Tuesday, 22 March 2011

Modern Consumerism: a full time job

by Rob d'Apice
I find it very difficult to deny the power of a free market to get stuff done - and get it done well.  The market is a genius mechanism that incentivises individuals to contribute to the satisfaction of the needs/wants of others, ultimately marrying individual ambition with community benefit.

Sure, a completely free market is a terrible idea (and even the most hardcore economic liberalists would tend to agree): we need rules and regulation to ensure that our society's belief system is properly reflected in the market's design (an obvious example of such regulation is a carbon price).  Sure, we need taxation to ensure essential infrastructure exists that would not be otherwise funded by private enterprise, and to ensure that those that aren't able to obtain an income are protected.  But overall, it's a pretty neat little thing.

I've got one fairly major gripe, though:  market design assumes consumers have infinite computational power, and over the last century this has meant consumerism has become a full time job

How it works (in theory)

Let's say I want to buy some milk to nourish my brittle, child-like bones with some calcium.  My long-time milk-monger Frederick sells me milk at $5/L.  But one day Hamish comes on the scene selling milk for $4/L.  As much as I loved Frederick and our long, dreamy chats over several glasses of delicious ice-cold milk, I'm taking my business to Hamish to save that $1/L and spend it on my online poker addiction.  As do all of Frederick's other customers.  So Frederick decides to undertake an MBA at Harvard and then spends several years redesigning his business processes.  He comes back into the market, having reduced his costs, selling milk at $3.50/L.  Bam, another 50c in my poker fund.

Thus the free market works - Frederick and Hamish both compete on price to get my business, and in doing so are incentivised to make their businesses more efficient, to the community's benefit.

But now Hamish comes back and says he will offer me 10 litres of milk per week for $30.  Any additional milk will cost $2.80/L.  By committing to a bigger purchase, Hamish will offer me a reduced price, since Hamish benefits from a guaranteed demand volume and lower transactional overhead (ie less effort per litre of milk sold).

At this point, your humble consumer needs a calculator, because the best option for me now depends on how much milk I buy.  In fact, if I buy more than 8.57 litres of milk, I should go with Hamish, otherwise I should stick with Frederick.

I call it 'dapMilk'

This wasn't a walk in the park, but it still is nothing to cry about.  There is a good commercial reason for Hamish to structure his prices as he has.

But what if Frederick comes and offers to bundle your milk purchase with your home broadband plan, offer 100 minutes of free iMilk talk time (but only to other iMilk users) and also throws in 5% off selected restaurants in Suburban Sydney? Well, this leads us to...

How it works (in practice)

Basically, this:

Thanks for nothing, commerce

In reality, businesses are incentivised to complicate their offer.  It means that consumers struggle to compare the true value of the offerings of each competitors, and end up selecting based on perceived value.  Many businesses attempt to position their brand and their advertising/marketing content in an attempt to build a high level of perceived value among consumers, without necessarily having a high level of true value.  An example that leaps to mind is Virgin, who pitch themselves as the best value for money, saving the consumer from evil big business; their true value proposition is hardly relevant as they have great perceived value (and to prove it, we'll take a look at their credit card offering down the track).


The solution: Prosple

The core mission of the Prosple is to fix this problem - to equip consumers with tools and information they need to both:
  • make the best product choices based on true value for them; and
  • more broadly, optimise the management of their personal finances

dapShare, made by the same team as Prosple, aims to help people living in sharehouses, on group holidays, on roadtrips, or sharing assets with running costs (eg holiday houses or boats) manage their shared expenses.

Now our focus is Prosple. Our first stop is to help you decipher the complex world of credit cards:
  • understand whether a credit card is right for you
  • select the best credit card given your circumstances
  • learn how best to use your credit card

Ultimately, our longer term vision is to turn Prosple into your one-stop-shop for unbiased, automated and highly personalised financial management tools and information.

UPDATE: Prosple is now live! Check it out now.

2 comments:

  1. Looking forward to dapCards. Interesting idea.

    ReplyDelete
  2. i love you dap! you're so clever and good looking.

    ReplyDelete