Shopping much more than price comparisons
Wednesday, March 30, 2011 4:14 AM
A recent debate on Facebook centered on whether a resident living in a small town in central Minnesota who had solicited quotes on a home project he was doing should pay substantially more to purchase his supplies for a home improvement project locally, or save costs by shopping with a chain out of town in a larger city 50 miles away. It's an argument often debated here as well.
On the one hand are people who claim the local business is gouging local residents because it knows it has a captive audience. On the other side are people who point out that the local business is paying local taxes and employing local people - plus keeping its doors open so local residents don't have to drive to get every item they need for a project.
There really is no easy answer, but perhaps consumers should do what public officials in Minnesota do and look at the best value, rather than the lowest cost only. The state allows units of government to use value basis for bidding, rather than being required to take the lowest bid. Under this system, local units can look at all the factors in a bid and take the best value, which isn't necessarily the lowest bid.
Why wouldn't they take the lowest bid? They may determine in the long run that one bidder may provide lower cost by using longer lasting or more quality products, or the performance may not measure up to the standards they expect or there may be hidden costs, such as more oversight, not included in the bid.
In other words, the lowest price on paper isn't necessarily the best value to local units of government in charge of providing necessary services to their residents.
So how does this translate over for consumers? Well, there is more to shopping than lowest price. There are hidden costs to transactions that need to be accounted for by local residents when they make purchases.
The Facebook friend traveling 100 miles round trip is spending at least $20 for gasoline if his vehicle gets about 20 miles to the gallon, not to mention the other costs associated with driving. And, if he values his time, the couple hours are worth even more than the gas.
Those costs could go up if everyone thought like he did and the local merchant had to close its doors. The savings was for a major construction item, but what if he had to make that round trip for every little handyman item he needed over the course of the rest of his life? All those trips could add up to quite a hefty sum, especially the way fuel costs are increasing.
It's not just hidden costs, though. There is value in doing business with a local merchant.
One valuable consideration is service. If the buyer in a small town has a problem with a purchase from out of town, will the discounter stand behind its sale? Will the buyer end up spending his own time and money for a problem to be resolved? Will the person with the problem be treated seriously - as if he is a valuable customer, or will he be seen as merely an inconvenience to the discounter that doesn't want to deal with anything after getting his money for the initial sale?
Say enough people shopped out of town that the local merchant eventually had to close its doors; likely there would be a loss in donations to local youth groups, benefits and other community causes. It is unlikely that the out-of-town discounter will pick up the slack, so that means the quality of life in the community will take a hit.
If the store's employees had to leave due to the store closing, they may be forced to move out of the community. That means fewer local residents to patronize the other businesses in town, which could lead to other local businesses closing their doors.
That means fewer people to take part in community activities and join local organizations, and, perhaps, fewer students for the local school district, which results in a loss of state funding and possibly a decline in quality education. In financial terms, it could mean a decrease in home values as it becomes a buyers' market due to the number of homes for sale.
The loss of businesses to pay property taxes eventually could result in increased taxes for the residents remaining as commercial properties pay a much higher proportion of the tax bill for community services than homeowners do.
If a small town ends up becoming a collection of homes without any businesses, how will that affect the vitality of the community? What about the quality of life for those people living there? Who will be left to reinvest in the community?
Perhaps this scenario is a bit far-fetched, but it does illustrate how local businesses are tied into the entire community, making them much more than the sum of their inventory of products offered for sale. Spending your money at local merchants is an investment in your community.
Not all people will be convinced about the far-reaching ramifications of their purchases. Some will merely look for the lowest price. People have to decide for themselves what merchandise is worth to them and how costs should be determined.
Just remember, the true value of a product is measured by many more factors than the price listed on the sales tag.