The Theory of Perfect Information vs. Reality

I shop at places like Sam's Club as infrequently as possible, typically once a year before a big Fourth of July wingding that is attended (at least it seems to me) by at least as many people as there were extras in "Ben Hur." That requires stocking up on the usual picnic fare in bulk, and so it's off to one of those warehouse places, which rarely seem to have exactly the product you want. But what they do have is close enough, so "I'll take a gross of those, please." Part of the drill is standing in line with your giant economy-size cart where the conversation with others waiting patiently is almost always about what a hassle this is, but it’s worth it for all the money you’re saving.

In the Wednesday, Sept. 13, New York Times business section, columnist David Leonhardt writes about this subject "Distractions and Bargains Bought in Bulk." Having recently been highly critical of the state of current journalism, I feel it is only appropriate to show an example of an outstanding column that is both interesting and educational. He points out that Sam's Club has more than 90 million members who "know a few products are clearly bargains and they assume the best about everything else … everything looks as if it must be a good deal."

Mr. Leonhardt sets out to determine whether this is true by picking a few products at random and checking a variety of outlets to compare prices. After all it is easy for shoppers to compare brands carried, store hours and prices at the mega stores vs. local stores through the Yellow Pages, FSIs and, of course, the Internet. Kelsey Group research shows that today 70 percent of shoppers used the Internet in the past year, 73 percent used newspapers, and 84 percent used print or Internet Yellow Pages when shopping for prices or services in their local area. In other words, we have "moved the economy closer to a state of 'perfect information.' " But that doesn't mean that consumers always look for the best price because there are other factors that come into play, such as customer service, convenience and location.

Mr. Leonhardt postulates that just as consumers are getting smarter, so are stores. With every sale, the selling organization has a chance to persuade buyers that they are getting a good deal. "And because people like to think of themselves as savvy shoppers, they are all too eager to fall for the pitch." Another distraction, along with signs that say "new low price," are the competitive online sites such as eBay where people "systematically focus on one set of information."

His conclusion is that "a sizable portion of the retail economy has come to be built on bargains that aren’t really bargains." Yes, we do have more information, and that potentially makes us smarter and better shoppers. But in reality, it is the psychic value of feeling like you are a savvy shopper — the perception — that really matters.