Recovering Shopaholic

In the spirit of becoming a recovering shopaholic, I really needed to find out what drives my consumptive, materialistic, hedonistic, cosmopolitan buying habit.  Why do I – the present tense honestly indicates that these are still my preferred way of life – choose Starbucks over the so-called warung kopi?  Why do I immediately go to the Evian rack instead of the Aqua rack?  Why is the name Anya Hindmarch means so much to me but I won’t give the time of day to Sophie Martin?  If I were forced to explain my own buying habit to public, my immediate and logical – or should I say defensive – respond would be: taste is something quizzical that I can’t explain with just a few words.  It would be the same as asking a woman why she prefers wedges over pumps, or asking a man why he chooses to wear a t-shirt instead of a polo shirt.  Taste, I believe, is something to be enjoyed, not something to be explained.

But with a pure intention of finding out the naked truth behind my – and of course your – preferred lifestyle, and to give myself an edge in putting a halt to Starbucks, Zara, Miss Sixty, and Barneys which are continuously after the money in my purse, I do need an explanation behind my consumption habit.  So I went to the local bookstore, picked up The Undercover Economist by Tim Hartford, and to quote David Bodanis: “Reading this book is like spending an ordinary day wearing x-ray goggles.”  Just what I need.

Let’s say that we’re not blaming the expensive taste on the taste, but on the expensive price.  I like Starbucks because I like Starbucks, but why does a cup of cappuccino there cost a fortune while a cup of the same thing at your local warkop costs practically nothing?  If you look at the location, the common-sense answer would be because coffee bars such as Starbucks and Coffee Bean pay a significant amount of money on rents, hence hiking up the overhead costs, which of course, triggering the expensive price.  But is that really all there is to it?  Our dear friend Tim Hartford showed in his book that there’s more to that than just location. 

He explained bluntly through the theory of well-known economist David Ricardo.  In his story, Ricardo illustrated that there are two things which determine the rent of prime locations like meadowlands (or in the modern world: prime locations like the central business districts, and the strategic street corners where every coffee chains are after): the difference in agricultural productivity between meadows and marginal land, and the importance of agricultural productivity.  At USD 1 a bushel, five bushels of grain is USD 5 rent.  But at USD 200,000 a bushel, five bushels of grain is a USD 1 million rent.  Meadows command high rents only if the grain they help produce is also valuable.

Let me turn the time machine back to our world now.  If we blame the high price of branded coffee on rents, we should also take note that prime coffee bar locations will command high rents only if customers – that’s us – will pay high prices for coffee.  Rush hour customers, caffeine-bound yuppies, and just anyone with the given lifestyle are really so desperate for coffee that they literally become price-blind, or as Tim put it: “The willingness to pay top whack for convenient coffee sets the high rent, and not the other way around.”

Mmm, I stopped for a minute when I reach that page.  Does Zara really apply USD 30 on a piece of white t-shirts because we’re willing to pay for that?  And does Miss Sixty get away with price-tagging USD 100 on a pair of jeans because we don’t object and keep on buying?  Thus, another question is arising: why don’t we object?  Why are we willing to pay for it, despite our endless complaints of calling it “ridiculously expensive?” 

The answer is, as simply as, scarcity power.  Tim said: “If there’s a profitable deal to be done between somebody who has something unique and someone who has something which can be replaced, then the profits will go to the owner of the unique resource.”  This is how the relationship between scarcity and bargaining strength works.  Let’s say that you work in the central business district in Jakarta.  To make your life more practical, of course, you would want to live around the area, thus saving a lot of time on your trips to and from work every day.  The main problem is, there are only so few apartments in this prime locations, but there are so many people wanting them, making the rent price of these apartments skyrocketed, leaving most of those people – including you, maybe – disappointed.  But the last time I check, coffee is not scarce, jeans are sold everywhere, and looking for a white shirt is as easy as lifting up a finger, so why the high price? 

Allow me to replace the word coffee with Starbucks, jeans with Miss Sixty, and white shirt with Zara, and you’ll start to get a clearer picture.  There’s not many quality coffee like Starbucks, stylish jeans like Miss Sixty, and chic white shirt like Zara, thus giving them the scarcity power and high value above the others.  But then again, the wondering part of you might be dying to ask this question by now: is Starbucks really the only quality coffee in the world?  Is Miss Sixty the solitary stylish pair of jeans on the face of the planet?  The answer is of course no.  And with the existence of free trade competitions, won’t Starbucks, Miss Sixty, and Zara try to lower their price to keep customers from buying products from them instead of from their competitors?

This is where the concept of the so-called “marginal products” comes to mind.  In the eyes of die-hard, brand-minded shopaholic like me, the values of Starbucks, Miss Sixty, and Zara are way above their competitors, hence making the competitors marginal.  With the already branded state of mind that I have, these certain products will be the only ones I care about every time I’m ready to splurge some money.  The brilliant minds behind the success of these top products realize the hard fact that once they have built a strong customer base, they can get away with most any prices.  How did they do it?  How did they make me – and maybe a million other customers – don’t feel like they’re ripping us off? 

Before I answer that, allow me to present you with another question: what do Starbucks, Miss Sixty, and Zara have in common?  If you ask somebody like Nicholas Kochan, the editor of The World’s Greatest Brand, he would probably answer: they’re all heavily promoted, all owned or sold by large companies, and each has a carefully developed set of “values” which appeals to a specific audience.  They’re all powerful brands.  And all powerful brands have loyal – if not fanatic – customers who would enjoy everything that the brand has to offer at any cost.  But how do they arrive at that point?  How do they develop such a brand that has an emotional connection with its targeted customers?

The answer is, again, very simple.  Starbucks, as any other strong brands like Nike and Coca Cola, continues to spend a lot of money on maintaining brand awareness to its customers and …   Wait, what time is it?  Oh shit, I’m late to my shopping date with a friend.  I’m sorry if I seem to end this discussion abruptly, but a 20 percent discount at Zara is waiting.  Well, no matter how many economics books that I’ve read, being a recovering shopaholic is never easy 😉