Are you wearing watered down shoes?Recently quite a few customers in the TCB Vein Store have been saying that there are no good shoes around (except in the Vein Store of course). In the city and the shopping centres all the shoes seem similar, bland, generic and of obviously poor quality. None of the stores anymore are offering interesting, attractive, original, well made shoes in good leathers. Why?
The answer lies in the principle that "Bad money drives out the good". It's a theory illustrated by economics Nobel Prize winner George Akerlof using watered down milk as an example. It's called Gresham's Law, after Sir Thomas Gresham, a sixteen-century merchant who persuaded Queen Elizabeth to restore the debased currency of England.
In the milk example honest, original-design, well crafted, high quality leathered, ethically made shoes are the
pure milk. Knock-off shoes made poorly and cheaply by unskilled workers of inferior and deceptive materials are the watered down milk. To the untrained naked eye, the pure shoes and the watered down shoes may look the same.
Imagine that a litre of high quality milk wholesales for $1.00, and a litre of watered down milk wholesales for
$0.60. An average buyer might willingly pay up to $0.80 for the watered down milk and up to $1.20 for the pure milk. In either case, mutual gains would be made from the transaction: Both the buyer and the seller know what he or she is getting, and both end up with what might be considered a fair deal.
But if the customer is unable to distinguish quality (and with shoes it is very difficulty for the average customer to distinguish quality), both grades of milk must sell for the same price - about $0.90.
Under this system, honest brokers of pure milk go bankrupt, while corrupt watered down milk sellers flourish. So, logically enough, soon all surviving merchants are watering down their milk and pocketing large profits, and consumers believe they are getting a bargain when in fact they are being ripped off.
The key factor is the knowledge gap between the buyer and the seller. The cheaper the goods, the harder retailers work to keep consumers from knowing the truth about them. And the more narrowly consumers focus on price, the easier they are to fool. Lately the trend is to fool customers about the product by using good design (knocked off) and good branding, imagery and store design. By using great photographers, models, knocked off good designs and clever branding, sellers are skillfully working very hard to not only keep consumers from knowing the truth about the products they sell...they are even preventing consumers from asking the hard questions at all.
If customers know the milk is watered down, there is no problem; they pay less for it and get precisely what they bargained for. Customers who prefer their milk without water can choose to pay a higher price. No one is cheated, no one is fooled. But when dishonest brokers add water to the milk and sell it for less without telling customers they have watered it, the unwitting public believes it is getting a great deal.
If enough dishonest merchants water their milk, more and more customers will forget what normal milk tastes like and buy only the cheaper watered down variety. Eventually honest brokers are forced to water their milk, too, or get pushed out of business. Pure milk becomes no longer available and even the price of watered milk goes up. Good money and good milk is driven out by the bad.
I've watched the same thing happen in the footwear industry. I see trusted brands selling PU (fake leather) shoes and labelling them genuine leather. I see them lining shoes in fabric instead of leather. I see them using the lowest grades of rubber on their soles...or worse, thin unsuitable leather soles. I see them making shoes in the poorest countries in the world by totally unskilled, contracted, per-piece workers that don't have the skills to make a pair of shoes themselves. I see them picking knock-off designs from factory catalogs and stamping their own logo on it. They've had to, or they will go out of business because the shop next door is deceptively selling watered down milk. And besides, it makes "good business sense" to sell watered down milk because the customer thinks they are getting a bargain but the seller makes more profit than selling pure milk honestly.
The result is, as explained in Akerlof's example, nearly all the merchants are selling watered down milk and many customers have forgotten the taste of pure milk. Those that have not yet forgotten the taste have been saying that there are no good shoes around (except in the Vein Store of course).
At Vein Wear, we only sell pure milk. How do we know? We milk the cows ourselves.
