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Why Staples Could Use A Lesson In Durable Goods…

April 14th, 2011 · 9 Comments
Buyer Beware · Econ 101

From The Consumerist:

Does this strike anyone else as strange? I would hope, for your sake, dear readers, that you don’t sit up at night thinking about whether it’s time to restock that fireproof safe. (If you do suffer from frequent fires or attempted robberies, my condolences.)

Economists divide goods into two categories: nondurable goods (or soft goods or consumable goods) and durable goods (hard goods). Nondurable goods are things that people generally consume at one point in time- for some reason, I like to use yogurt as an example here. (You’ll see why in a second.) In contrast, durable goods are items that people tend to consume over a longer period of time, or equivalently, that provide utility over a span of time. For this reason, cars, refrigerators, televisions, etc. are all considered to be durable goods. (Roughly speaking, you can think of durable goods as things that last a while.)

Given this definition, I would hope that a fireproof safe is a durable good for most of you. (If not, might I recommend moving perhaps?) Furthermore, the fact that a fireproof safe is a durable good *should* have an impact on how Staples chooses to market it. Consider the following two cases:

  • A grocery store puts yogurt on sale: This is likely to boost sales both in the short run and overall, since most of the increase in sales during the promotion are likely to be sales that wouldn’t have been made otherwise. (Note that I use yogurt as an example here because, in addition to being a nondurable good, yogurt is difficult to stockpile.)
  • A car dealership puts cars on sale in the middle of a model year: This will probably increase sales in the short run (or at least increase the quantity sold), but the effect on overall sales is unclear, since it may very well be the case that people are just shifting the timing of their purchases to line up with the sale.

Offering a promotional discount on a durable good only makes sense if the profit from additional people buying the item at the lower price more than offsets the lost profit not only from people who would have bought the product now anyway, but also from those who purchase earlier than they would have otherwise in order to take advantage of the lower price. (Technically, a sale could also get people to buy an item later than they would otherwise if the sale is announced in advance, since some people would wait to get the discount.) Marketers sometimes defend promotions on durable goods by citing evidence that people who bought the good report that they wouldn’t have done so without the promotion. That’s all well and good, but it only helps sales if that person would NEVER have bought the item otherwise (or not for a really long time, I suppose). This was in large part the Cash for Clunkers justification:

Though many dealers fear the clunkers effort has simply accelerated sales that would have taken place anyway, many buyers said they were not in the market for a new car until the program kicked in.

It’s certainly worth noting that it’s now going to be a longer period of time until those people buy a car again, so the program borrowed from future sales to some degree even in these cases. Given this discussion, it shouldn’t be surprising that sellers of durable goods often only put their products on sale when they have a new version coming out and need to offload the old inventory. Perhaps there is a new shiny version of Staples’ fireproof safe on the horizon?

I am now thinking of other durable items that would be funny as nondurable goods- what else could we humorously “restock?” (Note: I can’t help but see an eHarmony ad in here somewhere.)

P.S. If you actually are in the market for a safe, I can’t help but suggest this one.

Tags: Buyer Beware · Econ 101

9 responses so far ↓

  • 1 David Welker // Apr 14, 2011 at 5:44 pm

    I don’t get why this is puzzling. There are many practical reasons that Staples might want to put something like this on sale.

    First, Staples would probably like to make the sale rather than a competitor That someone would buy the safe “someday” in the future does not mean they will buy it from Staples rather than a competitor.

    Second, such a safe might indeed be an impulse buy. I suppose I can only speak for myself, but sometimes at Costco I see a safe like this at display and part of me thinks about buying one. Then I realize I don’t really need it… I am sure that the lower the price the higher probability that someone buys such as an impulse buy. As a behavioral economist, I would think that people buying stuff that they don’t really need should not be a shocking phenomenon. (And speaking for myself, I have bought stuff that seemed like it might be useful to have, for example, stuff for cooking. I then proceed not to use the product very often in the future. Good intentions to use a product that you think might improve your life in some way does not always equal action.)

    Third, a company like Staples, given its huge inventory, is going to occasionally end up with an excess number of safes in their inventory. This could represent an opportunity costs for them. After all, storage space for inventory at a Staples store and in warehouses is an opportunity cost. While firms like Staples surely do their best to not accumulate too much inventory of a particular type, it is likely that they sometimes make mistakes.

  • 2 econgirl // Apr 14, 2011 at 8:25 pm

    You’re not wrong…in this particular case, it’s the sale in the context of the “Ready to restock?” campaign that is puzzling. The inclusion of the product in this campaign makes it clear that Staples doesn’t think about why they might want to use different marketing tactics for durable versus nondurable goods.

  • 3 Chuck Dolci // Apr 14, 2011 at 11:14 pm

    If yogurt is an example of a nondurable (soft) good, would fruit cake be an example of a durable (hard) good?
    Seems to fit the criteria

  • 4 John Quiring // Apr 15, 2011 at 12:48 am

    You have mis-read the ad- this safe was never put on sale. It follows in the new trend in american retailing where everything must have the “illusion” of a markdown for someone to consider buying the item. The safe is clearly marker “special buy” telling the consumer (most of whom pay no attention) that the item was purchased precisely to be sold for 99.99. In other words, it was a one time special purchase that probably wholesaled from China for $32.00 each. There is no sale because there is no markdown. Just as the soon to be extinct “regular price” in american retailing due to the proliferation of bogus “compare at” or “Department store price” comparisons that consumers have been trained to accept as meaningful.

  • 5 David Welker // Apr 15, 2011 at 5:53 pm

    I see… I certainly did misunderstand what you were saying.

    I agree that “ready to restock” is very strange in the context of fireproof safe’s of all things. I suspect that such a safe would tend to last a very very long time, and “restocking” is something that it sounds like you do with office supplies like paper or pens rather than fireproof safes which I think would be “replaced” rather than “restocked” because most businesses do not have a large “stock” of fireproof safes which are “restocked” in quantity when they are used up.

    Not being an expert on the fire proof safe market by any means, I would strongly suspect that most customers are either “first time” customer or they are people who need more than one safe due to space limitations. Of course, maybe I am simply overestimating how long such a safe lasts.

    Here is my speculation on this matter. I think there is a good chance this advertisement was never made by a human. If you look at the “ready to restock” portion of the advertisement, you see pictures of office supplies that could in fact be sensibly said to be restocked along with some other miscellaneous office “things” including a silver thing that may be more durable. This part of the advertisement was, I believe, made by a human. However, the pairing of this portion of the advertisement with a fireproof safe below seems like it was done by a computer rather than a human. This suspicion is reinforced by the reference to “your frequently purchased” items which suggests that the products below the advertisement vary based on the the viewers purchasing history.

    But even if this is correct, this only creates more questions than answers! What sort of economics graduate student “frequently” buys fireproof safes…. Very interesting. I am sure this tells us something… What it is, I have no idea. 🙂

  • 6 David // Apr 19, 2011 at 12:54 pm

    I’m not sure I agree with you on this. If the population is buying a durable good, those are people that will never buy the good again. As time goes by, there are fewer and fewer people in the market who don’t have the good — and those people are at the low end of the demand, already having had the opportunity to buy at the previous price. This explains why, for example, PS3s and XBOX-360s always get cheaper. People only buy one and in the course of a year, most people who wanted it at that price could buy it, so they have to drop the price to get new customers.

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