The Art of Innovative Consumption - Part 2

Continued from here...

The extreme price differences found in the market for computer hardware in Australia are not necessarily shared by other types of products. What, then, can an innovative consumer do when the product they want is universally costly? What about where there is a monopoly or near monopoly? Well, there are still some options. There are always options.

The second hand market is always worth considering. I grew up with most things bought second hand. New items in our home were a rarity. Most were bought from opportunity shops, but sometimes, just for a treat, we would save up and buy something through the trading post. Now, since the advent of computers - available for less than you think, as those who read part 1 will be aware - we can search through extensive classifieds, bid on eBay auctions, contact locals with things for sale through Gumtree and look up vast amounts of information on the item we intend to buy so as not to get ripped off.

Books are a good example of a product that costs significantly less when purchased online than it does over the counter. Though I do love to look through a book shop and sit in its cafe reading books I am considering purchasing and I will miss the many book shops that have closed recently in Melbourne, the fact is, none of us are made of money and not everyone can afford to pay double or triple the price simply to keep over the counter retailers afloat: they're not a charity. By the way, one way you can buy books is by clicking the adds below this article and ordering them online - new or second hand, digital or hard copy.

The reality is, though, not all the items we want are for sale at reasonable prices and not all the ones at reasonable prices are within our budget. Even if they are, further savings can allow us to invest for the future or make our budgeting more rewarding. The next step in creative consumption is to stop viewing an item in its entirety and begin to consider its component parts.

There are a number of reasons why the cost of a complete item may be more than the sum of it's component parts. Key among these are cost of assembly and the desirability of a complete and usable product.

The mere act of assembling the parts must have required resources. More often than not those resources are human resources and human resources cost money, no matter how much that cost can be minimized by outsourcing to countries without minimum wage laws. By completing as much of the assembly process one's self, one can trade one's time for money. Often the relatively small amount of time that this takes can seem grossly disproportionate to the amount of money it would have cost for the already assembled item. Ikea are hinting at this when they sell you flat packed furniture. As their communication team are keen to emphasize, this also makes it easier to carry home on your car roof rack.

Referring back to the example of computers mentioned in part 1, many computer parts suppliers will charge you for an hour or more of labor at a rate far in excess of what they actually pay their employees, for the assembly of the parts you have purchased. However, this is not always the case: some stores such as Yamada Denki in Japan will assemble your computer parts for you for little or no cost. Of course it still pays to do your homework and research the parts you will choose, since this will enable your to purchase a computer that suits your needs based on parts that represent a good balance between reliability, cost effectiveness and performance.

Assembly costs aside, there is another key factor that inflates the price of complete items when compared to the sum or their components. That is, desirability. It is far easier to market an item that looks complete and is ready to perform its function than one that will require work to assemble. Where components or items not yet assembled are marketed, communication usually centers around images representing their potential. Ikea achieve this by placing on display fully assembled items in a setting that demonstrates their usefulness, mutual compatibility and function. Cake mixes are usually sold with a photo on the box not depicting the little white sachets contained within, but rather the cake you could potentially create by adding the right amount of water and baking in the right dish at the right temperature for the right amount of time. The packaging of computer graphics cards often depicts examples of the computer graphics that may potentially be displayed on your monitor after you have installed the card in your computer, as long as you have the right combination of other components, complimented with the right software.

The point of all those examples is this: products' prices have far more to do with the laws of supply and demand than they do with the cost of manufacture. Demand, in the case of non essential items, relates to desirability and desirability increases dramatically once a product is completed. A completed product performs a function and it looks and feels complete.

However, to the innovative consumer, these virtues offer a completed product only a very short term advantage over the components though, since once we purchase and assemble them, they will gain exactly the same properties as the completed item.

We may even make improvements along the way. We can choose the precise components that suit us, rather than settling for the combination a manufacturer chose. This is very important, because many manufacturers choose the components that will slightly out compete a rival product or slightly outlast a warranty. We, on the other hand, can choose the best combination, giving the product exactly the performance and features we need and finding our own balance between cost and longevity.

