How to Be a Biased Consumer

Readers, thanks for indulging me while I take a break from writing to work on other projects. Today we're featuring another popular post from CK's early days. 
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I want big companies to compete intensely for my readers' spending dollars. I don't want them to get those dollars by default because of our preconceived notions. But when we make purchasing decisions based on our biases and preconceptions, we give away all our power as consumers.

Read the following three statements:

1) I only drive American cars.
2) I only buy organic.
3) I never shop at Wal-Mart.

Do any of these sound familiar to you? I'd bet most of my readers have made at least one, if not all, of these statements at some point in their lives.

My goal in today's post is to show that statements like these hurt us more than they help us. In fact, many widely held shopping- and purchase-related biases, despite sounding reasonable or ideologically agreeable, actually do considerable damage to the average consumer's choice and power.

All people have biases--it's fundamental to the human condition. But when our biases become unthinking, we hand over our consumer power before we even walk into a retailer's place of business. Let's go over each example:

1) I only drive American cars.

I heard this statement regularly in Syracuse, NY when I was growing up. And if I had a nickel for every gas-guzzling, rusted out American car on the roads up there during the 1970s--well, let's just say I'd have a lot of nickels.

People back then who held this ideologically comfortable bias thought they were being loyal to American automakers (uh, oh--there's that dangerous word "loyal" again). The awful irony, however is this: because they refused to consider other products on the market, not only did they limit their own choices, they also wasted money, energy and environmental resources. Worst of all, they rewarded Chrysler, Ford and GM for making substandard cars.

Those of you too young to remember, watch a classic 1970s-era movie like The French Connection or Taxi Driver to get a sense of the monstrously large cars everybody drove back then. And if you want to imagine what we all drove in Upstate New York, imagine those same monstrous cars covered in rust and falling apart.

The new competition from international automakers actually helped everybody. The US automakers had no choice but to respond to the superior Japanese imports, and they grudgingly improved their product lines, finally making cars that had fewer defects, ran better and got far better gas mileage. Foreign automakers built plants and dealer networks here, providing hundreds of thousands of new jobs. Best of all, American consumers had more choice, and they ultimately ended up getting better, safer and more fuel-efficient cars for their money.

2) I only buy organic.

Let's set aside for the moment all the recent questioning of the nutritional and health benefits of organic food. Do you realize that paying to meet all the government requirements to qualify for organic labeling can be onerous, especially for small farmers? It's quite likely that you have local farmers in your community who grow all of their food responsibly, yet they can't label their foods as such because it's too expensive or time-consuming to follow national organic standards to the letter of the law.

Don't assume that food lacking an organic label is by definition grown unethically. By holding that assumption as an article of faith, I guarantee you will miss out on the opportunity to buy local and support many ethical food growers in your community. Is this any different from thinking a Givenchy bag is superior just because it has a label?

One more thought, a highly counterintuitive one. When the government sets onerous rules and regulations on any industry, it usually has the perverse effect of limiting competition. A particularly painful recent example: Altria Corp. (the former Phillip Morris tobacco company) was happy with the recent FDA decision to expand its authority and regulate tobacco. Why? Because heavy FDA regulations meant significantly increased costs for the competition.

The largest players in a market can always bear new regulatory requirements. But those extra requirements typically create gigantic barriers to entry for potential new entrants, and they increase the cost of doing business for smaller, marginal players to a point where many will give up and exit the market. This means fewer choices for consumers... and maximum market share for the big guys. Don't get me wrong: I support intelligent regulation, but not when those regulations create outcomes that hurt the consumer.]

3) I never shop at Wal-Mart.

This one is going to get me in trouble, I know it.

There are lots of things I don't like about Wal-Mart, but their pro-consumer pricing strategy isn't one of them. This company simply decided to build a business based on lower operating margins than other retailers. Excuse some finance-speak for a moment: Wal-Mart's operating margins tend to be in the 2-4% range, while most other department store retailers charge higher prices so that they can achieve 5-7% operating margins. Those higher profits come directly out of consumers' pocketbooks.

Granted, there are plenty of other issues Wal-Mart faces, a discussion of which is far beyond the scope of this post. But few people give Wal-Mart credit for this highly pro-consumer strategy, a strategy many other retailers could also follow--if they chose to be equally pro-consumer.

Readers, what are other biases that hurt our consumer power and limit our choices? What else did I miss?

READ NEXT: Why Spices Are a Complete Rip-Off and What You Can Do About It

AND: Stacked Costs and Second-Order Foods: A New Way to Think About Rising Food Costs


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