Over in the USA they have these things called 'layaway' schemes and Alex Tabarrok thinks it odd that people use them:
Layaway plans are immensely popular, a fact I find deeply puzzling much like the popularity of Justin Bieber, Snooki, and homeopathy makes me question the rationality of my fellow human beings.
The typical layaway plan requires a deposit of 10-15% of the price of the good, say a new TV. If the consumer pays the balance over the following 10-12 weeks (i.e. by Christmas) they can pickup the good. If the consumer doesn’t pay the balance they get a refund of payments made less a service fee.
I suspect that there is some important factors that Alex overlooks here - for many people such schemes are entirely sensible and their use absolutely rational. Alex talks of how Walmart and such won't run out of what people want so that's not a motivation for pre-order but fails to realise the problems of living on a limited income.
For a number of years, Park Food Group - Britain's biggest Christmas hamper company - was a client. We put together direct marketing and agent recruitment programmes. As the Account Planner my job was to try and understand who might buy these hampers (or rather who might act as an agent persuading others to buy) and the reasons why such purchases are made.
In simple terms the incentive is that, on their own, many people in the target market for hampers and Christmas clubs (and indeed for Alex's layaway plans) simply do not trust themselves to save. There are too many pressures in year that lead inevitably to a little dipping into the jar with the Christmas fund meaning that the fund, come Christmas, is depleted and insufficient.
What hamper businesses do is provide an agent to make sure you save (they pop round every week, have a cup of tea and collect the £3.36 or whatever) and a pot you can't access - so no dipping in to pay for school uniform, birthday presents or a treat taking the kids to the zoo. This is what people are buying, not certainty but rather the assurance that someone is helping them make sure they have a great Christmas.
"Tabarrok's Layaway Plan" simply doesn't offer this assurance and therefore does not offer the actual product ('making sure you save') that people think they need.
...
Layaway
plans are immensely popular, a fact I find deeply puzzling much like
the popularity of Justin Bieber, Snooki, and homeopathy makes me
question the rationality of my fellow human beings.
The typical layaway plan requires a deposit of 10-15% of the price of the good, say a new TV. If the consumer pays the balance over the following 10-12 weeks (i.e. by Christmas) they can pickup the good. If the consumer doesn’t pay the balance they get a refund of payments made less a service fee.
- See more at: http://marginalrevolution.com/marginalrevolution/2013/10/stayaway-from-layaway.html#sthash.eTIAonk2.dpuf
The typical layaway plan requires a deposit of 10-15% of the price of the good, say a new TV. If the consumer pays the balance over the following 10-12 weeks (i.e. by Christmas) they can pickup the good. If the consumer doesn’t pay the balance they get a refund of payments made less a service fee.
- See more at: http://marginalrevolution.com/marginalrevolution/2013/10/stayaway-from-layaway.html#sthash.eTIAonk2.dpuf
3 comments:
My dad had a large shop when I was a kid and sold toys and gifts at Christmas. The Christmas Club was very popular - my dad saved what they'd chosen and they popped in every week or so and made a payment. By December most had paid it off and everyone got their presents.
This also gives an insight into why the Child Trust Fund was both a good and a bad idea. It was a good idea for the same reason that Christmas Clubs are a good idea - it provided a way of doing long term saving for your child which you couldn't be tempted to dip into over the next 18 years.
It was a bad idea because it was of least interest to those whose children might benefit the most from such long-term saving because, unlike planning for Christmas, planning for 18 years into the future when money is tight to provide what your child needs now is unrealistic.
So, the poorest parents and families would rarely have been able to put in anything approaching the initial government payments. Instead, it just gave those parents who (like myself!) would already have saved an additional tax-free vehicle for doing so.
The rationale behind layaway plans is that consumers will want a specific type of item, fungible within the class of such items (unless it is an especially unusual type in which case they will want an actual item itself), at a specific price, available by a certain date. It is not dissimilar to a call contract. What the difference is is that the consumer, by not waiting till after Christmas to see what sort of products are still available at a sacrifice price, is given the assurance that the item of merchandise will be available, as it is held off the market (usually physically segregated in the storage area of the merchant), and the merchant is assured of a sale at a price he would rather charge than to have to bring it well down to rid himself of possible overstock.
The American experience was that if a merchant didn't do this sort of arrangement, what was to stop the consumer from ordering from the Sears catalogue at a competitive price, with assured delivery by Christmas, the payment either financed by easy credit obtained on a rare previous visit to the brick-and-mortar Sears-Roebuck store in a larger nearby town (in rural areas), or by a payday loan (in urban areas).
All in all, many people would rather have dealt face-to-face with Mr Cohen (many such merchants were, in fact, successful "Jew-pedlars" who settled down and opened a shop), a man who lived in their community and one who, even if one thought Cohen might be a bit of a sharper, still realised he had to live amongst those he did business with, or at any rate, had to be there to talk to if one had a complaint. With Sears, there was no such assurance.
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