LESSON 5: How E-Commerce Influences Consumer Choice
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Trascript

Transcript of the interview with an expert, Adam Silver of DRI º a division of The McGraw-Hill Companies.

Rucker:

We have arrived at Lesson 5 in our ECONnections series. We are talking specifically about our role as a consumer. Even in the 4th, 5th, and 6th grades, we find that we have to learn what being a good consumer is all about and making consumer choices. We are even talking in this context about E-Commerce and how that influences consumer choice. To help us in this process today is Mr. Adam Silver. Mr. Silver is an Associate in Corporate Consulting. He is with the DRI Company, which is a McGraw-Hill Company. He is located in Lexington, Massachusetts. Let's start right off with this business of being a consumer and making buying decisions. One of the first big decisions that many of us made and are probably making today is buying a new bicycle. Let's assume a child has saved his money to purchase a new bicycle. He has saved $100 thus far and would like to buy the very best bicycle available. What suggestions would you give to help him make his buying decision?

Silver:

If you are the kind of guy who likes to go biking on the road really fast, that is one kind of bike. Or do you want to bike in the woods? That's a different kind of bike. Do you do tricks, or just want to get to school faster than walking? There are different kinds of bikes and they are all good for different kinds of things. You have to decide what you are going to use the bike for. Second, you want to find a bike that is going to last you. You need find a bit about the quality of the different bikes so you don't have to spend another $100 any time soon. You may find it's better to get a good quality used bike than it would be to buy not such a good new one. Or, you may even get a warranty with a new one that means if anything happens to it, the bike shop you bought it from will repair it, and that may be a best bet. You've got to find out this information. The way to do this is not just to look at advertising, because advertising is all biased one way or the other. You may talk to your friends who have bikes, you may talk to knowledgeable sales people and they may be able to help you out. You might find magazines or TV shows--they may be good sources of information, and of course, the Internet. When you are doing this, it's always a good idea to have a parent or friend with you, someone you trust. Finally, when you get out there, you are ready and have done your research, and you know what kind of bike is good for you, then you start looking at prices. If you can get a bike for $95 that's better than the one for $85, at least better for how you are going to use it, go for it! If they are pretty much comparable, then get the cheaper one. Go buy a book, see a movie, and enjoy the difference in the price.

Rucker:

Mr. Silver, what a great run-down on things to think about when making a buying decision of a major sort like this and lots of things to help us make a good choice in the major purchase of a bicycle. Thank you for that. Let's go from a rather big purchase like a bicycle down to something we maybe buy every day, a few times a week or once a week, like a candy bar. If we see the price of a certain candy bar increasing because of increased popularity, what implications would the price increase have on buyers and sellers?

Silver:

To make this clear, I have invented two candy bars-the Chocaholic bar and the Creamy Caramel bar. So let's say the Chocaholic bars are going up in price. You kind of like Chocaholic bars and you kind of like Creamy Caramel bars and it doesn't matter which one you eat, you like them both. You are going to buy the Creamy Caramel bar if the Chocaholic bar goes up in price. Some buyers are going to switch to a less expensive chocolate bar. For sellers, as prices are going up, they are all excited because not everyone is going to switch to the less expensive candy bar and they are going to be making more money on the more expensive Chocaholic bar. As they are doing this, because they are making more money on that product, they are going to start shipping more of it and as they ship more and more of it, sellers are going to have lots of the Chocaholic bars on hand. Eventually, you are going to see sales again on Chocaholic bars and they will come down in price eventually because there is going to be more candy bars out there. For a little while, as they go up in price, the sellers make a lot of profit and some buyers are going to switch away from that product.

Rucker:

It gets a little complicated, doesn't it? I think you have set forth the whole scenario in an understandable fashion, and something that we think about every day when we buy a product as simple as a candy bar and see the price actually start to fluctuate. This brings us around to something I talked about in the beginning of this audio portion of Lesson 5-E-Commerce. I am wondering what you believe are the future implications that E-Commerce will have on purchases made by adults and what do you see as future implications of E-Commerce for children?

Silver:

One thing you see that E-Commerce does, it gives access to consumers for more items and more access to a lot of different stores. All of a sudden, it's not just the local Bloomindales or J C Penney-you can to go any store anywhere in the world and shop for whatever product you are looking for. This is going to lower prices, because each store not only faces the local stores in the neighborhood, they are also facing stores all over the country and all over the world. Prices will fall. That can benefit adults. You can also, as consumers, have more information. They can do more research on products they buy. They can find more information on the various different cars out there if they are going to buy a car. They can make decisions better. They can distinguish high quality from low quality items. All of this can be good. The downside of it is that it can take time. Doing the research takes time and shopping through a lot of different options can take time. If you just want to buy a white T-shirt, you don't need to see 18 kinds of white T-shirts from 32 different stores--it can give you a headache. There is a good side and a bad side to all of this. For kids, one of the good things it can do is help motivate them to save their money. If they know they can save up for a cool game they can download, they might not buy the candy at the store, they might know there is something really worthwhile out there. It can expose them to a whole variety of things they would never have seen otherwise. On the whole, it is a good thing, but there are some downsides, too.

Rucker:

I can certainly understand that. Having said that and talking about the implications of E-Commerce and commerce generally by children, what impact do purchases by young people actually have on our economy?

Silver:

Each of the students in grades 4, 5, or 6, on average, has about $600 per year of their own money. That's not bad, but when you add onto that how much they can influence their parents, which is probably over $6000 per year. All that totaled up comes to quite a bit of money. Teenagers in general, somewhat older than the total kids in grades 4, 5 and 6 that we are talking to today, probably control about one hundred billion dollars per year in the United States.

Rucker:

You said one hundred billion?

Silver:

Yes, that's the figure that we have. That would be about sixty-three billion dollars of their own money from having jobs, from their parents, and thirty-seven billion dollars of their family's money. When kids are younger, it becomes more of the parents' money and less of their own, but in general for every $100 parents spend, $60 of it is decided, at least in part, by kids.

Rucker:

With numbers like that, it certainly is important for us to be able to make good buying decisions that we are talking about today. I am wondering if you would just give us how you would best characterize what a well-informed consumer would really look like?

Silver:

I think there are three things you need to be well informed. First, you need to know what is important to you. What do you want that bike for? Second, a well-informed consumer needs to know about the products-more than what's out there in advertising. If a bike advertisement says a bike is fast and rugged and everything else, it is probably too good to be true. You need to dig a little bit deeper and really understand what the pros and cons of any given product are. Finally, a person, once they know what the different qualities of a product are and they know what they are looking for, then they can go out and find the best price. Once you have done that, you are truly a well-informed consumer. When you know where to find the best price on the best product that fits you. That is what it takes to be a well-informed consumer.

Rucker:

Excellent advice and excellent description, as always, Adam Silver. Thank you so much for being with us here on ECONnections, Lesson 5 as we have explored E-Commerce and how it influences consumer choice. Mr. Silver is with the ERI Company, a McGraw-Hill Company. He is located in Lexington, Massachusetts. Thank you, Mr. Silver.