The Long Way Home 10.7.22

My parents grew up in the Depression years of the 1930s. That gave them a strong sense of the value of things and they tried to instill thrift in those of us born after WWII.

Mom often talked about how grandpa rationed toilet paper. Supposedly he maintained rectal hygiene with two or three sheets, expecting the same from his kids. Fortunately, she didn’t try to pass that particular thriftiness on to us.

But she was frugal. She had an early version of a nylon spatula when we were kids. Even though the handle eventually broke off, she kept that spatula and used it until she died, just six years ago. I used it as a prop to explain who she was when I spoke at her funeral. Her peers that day told me how they’d do the same thing.

So one day, when I was a strapping young executive, I stopped by my folk's house to fix a leaky kitchen faucet for them. The subsequent plumbing disaster is another story. But when I opened the cabinet to clear out access to the faucet I saw there were about a dozen bottles of dish soap residing there.

“Why do you need a dozen bottles of dish soap?” I said.

“I had coupons,” was the reply.

That Depression-era frugality meant she’d have more dish soap than she’d likely need for a long time.

Remembering that day, I started to wonder about all the deals that have come down the line, and about how they never seem to go away. Manufacturers need to move ever more product to increase sales and margins. The more they can produce, the lower the cost of production. But if people only buy what they need at the time, sales drop and costs rise. Thus, BOGO sales, coupons, and other discounts get us to buy more than we might need.

In 1975, a time of economic uncertainty, Chrysler came out with a rebate program to spur sales of the surplus new vehicles they held. Buy one of their cars and you’d get a rebate of several hundred dollars. It wasn’t long before other manufacturers followed suit. Rebates on cars have never gone away, almost 50 years later.

When rebates no longer had the euphoric effect of increasing sales, cars were offered with zero percent (free) loans. They have those today, for highly qualified buyers.

But are those rebates and free loans really free?

In my younger days, our business was arranging freight transportation in a fast-changing and de-regulated market. Business consumers no longer had regulated prices to rely on so negotiating freight rates became a valued skill. One of my customers, a manufacturer of boating accessories, thrived on negotiating freight rates.

At first, I’d research my costs, add in my margin, and quote him what I thought was a decent price. Then he’d haggle until I’d cut deep into my margins to get the price he’d accept. His market knowledge wasn’t as good as mine, so I quickly figured out how to make him happy with what he was paying and still earn what we needed. When he requested a price, I’d go through my normal pricing procedure and then add $100 to $200 that I was willing to negotiate away. Each time, he was happy to negotiate my quote down. I was happy with our margin. And he was satisfied with the service we provided.

The car manufacturers do the same thing that I did. The cost of rebates and the cost of borrowing is carried in the price they quote.

My friend Ron says it best. When he sees something on sale he says, “Look, it’s almost down to retail.”