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Author Topic: Choice or cheapness
scifibum
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Mass production leads to low prices which leads to improved standards of living. Having a lot of the same thing means the costs of manufacturing, distribution, and retail operations are all minimized.

The less we pay for things we want/need, the more things we can buy.

(I hope I'm on safe footing so far.)

Right now I can go into the local Super Wal-mart and choose from roughly 20 (often more) varieties of any of the following:

1) Bar soap
2) Ice cream
3) Shaving cream
4) Dog food
5) Cheese
6) Blue towels
7) Headphones
8) Infant pacifiers
9) Whole wheat bread
10) Toilet paper

Why on earth do we need to have so many choices when it comes to things like bar soap, or whole wheat bread? They are all essentially the same.

The answer, I believe, comes down to three things:

1) Competition
2) Attempts to optimize products for segments of the market
3) Consumer preference (sometimes idiocy)

I think the impact is that we pay a lot more for things than we could if we had more limited choices. How much does it cost to order, transport, and stock a hundred varieties of bread, compared to a half dozen? How much does it cost to operate a freezer that stocks 5 kinds of ice cream instead of 50? How much constant R&D for bar soap is built into the product price? How many marketing dollars for new product variations are spent compared to costs to produce existing varieties?

Personally, I don't really need to have 5 different package varieties of Skittles. I was oK when we had one kind (with 5 flavors in the package). Same with M&Ms and Milky Way bars.

Guess how many kinds of the letter "M" you could find at a scrap book expo.

If we were all buying the same model of 4 door compact sedan for 3 years in a row instead of there being a dozen makes all releasing new models on a yearly basis, we could be driving a pretty nice car for a lot less than we pay now. There'd also be a lot less marketing cost built into the price.

My vision of "less variety = lower costs" is obviously naive. It's clear that in the real world, there are economic forces that lead to greater variety. Is this just because we are willing to spend so much (we're a rich nation, plus people spend money they don't have) and all this cash flying around is leading to all the products one could imagine? Or is it that people really buy more overall when they are allowed to choose from finely distinguished products that suit their particular needs best, so that variety actually fulfills market demand?

I have a feeling in developing nations they don't have 35 kinds of pencil available at the office supply store. Or maybe even an office supply store.

If we, collectively, focused our consumption on a limited number of products and disdained to reward variation in products that didn't actually increase the utility or benefit of the product (except in trivial subjective ways), would that actually cause supply chains to operate more efficiently and drive down costs? I know we'd have to maintain some level of competition so we really couldn't all drive the same car, but is there some middle ground where we have competition but aren't drowning in dozens or hundreds of basically equivalent options, where things would cost less?

I know I'm neglecting things like jobs and economic growth. I'll take an economics class someday. In the meantime, I figured I'd just burn a few minutes and share my ignorance with ya'll.

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Redskullvw
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this needs a bump
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Viking_Longship
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The ironic thing is I bet if you brke it down most consumer spending actually would show we mostly still buy the same 5 or 6 variations of most products that we did 30 years ago.

It's mostly still ticondaroga #2,

Coke, Pepsi, Dr Pepper, Mountain Dew Sprite and 7-up

Heinz or Hunts

French's or Kraft

Bud or Miller (although beer is definately a place where I say the variation is good)

Fruit of the Loom or Hanes

Still overwhelmingly Levis

The babies are still eating the gerber

Along side that increasing variety though are house brands like Sam's Choice that are both cheap and of decent quality.

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OceanRunner
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That's an interesting idea, Scifi.

I think the reasons why can all be boiled down to competition. There are only two ways to gain more market share - make your product cheaper (like Sam's Choice products) or make it appear better through brand differentiation. If you aren't gaining market share, then your business is probably losing it.

Of course there are lots of techniques for branding, including associating with and supporting charities, besides simply catering to the egos of consumers... oh, wait, no, that's catering to their egos too. [Wink]

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Colin JM0397
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Leggo my ego.
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Everard
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"There are only two ways to gain more market share - make your product cheaper (like Sam's Choice products) or make it appear better through brand differentiation. "

Well, there's a third way, too.
Make it actually better, rather then just appearing better.