One final benefit of self assembly is that by gaining knowledge of the components, we are able to replace them individually when they fail, calling on manufactures' warranties while they apply, or choosing second hand parts once they expire. This saves a great deal of inconvenience and potential cost.

As innovative consumers who assemble our possessions from their component parts, we achieve the next level of mastery over our material lives. The process bears rewards that extend well beyond the financial. We learn and develop as people through interaction with the man made artifacts that constitute a large part of our culture. We become increasingly self reliant, able to recombine parts in new and creative ways. We can perform repairs and modifications. These things are highly satisfying and enrich our lives.

To be continued...


In the mean time, please consider the following books/eBooks. Prices start from $0.99. Part of the proceeds will support this blog. 
 

Dog Washing, Hair Dressing and the Future of the Australian Economy (In response to a question. Isn't it nice how interactive and multi directional communications media are these days?!

The following comment was posted in response to this post. My response is altogether too verbose to be posted as another comment, so here is is.  

Ann said...

Do you think Australia is becoming a third world country and that the balance of power and wealth will shift worldwide? We export our resources (human and physical) to India and China and dispense with our manufacturing industries. It seems to me that an economy and society based on tourism, dog washing and haircutting is not sustainable. The mining boom is a good example of short-term greed at the cost of sustainability.

4 November 2011 12:10 

Pinky's Reply: 

I'm not sure that the definitions by which economists judge which countries are third world and which aren't are all that satisfactory and it often becomes a derogatory term used by nationalistic types to brand everyone else. 

However, in general, the countries considered 3rd world have very different problems to those facing Australia, or areas thereof. In Australia, hardship is caused by the increase in prices brought about by the extremely high performance of some sectors. The overall GDP per capita figures are still good.  

As for whether 'we' should outsource manufacturing, the answer is that 'we' don't. Governments and representatives of the people do not encourage companies to move their operations off shore. The difference is that we no longer actively create barriers to them doing so in the form of tariffs. Because imports are not taxed or restricted as much as they used to be, it becomes cheaper to import goods from low cost parts of the world than to manufacture locally. Because groups of commercial entities that operate internationally have pressured governments around the world to reduce trade barriers, arguing that it will increase efficiency and reduce costs through competition, there is very little possibility of the process being reversed. 

As for whether Australia needs manufacturing to function economically, the argument usually put forward is for a 'knowledge economy' in which skilled and educated people here manage operations that generate huge profits by outsourcing menial tasks to the cheapest bidder so they can concentrate on the really important stuff like thinking and designing and being innovative. This is very appealing, since nobody would want to work in a factory anyway, would they? People like to be told they are too clever for that. It's probably true for some. 

Of course the fundamental weakness of this model is that there are of course people in China and India who can think and be innovative too. We might hope that there are getting pretty good at it by now, since one of our biggest exports is education and they are its consumers. If people like me are doing our jobs right, we are helping those who do not settle here to go back to China and India and other countries with as much cleverness and initiative and business knowledge as as anyone in the Australian work force. Indeed, because they appreciate and value our teaching, they learn more from us than many of us learn from each other.

Should we be worried then? Should we greedily keep our knowledge and ideas to ourselves? Of course not! That would firstly destroy our second biggest export industry and secondly be bad for the world as a whole, including the first world, or should I should write hole because that's a more apt description of any world without scholarship. Whenever we teach and educate people we are contributing to humanity and as a part of it we benefit. Sorry to upset those who believe in individualism, but ultimately we're all in the same boat, by which I mean planet. You'd have to be off the planet to not get that. (sorry, I know that't terrible, but it really is true.)

So there you have it: what is going on will encounter issues. Things will have to change. The changes that have led to this can't be undone. The answers? I'm still looking too. 

For further reading in relation to outsourcing, please consider the following. Buy via my links and you will support my blog too^^. Only $2.99 for the first one, in electronic form. Others are hard copies.