If there is anything more ingrained in our collective mindset, when it comes to buying, than “volume discounts” it escapes me.
The more we buy of something, the less we should pay per individual item. Baseball, hot dogs, apple pie…and volume discounts.
Intuitively it makes sense. Providers spread their cost over more units, lowering unit price, while consumers gain purchasing power by buying more.
The origin probably goes back to cavemen trading stones in some form. Henry Ford brought it to a new level when he said, “The goal for every industrialist is to make the best possible goods at the lowest possible cost, while paying the highest possible wages.” Ford ushered in a new era of economies of scale by dividing labor to specialized, repetitive tasks in assembly-line format.
The famous Model T went from $825 in 1908 to $360 eight years later. Efficiencies drove up the value of labor. Combine the two and suddenly everyone could afford a car. As long as it was black!
It makes sense to us because it reflects our experience with daily tasks. When we shop, we don’t go to the store, buy one thing, return home, then repeat the process. We maximize the efficiency of the trip. Making stuff (historically at least) works the same way. The world of decals follows convention by providing tiered pricing based on volume of purchase.
Yet we also understand there is some balance, some diminishing value of “more.” Anyone who has freezers full of Pizza Pockets from Sam’s knows this all too well.
So, what is the balance? The digital age offers a peek into what may lie ahead. We adapted to Google so easily because we gain instant access to information exactly when we need it. No need to buy hardcopies of information resting on book shelves and file cabinets when we have it at our fingertips. Anytime. Anywhere.
It’s just starting to affect physical assets. Uber and Airbnb allow the use of cars and spaces exactly when they are needed by non-owners. We’re rapidly moving toward point-of-use big ticket items. This means radical changes lie ahead for people who make and use “stuff”. How does this square with the time honored “volume discount” mindset? Thoughts on that next time!