses the misleading tactic of comparing percentages when we're talking about a relatively small sum. Were I buying a car, then I would have shopped around and perhaps looked for consumer ratings of various dealerships. On the other hand, we're talking about a dozen roses here. I buy flowers every so often, but not every day, so $10 is not a big difference at all. The same principle applies when I fill up my car. Since I commute to Manhattan by Metro-North, I mainly drive only on weekends and don't consume as much gasoline as when I drove to work in Westchester. Saving 5 or even 10 cents per gallon of gasoline is not that important to me, because I place a higher value on going to the most convenient station. As I've written about before, it's all part of the non-foolishness of paying for convenience.

In my last couple of semesters at college, I registered late for a few classes (after the first day), which carried a late fee of $30 each. That was fine by me, actually. Many of my classes required the instructor's approval, but I was working and couldn't always get the signatures in time. It was still worthwhile, since I gained on net: if I wanted the free time to meet my professors during their office hours, I wouldn't be able to work. Better to have income and lose a little than have no income at all. Moreover, as I put it to one of my professors, "Sixty dollars isn't that much in the overall scheme of things."

I mentioned before that when I bought my car, I knew the maximum I wanted to spend, so I went to the dealership with a cashier's check from my bank. I probably could have haggled some more, but it was a good enough price. It was a Saturday, I'd just returned a rental, and I wanted my new car that very day so I could drive to work Monday morning. Was I unreasonable, or did I simply decide that the aggravation of hours and hours of offers and counter-offers (and risking not getting my car in time) wasn't worth saving a few undred dollars?

And by the way, I hardly quoted Walter Williams oput of context. "Only unreasonable people pay unreasonable prices" is as plain English as you can get. Also, I'm still far from unreasonable with my own money. Now, Barnum may have made his famous maxim about "There's a sucker born every minute," but he was in fact erroneous to make such a blanket statement. When it comes to the economics of consumer preference, I'll put my money on what Walter Williams says: that people tend to be rational in their decisions, and "fair" in commerce simply means that both parties agreed on the terms of exchange. A true "sucker" is a victim of deception and misrepresentation, not someone who voluntarily chose to purchase something at an agreed-upon price.

Could I have used Citysearch or Google to find the best deal? Maybe, maybe not. I check reviews now and then, principally for restaurants. Perhaps I'm considering going to a restaurant for the first time, or I want to compare my experience with others' reviews. But for flowers, it's no longer worth ten minutes of my time to check reviews for a florist. It still comes down to how valuable your time is. When I bought a new raincoat and found a more expensive one that I decided I really wanted, I didn't bother to check other stores: there was the risk that a better deal (if I found one at all) might not be worth my time running around the city.

One more thing: since florists need my business more than I need theirs, if any would like to compete for my patronage, they can drop me a line. Except there's yet another problem: I receive so much e-mail that I can't reply to each one (and I don't believe in "Thanks for writing" form letters). It would take too much of my time to save an e-mail, with a definite risk about the florist's quality, than to pull up


Anonymous Brad Warbiany said...

To be fair, I don't have any problem with you valuing time and ease over money. At times, I do the same thing. At other times, I'm a cheap bastard. To each his own.

I was pointing out that for people who care more about the money, they're not even aware of the way that FTD works. My goal was to give them a more informed decision, so that when they weigh time & ease vs money, they are at least doing a fair calculation.

Monday, July 17, 2006 8:27:00 PM  
Blogger Perry Eidelbus said...

Oh, I wasn't taking any offense with your own response, but the others' attitude left much to be desired. You want to spread information, which is fine, but those two are just protectionists who disguise their selfishness under the banner of "helping the consumer."

Tuesday, July 18, 2006 1:34:00 PM  

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