26 Sep 2014

Why our insecurity costs us money

Judith B writes:*

Classic microeconomic theory teaches us that prices are determined in markets (which, at their best, are assumed to be perfectly competitive). Thus, what I pay for my pair of jeans depends, on the one hand, on how much it costs to produce it and, on the other hand, on how much I am willing to pay for it. The producer should just make enough money to cover expenses and I should just pay as much as the value, which this pair of jeans adds to my clothing ensemble.

In the real world entrepreneurs have found an astute way to sell you pretty much the same exact jeans but make you willing to pay more for it: branding. Nowadays, if you’re buying a pair of jeans is not just the jeans you’re getting – you’re buying a feeling, a feeling of adventure, a bit of sex appeal and maybe some independence too. If you buy a car, it is not just a vehicle that transports you comfortably and safely from A to B. It’s a way of life, of roaring freedom and power. In terms of what they do, the jeans are still the same jeans and the car is still the same car. Yet, we are willing to pay significantly more because we think that we will be happier, socially more attractive and maybe even more successful, if what we buy has just that little brand tag on it.

I’m intentionally careful in not calling the “added value” an illusion. It’s not. Feelings are not illusions, they are real and they are important to people, otherwise they would not be willing to pay for them. Brands have become recognized social symbols, which have a value beyond their physical characteristics. They are used as information shortcuts, whether to identify high quality products or identify social group affiliation. At a time when other recognizable signs of social standing are vanishing, brands help us structure how we view the society.

What worries me is that branding often preys on the most basic human condition of insecurity. Yes, we all want to be accepted and loved and belong to the group and deep down we worry all the time whether we are “good enough” to be part of the group. We are striving for a status, physical attractiveness, career success and all those other values that we are told we need to achieve in order to be accepted by others. Companies tell us that we can actually buy our way in, that we can be better if we just buy their products. And that I think is an illusion. The new jeans might make us feel better for a couple of weeks, and even get us some compliments. Yet, we ultimately stay the same insecure person, even if we buy a hundred brand jeans.

Bottom Line: Whatever advertisement might tell us, we cannot buy a better self. Learning self-acceptance and improving our self-perception requires serious mental work. However, in the end investing in ourselves is probably cheaper than compensating for our insecurity by buying another pair of Levi’s jeans.

* Please comment on these posts from my microeconomics students, to help them with unclear analysis, other perspectives, data sources, etc.


Dennis Meyer said...

You approach a very interesting and interdisciplinary topic. I agree with your overall argument and find it very concerning how advertisement does not only manipulate our consuming behavior but also our psyches in general. I especially like how you try to distinguish between real feelings and the ones created through brand advertisement. Working on one’s character to defend oneself from ‘illusions’ is clearly the best way out of this dilemma.

However, you state that brands help us to understand modern society better, especially because “signs of social standing are vanishing”. Although I believe that brands can indeed create positive feelings, I am not sure whether this only applies to modern ages. In fact, I do not believe that branding is a new invention. Bargaining and negotiations have ever since been a central element of trading. The seller tries to get as much for his product as possible, and the purchaser aims at paying the smallest possible price. Since centuries sellers use the argument that their products are the best on the market, and therefore, customers have always tried to be the ones purchasing the ‘better’ product. This is even possible within one’s social class. Differences in price do not need to be high to give one the feeling of having a ‘better’ product than one’s neighbor, for example. From my point of view people have always tried to obtain more positive feelings (through their purchases).

You criticize advertisers for manipulating consumers, and as I said before, I agree that this can be dangerous. However, I find it also interesting to ask oneself whether buying a feeling, even if it is created by a brand, is necessarily a bad thing. We also pay for other things that make us happy, such as visiting an amusement park or going to a special restaurant. What is your opinion on this? Are consumers acting ‘incorrect’ by purchasing advertised products, or is it enough to be aware of companies’ interests?

All in all, I like your post very much as you successfully address a very permanent topic in its modern context. At last, I think that each one of us should ask himself/herself why he or she is willing to buy a feeling. Is it, as Judith claims, because of lacking self-esteem, or are there more factors that would help us to understand this interesting phenomenon?

Anonymous said...

Your first paragraph may be a little wrong. You essentially say that there is no consumer surplus in perfectly competitive markets. This makes sense if you think about 1 consumer deciding how many pairs of jeans to buy. However, there is very rarely only one consumer. If consumers are heterogenous in their willingness to pay then there is probably going to be some consumer surplus. The point is that perfect competition leads to low prices and high supply, so lots of people can get consumer surplus. In the market you describe, there is no consumer surplus and no producer surplus so then there is no benefit to society from the market existing at all!

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