Ideally, an informed consumer makes a purchase principally based on quality and other factors such as a companies reputation. Companies that provide good quality succeed. Those that don’t fail.
However, in today’s marketing environment where the consumer (in many) cases has a plethora of choice there appears to be a degree of RANDOMNESS in consumer purchases. This can create a “noise” level where “bad” products will achieve a level of success no matter what. Has this concept been explored???
To explain a bit further, I walk into a supermarket and go the the cereal isle. In front of me there is a large selection of cereal wheret all appear very similar. I pick the cheapest one. I get home, find that it is awful. The next time I pick another brand, which is acceptable. Now it has been several months since the first visit and I forgot the name of the brand that I didn’t like, the store has re-arranged the shelves, and I don’t have a coupon for the cereal I like, so I randomly grab a box of cereal only to find it is the one that I did not like..
As another example, on TV we have those ridiculous adds for crappy products such a knives that never need sharping or for supposedly exclusive products “not sold in stores”. Of course one can make the comment that there is an infinite supply of “suckers”, but that is not my point here. My question here concerns the effect of random purchase events continuing to support he existence of a company even when they sell crappy products. Consider it a “friction” in the operation of the economy.
Sure there is and that is with government force in the market place, profit and loss may fail to weed out bad producers. Otherwise, Profit and loss is such a great signaling mechanism that it could be possible that some company could stay in business when they are disliked by consumers but it is a very small chance. And in the store example it is miniscule.
As Isaac said - basically, if you didn’t care to remember the brand of the cereal, then that was not really important to you. I bet if you care about something, you make a few notes in different places just in case.
Quality, crappiness, liking, etc, are all subjective terms. I of course know what you mean when you say you randomly chose a crappy brand, but it sounds like you’re “smuggling” in some value judgments there.
All one can really say is that, if one is overwhelmed at the choices before him and makes a random choice, that action is the one the actor preferred. The actor always has the option of doing the research to come up with his perfect brand of cereal, or - to be accurate - of making his own cereal at home. The fact that he chooses to go out and trade for a particular brand proves that this brand gives him more satisfaction than the increment of money he gave up, and of all the other choices before him at that moment, and we aren’t in any position to deem his psychological reasoning motivating this or that action as being “just random” or “on a whim” etc. If the actor takes a certain course of action, from a praxeological point of view it is just as legitimate (rational) as any other.
He has expressed his preferences, not only by purchasing that item, but by patronizing that store. It may be that consumer preferences will eventually shift such that “big box stores” will no longer be successful, and only smaller stores which provide one or two “high quality” varieties of each good will get business. But it’s not as though this would be a “better” market, and we aren’t experiencing market failure when we look around and see what some might feel is too much variety.
Thanks for your responses. In the extreme, as Isaac “Izzy” Marmolejo notes, there is no such thing as a truly “random purchase”. When you are in the grocery store, you have already made the decision to buy cereal; but you may not have specifically chosen a particular brand or type of cereal. Abirkmanis goes on to state "if you didn’t care to remember the brand of the cereal, then that was not really important to you". While that statement is valid, it is an uninteresting response since it fails to consider the question posed, the idea of randomness having an effect on the market.
Stephen Adkinssems Seems to be getting at the concept.Stephen wrote: “All one can really say is that, if one is overwhelmed at the choices before him and makes a random choice, that action is the one the actor preferred. … If the actor takes a certain course of action, from a praxeological point of view it is just as legitimate (rational) as any other.”
Bogart notes “Profit and loss is such a great signaling mechanism that it could be possible that some company could stay in business when they are disliked by consumers but it is a very small chance. And in the store example it is miniscule.” Profit and loss is an excellent signaling mechanism. While, in terms of the whole economy, the persistence of “bad” products, may be miniscule; they may provide just enough revenue to keep “bad” niche players in existence.
Thanks for you input. My randomness hypotheses still needs works. It may also a lousy concept. that should be buried.
Purchases can always be regretted in the ex ante sense. If people tend to make poor decisions then they will get inferior products. So?
It is true that governments can engage in ‘random’ purchases, in the sense that they have no input for consumer satisfaction, no relation between income and purchasing power, and no ability to economically calculate.
That reminds me; we recently bought (on impulse) a box of Cheez-It. They were awful. After finishing the box, we bought a box of Cheese-Nips as a quick comparison test. Much better. Of course taste is highly subjective so others may find Cheez-it to be a superior product.
However, our purchase of Cheez-it fell into the “noise level” of a random event since it was an impulse purchase, we could not remember which was the “better” product, this product type is only purchased occasionally, and the boxes appeared too similar for adequate differentiation.
So the accidental purchase of one box of Cheez-it severely distorted the free-market system.(Just kidding!)
Steve, yes this happens, but what’s the problem here? People make mistakes and unprofitable companies (and/or ones that sell crappy products) gain enormous amounts of value all the time but I still don’t see the problem with this.
Crappy products will exist because people choose to buy them.
In time, people learn.
In time, the market corrects itself.
Buyer Beware.
If a product sounds too good to be true, then it probably is.
I think you’re assuming a greater significance of a crappy item on a market.
Any attempts to interfere with individual choice will produce more damage than whatever a crappy product might do. I think it’s pretty safe to say that there’s a lot of evidence on that subject.
BTW, there are a lot of products manufactured as both generic and brand name in the exact same facility using the exact same process. The consumer is paying for the label.
Also have to realize that what you or I might consider as crappy could be absolutely loved by another. How else can you explain Cheese-Whiz?
Terms such as “random”, “noise”, “bad”, etc. are subjective.
In addition I have a hard time seeing more choices being available to the consumer as a bad thing.
In your example you identify that you don’t know which product you like over another, did not have a coupon, so randomly selected a product off of the shelf (or I assume selected one from the two products you were unsure of). This is a demonstration of consumer ignorance and has no relationship with the adequacy of the market. Marketing apparently failed you because you had no idea what the brand name was, or at least it had no bearing in your decisions to purchase these products. I assume the price was about the same since you reference the coupon (or was that just to recall the brand), if price was a determining factor for you.
Don’t really see a big need to study the effects of consumer ignorance or gullability. There’s definitely a market for suckers or else you wouldn’t see the large number of shams. Call it an educating experience and move on.
That is what I am trying to “flush” out. It is a thought question. Can a crappy product srill be a successful profit center simply based on people, on a random basis, buying it. Since the overall response from this forum seems to be “no problem”, my thought that this would consititute an economic ineffiecincy may be wrong. Time for a new hypothiesis?
Ideally, as people keep reminding me - which is not the point - the consumer learns and stops buying the product. The product then disapears. Which is the way the system is supposed to work. But we have imperfect knowledge not to mention changes in rationality - so to a degree we make “random” purchases which can keep the bad product alive. But i ramble on, and you are probably correct, there is no problem.