People look for different things in products, for the product to meet different needs. On any given item, some people are willing to spend more for better quality, and some people aren't. And its not always about ability to pay on that item.
And oftentimes, the quality that is being looked at is different, because most consumer products need to meet several different standards.

Just with food, for example, theres taste, calorie content, fat content, sodium content, shelf life, carbohydrate content, how the ingredients were grown/raised. Probably a lot more, too. So if you want to buy italian dressing, and your concern is primarily sodium content, you walk down the dressing aisle look at 12 different brands and compare sodium.

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Jesse
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Some people like toilet paper that perfumes their pooper, some people don't.

Shaving creams? Heck, I still use williams shaving soap. We've all got different skin.

Cheese? Variety is simply a good thing. I'm sure a lot of it at Wal-Mart doesn't actually deserve that name, BTW - but is a lot cheaper than the real thing.

Dog Food? Well, I think the lesson has been learned on buying the cheap stuff.

Whole Wheat Bread? Massive variation in flavor and quality between brands.

On the broader issue -

Yes, production and distribution would be more effecient, in theory, with fewer options. At least in the short term. However, competition and innovation would decrease.

It's not just about quilted vrs. dimpled paper towels as a market gimmick, it's also about competing to make those towels at the highest quality and lowest price. If you've only got five outfits making them and no threat of new competition breaking in, it's fairly easy for those five outfits to focus almost entirely on marketing instead of improving their product.

Think...50 years of pisswater American "Beer" after Prohibition when we only had a few brewers with national distribution.

The only innovations during that time period? Different containers and "Lite" beer.

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scifibum
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Thanks for the comments.

I happen to think American lagers can be nicely refreshing, although they certainly don't distinguish themselves from each other very much. I could probably tell the difference between Budweiser and Miller Lite, but not between Bud Light and Miller Lite. (The bargain brands put out by the same brewers do get considerably worse tasting, though.) However, without taking price into account, I do prefer beers with more distinct character.

I take advantage of variety all the time. Like others I appreciate having access to more than cheddar and the American takes on mozzarella and "Swiss" in the cheese aisle, and I actually have made soap choices based on how well I think they work with my (oh so sensitive) complexion.

The fact that I can get huge green olives stuffed with both garlic and jalepenos is actually somewhat important to me. [Smile]

Vehicles and housing are two areas where I really wish, though, that forces added up more in the "streamline and reduce costs" area instead of the "differentiate and customize" side. If GM was still making the same Geo Metro they made in the 90s, how cheap could it be now? There'd be tradeoffs in safety, performance, and comfort, obviously. And, clearly, the market doesn't support that kind of strategy. (And as far as housing goes, I passed on buying manufactured housing, which actually is cheap - so I don't even follow this kind of advice myself.)

So it's an "oh well" I guess.

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LoneSnark
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One aspect of a choice driven society that I find important is dis-economies of scale. You have introduced economies of scale which say just that, the more you produce the cheaper each unit was to produce. But, these economies of scale run out eventually.

For example, when making cars we use an assembly line and the robots do most of the work. But these robots can only work so fast, so you cannot run a given assembly line any faster than the technology (or workers, if there are any) will allow. As such, the only way to increase production is to build a second identical assembly line, which obviously will give you no economies of scale to speak of, since it is identical to the first. However, now the owners must manage twice as many workers and machines, which will require more levels of management, a key source of dis-economies of scale. As the owners get further separated from production their attention gets diverted and the company will be managed less and less effectively. Similarly, as a company grows its workers will start to step on each others toes.

As such, it is occasionally true that ten companies producing the same output as five companies will be more efficient.

This also explains why the soviet economy worked the way it did. The Soviet system operated as a giant General Motors, and as such fell victim to dis-economies of scale. In sectors where the dis-economies of scale are small or otherwise countered by economies of scale, such as in aircraft production, heavy machinery, and space exploration, the soviet economy performed well. However, in sectors where the dis-economies of scale were large, such as in agriculture and electronics, the soviet economy performed terribly.

