In sales, we call this shifting tomorrow’s spending to today. In America too, sales we walk a thin line in developing sales strategies. The question comes up, “how can I get people to buy more today, but still buy again next week?”
This is why American producers keep developing new types and brands of products. In the former East Germany, if you were lucky, and if you had connections, and if you had foreign exchange coupons, you could go into a shop and purchase a brown box, marked with a black stamp, which read, “COOKIES.”
In the new Germany, you go in the supermarket and there is about half an aisle dedicated to cookies, candies, chocolates, breakfast cereal and a number of other products. Most grocery stores in Germany only carry about six or eight flavors of breakfast cereal and they are all the same size.
There are also very strict rules in Germany about how these products are marketed. In general, advertising which targets children is discouraged, if not illegal.
Big grocery stores in the US have an entire aisle dedicated to breakfast cereal. There are thousands of brands, most of which are tied to cartoon commercials and memorable characters or movies. Tony the Tiger, Dig’em the frog, the Rice Crispy Guys, Count Chocula, Boo Berry, Frankenberry, Fruit brute, Lucky the Leprechaun, and my all time favorite, Captain Crunch.
Inside of each brand are numerous varieties. Captain Crunch comes in regular (which cuts the inside of your mouth), peanut butter, Captain Crunch with Crunch Berries, and new, Choco Donut Captain Crunch. And each flavor comes in a variety of sizes.
If one brand, flavor, or size is on sale today, you buy more. But next week, you also buy, because you want another flavor or brand. The same is true for consumer goods, such as TVs, DVD machines, computers, clothing, cars, and even houses… By creating so many new choices and types, the manufacturers guarantee that a decrease in prices this week causes a spike in sales this week, but by releasing a new product next week, they can also expect a spike in sales next week.
The spike became the norm.
This strategy has gone on and on for years. At some point, even the US consumer ran out of money. You can only take advantage of sales if you have cash.
Step 5: Extend liberal lines of credit to your customers.
From the 1950s to the 1970s you to had show income, savings, and credit history to obtain credit cards. By the 1980s college students and unemployed people could obtain cards simply by filling out the application form. By the 1990s, unwanted credit cards actually arrived in the mail. You had to simply call to activate them.
Now, you had spikes in sales, driven by the invention of new models and brands. You kept your profit margin low, so your end product was low, but your overall product was high because your sales were high.
The US had the lowest inflation, lowest unemployment, and one of the highest qualities of life of developed countries. This last claim is more of an opinion, but we definitely owned more stuff than anyone else.
The Germans argued that our low unemployment rate was artificial because it included low paid workers who were below the poverty line. In Germany, less people had jobs, but everyone who had a job could afford to eat and live. They also argued that our sales figures were artificial because they were built on an ever growing consumer debt, which would eventually have to be repaid.
I personally know a couple whose credit card debt had reached one year’s salary. That will never be paid off.
Companies who cut their profit margins to almost nothing also used debt to expand and sell more products. They were functioning on such a narrow shoestring, that as soon as the hint of this financial tsunami hit and consumer spending dropped by a small percentage, the shops collapsed into bankruptcy.
Many economists predicted that the system couldn’t go on forever, and that the whole economy would eventually blow up.
I guess they got it right. And now, we will be paying for yesterday’s spending tomorrow.