01 June 2007

Economics In Action

It is a violation of the antitrust laws for a manufacturer to force a distributor to sell the manufacturer's product for a set price. That's why we see suggested retail prices advertised, rather than mandated retail prices. Economists tend to believe that this is a bad law. If the mandated retail price were too high, a competitor could undercut it. More to the point, there's a good pro-consumer reason to allow mandatory retail prices: it allows the manufacturer to make sure that the distributor is repaid for investing in the sale. In other words, for products that must be explained to consumers, or where training is important, a hefty margin ensures that Mr. Joseph's Widget Emporium, with helpful salesmen and informative displays, isn't then undercut by Joe's House of Cheap Prices.

I want a TI-89 graphing calculator. Do I need a TI-89 graphing calculator? Does anyone? Since no one actually knows how to work one? Because these are expensive and daunting machines, I did a good amount of research. Among the research I did was going to Staples, where I could see one and play with it a little bit. I waffled around for a few days and then came across a new factor that tipped the balance in favor of purchasing the calculator: my wife said it was OK.

Having decided to buy, I find myself on the horns of a dilemma. I can get the calculator from Amazon for $142, no tax and no shipping charge. I can get the calculator from Staples for $153, plus 5% sales tax. Of course, from Staples I get the calculator immediately; Amazon will take a few days. I decide that, because of the service Staples provided by having the calculator available to play with, because I can get the calculator now rather than in a few days and because I'm aware of the economic/antitrust issue, I'm willing to pay the nearly $20 premium Staples will cost me.

So I go to my neighborhood Staples. I go over the calculator and look at the TI-89. I play with it a little. I look at the less expensive calculators around it and decide that I really do need those matrix algebra functions. I'm ready to buy.

I look around. The calculator's on display, but there's no rack space for it. It's a relatively small (well, actually it's honking huge, but for a calculator) and relatively expensive, so they probably keep them locked up. There's no sales clerk to be found so I walk to the front of the store. The only clerks to be found are ringing up other customers but there's a manager doing some managing. I interrupt him and tell him that I need help with the TI-89. He says he'll have someone meet me over there right away. I say I just need someone to get the calculator, because I've already decided that I want it. He tells me I can just go to the register.

I go to the register.

The clerk is a young man, probably in his early 20s. He's on the phone with someone. I glance at my watch and start the timer. The customer on the phone has a product that she either wants to have upgraded or repaired. In all the time I was there, he never quite got that clear. He knows that it can't be repaired there -- just send it back to the manufacturer -- but doesn't know about upgrading it. In the next ten minutes, he has her on hold twice, pages a manager three or four times, manages to find out what I want but not to do anything about it and then is back on the phone with his customer. Two more people are behind me. He starts to ring them up while waiting for someone with a key to get me my calculator. He calls over a manager and asks if she can help with the locked room. She sees the blinking telephone line, asks what's up, and picks up the phone.

I leave and order the calculator from Amazon.


monix said...

You just can't put a price on that personal touch!

David said...

Apparently, it's $20.

Duck said...

This goes to confirm my theory on OCS, that competition will drive business away from those companies that haven't mastered customer service. The problem you had shows bad management. The manager should have seen that the clerk was being tied up with the caller, and should have had the cal transfered to him so that the clerk could serve the in-store clients.

I stop at the same Kwiky mart type store every day for gas and coffee, or just coffee, on my way to work. There is usually a fair number of commuters there getting the same thing, and the store is staffed by two clerks and a manager. Besides ringing up customers, they are buzzing about the store setting up the coffee brewers, restocking cigarettes, etc. But whenever the queue gets long enough they all descend on the registers to make sure that noone is stuck in line for more than 2 or 3 minutes. They know what their customers want, a quick pit stop on the way to work, and they aren't going to lose them to Starbucks or the competitor down the street.

Hey Skipper said...

Apple maintains its own distribution network, and rigidly enforces pricing. How does that fit?

Oroborous said...

Apple doesn't rigidly enforce pricing.

What they do is to offer a cash incentive to retailers if they don't advertise prices lower than a certain minimum.

David said...

Skipper: If the manufacturer owns the retailer (i.e., the Apple stores), then it can charge any price it wants. Also, one of the points of the Apple Stores is that Apple is taking on the cost of explaining the product even if you buy it somewhere else.

Also, Apple does a good job of maintaining its retail price, but not a perfect job.