Friday, February 28, 2014

#1 Recipe For Success

To be successful in whatever business endeavor one may partake in, he/she needs to be cognizant of one single factor. That factor is exploitation. I feel that most people know about exploitation in this sense, while a few are unaware. Whether it is intentional ignorance or innocent oblivion, the exploitation persists. There are multiple industries that have a exploitative nature, but I will only use the fashion and accessories industry since it is an industry most people can identify with. The examples and context of this article have their shortcomings and will be more pertinent to capitalistic markets/countries, specifically the United States.

When shopping, what's the first thing you look for in a clothing? For most people, I will assume it is the brand. After that, we then look at the actual product. Sometimes this process is reversed, with the consumer looking at the product, then the brand. Whatever the instance, the brand is a major factor in determining the probability of the consumer purchasing that product over another. Why is this the case? Some brief reasons include the marketing, popularity, and personal experience you've had with that brand. These are all reasonable and obvious reasons. The discussion then becomes interesting when you have brands that people pay outrageous amounts for. What makes these products so much more expensive than their counterpart? Are these products really worth the price that they are being sold for? Do the consumers even know the production process that could potentially justify the price they pay for these products? Before I go more into the discussion and state my thoughts on it, here is a very useful clip about the eye-wear industry that will provide information that will help you better answer the aforementioned questions. Watch this video with an open mind, putting aside any preconceived notions and see how your response to the questions vary.

Sticker shock: Why are glasses so expensive?

    • Before I continue, I just want to state some stuff on this video, so skip if you just want to continue with the discussion. 
      • The CEO of Luxottica is brilliant! On one hand, he comes off as being arrogant and inconsiderate, which makes you dislike him; but then you realize the brilliance in the strategic advancement of his operation and the company's transformation of the eye-wear industry as a whole and you can't help but respect their business model. This is capitalism at its finest and it is not meant to be fair or friendly. It is a competitive space and only the cunning strive. 
This video and the represented company are a perfect case study for this topic, and is relevant to me because I have an obsession with sunglasses. What makes a particular product more expensive than its counterpart? Is the value of that product worth the price, and do customers even know why they pay the price they do for certain products? According to the CEO at Luxottica, "everything is worth what people are ready to pay." By purchasing products at a high price, we are affirming his notion and justifying outrageous pricing. This is simple economics, supply and demand. Rationale is questioned when you look behind the scenes of this consumer/producer relationship. As seen in the video, products can be produced for a low price and sold for up to ten times the cost of production based on the producers discretion. This is exploitation that clearly favors the producer. Not that there is anything wrong with this, but as a consumer watching that video and peaking behind the scenes, I question my consumer behavior. While I may feel like I am paying a high price for a brand because it is "premium" and has a better quality than its competitors, in reality I am simply paying that price because the producer knows we "are ready to pay" that price. Most people have similar rationales when it comes to purchasing popular name brands feeling that it is superior to its counterpart. While this is truer in other markets such as electronics, it is murky in the fashion/accessories market. The fact is that most consumers do not know the real reasons why they pay the price they do for certain products. The association of the product to the brand is reason enough for most. 

Another example in the fashion market is the Kanye West "hip hop t shirt", a plain white t-shirt with a retail value of $120. I am using this as the scapegoat for other popular brands that charge exaggerated amounts for basic products. This shirt sold out. Consumers are saying it is okay for producers to charge exaggerated amounts for basic products, and the producers continue to supply because of this demand.

A final example is the diamond industry. This industry functions similarly to the eye-wear industry, with the majority of production and sales coming from a sole company, De Beers. This monopoly has allowed De Beers to control the supply of diamonds and ultimately determine the pricing of diamonds by restricting distribution and creating the illusion of scarcity (scarcity increases the value of products.) This is a widely known fact about the company's operation. It is known that there is an abundance of diamonds, so scarcity is not a reasonable argument for their high pricing. Like the eye-wear industry, the diamond industry is the result of years of calculated marketing and progressive rebranding, which they've done impeccably.  People know of the monopoly and exploitation that surrounds the diamond industry but continue to purchase and place high value on these products. Societal and media reinforcement continue to perpetuate the brainwashing and acceptance of these products, thus allowing for the exploitation to continue.
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There is no good or bad guy in the relationship. This is the nature of capitalism and life. Someone will always be exploited. As people, we need to be smarter with our endeavors, researching on the logistics behind the products we pay greater amounts for. As a producer, exploitation is the game and you will generally have the upper hand. Understanding the consumer/producer relationship and the underlying exploitative nature of this relationship is key to achieving success, whether it's on your business endeavors or just everyday consumerism.

One love.

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