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dvgrn
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> As such, the only way to increase production is
> to build a second identical assembly line,
> which obviously will give you no economies of
> scale to speak of, since it is identical to the
> first.

Not sure I understand this part -- seems as if once the engineering design for an assembly line has been done, it'd be way easier to set up the next one. And if the inputs (various pieces of automobile) are identical between assembly lines, that still seems more efficient than starting from scratch. Order bigger batches, get each part cheaper. I guess there'd be a point of diminishing returns at Assembly Line #N, but...?

> As the owners get further separated from
> production their attention gets diverted and
> the company will be managed less and less
> effectively. Similarly, as a company grows its
> workers will start to step on each others toes.

This kind of thing I've certainly seen, having worked for several growing companies. It gets progressively harder for some workers to really care about a company as it gets bigger and bigger; eventually it just doesn't feel like a close-knit group of people any more.

Then an HR department has to take over encouraging everyone to do what they originally did on their own initiative -- and efficiency tends to go downhill from there, I suspect, though perhaps some Six-Sigma theorists might disagree.

Certainly there are various organizational tricks that can help avoid growing a company up to the wrong side of Dunbar's number. I think the Gore-Tex company was given as an example of a team-based, "flat lattice" organization, in a book I read recently. Probably Gladwell's _The Tipping Point_.

Other books have emphasized the importance of organizing people into much smaller cohesive units -- I remember _Pattern Language_ coming to the conclusion that ten or twelve was, on average, the biggest useful decision-making group... but this is wandering a little far from the topic.

Following the tangent back: I guess the arguments for organizational (psychological?) dis-economies of scale seem the most compelling. If it weren't for the insidious effects of Dunbar's number... and advertising executives... there'd be a lot fewer competing brands out there. But we might still all be driving Model T's.

> This also explains why the soviet economy worked
> the way it did. The Soviet system operated as a
> giant General Motors, and as such fell victim to
> dis-economies of scale.

Some of my favorite parts of Dmitry Orlov's _Reinventing Collapse_ were his common-sense observations of what Soviet industry built well, and why. Have lent the book out to a neighbor so I can't go re-read it -- but I think the key point was that there was no motivation toward "planned obsolescence" in the system. When they built a truck or a tractor or whatever, they had zero interest in building and selling another one in a few years to replace it -- and so there are still Soviet-era workhorse machines being endlessly repaired all over the former Soviet Union and beyond. They ain't pretty, maybe (no incentive for that either) but amortized over their lifetimes they're probably pretty darn resource-efficient.

-- I wonder if the same kind of thing is true of Soviet electronics? (I.e., built to last, it's just that nobody wants small black-and-white TV sets any more, or vacuum-tube computers or whatever). I have no direct experience here, so I'll have to refer any curious Ornery folk back to Dmitry Orlov. Early versions of the contents of _Reinventing Collapse_ are nearly all online in essay form -- easy to find with a Google search, but I can certainly provide links on request.

...So why were these "dis-economies of scale" particularly large in Soviet agriculture and electronics, as opposed to other types of endeavor, anyway -- is there a plausible rule of thumb for making logical predictions here?

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OceanRunner
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quote:
"There are only two ways to gain more market share - make your product cheaper (like Sam's Choice products) or make it appear better through brand differentiation. "

Well, there's a third way, too.
Make it actually better, rather then just appearing better.

I'd argue that no, there is no third way. You can make a better product as much as you want - if it doesn't appear to be a better product, if it isn't recognized as a better product, if your brand is not differentiated from other brands - you aren't going to gain market share.

Obviously, creating a better product can and should differentiate a brand, but it isn't a distinct way from what I already stated. Consumers won't just "know" its a better product unless they hear about why it is superior to other products, whether that happens through advertising, reviews or word-of-mouth.

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flydye45
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The cure would be worse then the disease.
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