Australian free rider markets in everything

by on March 27, 2013 at 5:08 am in Economics | Permalink

From the excellent and apparently inexhaustible Mark Thorson:

A poster telling customers they’ll be charged $5 for browsing if they don’t purchase anything has been put up at Celiac Supplies in the Brisbane suburb of Coorparoo, Reddit user BarrettFox reported.

Owner of the gluten free produce store, Georgina, says she resorted to putting up the sign after spending hours each week giving advice to people who leave empty-handed.

About 60 people a week would go into the store, ask questions and then buy the same or similar product at a supermarket chain or online.

“I’ve had a gut full of working and not getting paid,” Georgina, who didn’t want her surname published, told AAP.

The full article is here.  The store owner comments:

“I can tell straight away who are the rat bags who are going to come in here and pick my brain and disappear,” she said.

Michael G Heller March 27, 2013 at 6:03 am

Australians could be in danger of becoming the whingers of the world. Definition – complain persistently and in a peevish or irritating way. Late Old English hwinsian, of Germanic origin; related to German winseln; compare with whining … in spite of no crisis.

john personna March 27, 2013 at 1:01 pm

I was watching some Portlandia last night, so I very much visualize this woman as Fred Armisen whinging in a wig.

Ed March 27, 2013 at 6:18 am

The people coming into the store, taking your time asking questions, and not buying anything? That’s your marketing budget.

However, I really don’t have a pat answer for bricks-and-mortar retailers on how to deal with online competition. I’d prefer not to live in a world where everyone stays and home all day and orders things online, but that seems to be where we’re heading unless the cost of delivery becomes prohibitively expensive.

dan1111 March 27, 2013 at 7:35 am

The niche for local stores is personal connection with their customers. Online retailers treat you like a number, while mom-and-pop stores are able to angrily shout your first name and demand that you pay up just for setting foot in the premises.

john personna March 27, 2013 at 1:05 pm

One weird dynamic here is that while there is a Celiac Disease, and a purpose for the shop, there is also an unscientific trendiness associated with the whole gluten-free thing. What should be her role? To educate those in need, or to preach to the gluten-tolerant?

(It is a little ironic that an old-line coop will sell both gluten, straight up, as a food additive, and gluten-free.)

Brandon Berg March 28, 2013 at 4:25 am

What do you expect them to do with the leftover gluten after they make the gluten-free food? Just throw it away?

Ray Lopez March 27, 2013 at 7:08 am

Browsing without asking for help should not be barred. As for what the store owner complains of, for this very reason the Reagan administration made territorial restrictions not illegal back in the 1980s, unless you can prove monopoly power. The theory being a distributor who has an exclusive geographic territory will have incentive to offer better service. But how to compete with cyberspace? I don’t know, perhaps if cyberspace companies paid sales taxes there would be a more level playing field?

Rahul March 27, 2013 at 7:57 am

OTOH, the related ruling’s about whether manufacturers can impose a Minimum Retail Price on distributors.

That was one way of protecting brick-n-mortar shops against online competition. I believe the supreme court ruled on that a few years ago. Which way, I don’t recall.

James March 27, 2013 at 7:16 am

This clearly can be a problem for smaller stores. On the other hand, charging a $5 entrance fee doesn’t seem to be the best way to solve the problem, as it would seem to scare people off and offend some.

Rahul March 27, 2013 at 7:50 am

Where I live, shopping malls do this by offering to discount your parking charges against the purchases.

sr March 27, 2013 at 7:34 am

What’s so bad about this? No one’s saying to bar them from coming in and asking questions– it’s just charging them a price for information. Of course charging a fee will force people to search for information elsewhere, but then againif these customers are walking in with questions, they’re preferring not using a cheaper alternative for information like the internet…
There’s a reason this exists: http://en.wikipedia.org/wiki/Presales

dan1111 March 27, 2013 at 7:55 am

Is anyone saying she should not be allowed to do this? I don’t think so. But it seems pretty clearly like a bad idea that will drive away the rat-bags–er, customers–that the store needs in order to survive.

Xmas March 27, 2013 at 7:34 am

Clearly, she needs to market herself as a Gluten-Free shopping assistant. She could walk through supermarket aisles with people for $20 an hour, helping them pick out Gluten-Free goods.

Remove the overhead and the depreciating inventory, go for straight service offerings.

sr March 27, 2013 at 7:38 am

I agree with your business plan and remarketing herself as offering consulting services, but you’ve got to be a bit careful. The reason these customers are walking into her store is probably because she has credibility as someone who knows what’s she’s talking about because there’s a huge stock of inventory right there…

The Original D March 27, 2013 at 12:03 pm

That would basically destroy in recurring income she gets by holding her own inventory. Not that she’s owed anything, but a radical shift in business model has consequences.

otto March 27, 2013 at 7:41 am

She’s running a record/CD music store in 2001.

Andrew' March 27, 2013 at 8:06 am

The real free rider is the box store. The customers are transmitting the information from her to them.

bob March 27, 2013 at 8:31 am

I frequently buy books at my local book store because I enjoy that its in the neighborhood. I consider the mark up above online retailers to be my admission fee.

Bill March 27, 2013 at 8:47 am

She could accomplish the same thing by:

1. Registering customers: those who are registered and frequent buyers get services.

2. She also gets the email address if the person registers, and if the person is buying on a website from someone else, matches offers through her website.

3. She demands promotional assistance from her vendors for the advertising she does in her store to promote the product, and insists that with the promotional assistance, that the price she pays to the vendor is equal to the lowest price offered to the web based seller.

4. She sells the product and offers a “free consultation” as the coupon with each person. She charges for consultation, but consultation is free with purchase.

5. If she can’t make money she should get out of the business and recognize that this is a hobby enterprise.

JWatts March 27, 2013 at 10:45 am

All of that would probably take way more time and require more effort than a small proprietorship could afford.

5. If she can’t make money she should get out of the business and recognize that this is a hobby enterprise.

Well obviously she will get out of the business if she looses money, but ion the other hand if she reduces her amount of customers by 60%, but her sales drop by only 10% she may well come out ahead.

Marcus Antonius March 27, 2013 at 9:22 pm

Well obviously she will get out of the business if she looses money

Cry “Havoc!” and let loose the dogs of capitalism.

Frederic Mari March 29, 2013 at 6:45 am

Lol. Both to the chosen alias and to the interesting slogan for creative destruction…

Nylund March 27, 2013 at 8:52 am

There is/was a store that effectively had this same policy in NYC. It was a rare musical instrument shop. People would come in all the time, ask questions, ask to play a rare instrument, then leave. This infuriated the owner so he instituted a policy where you could only enter the store if you paid $5. If you bought anything, that $5 would be credited towards your purchase. If you didn’t, you basically just spent $5 to look at (and maybe play with) some cool old instruments and hear some neat stories from the owner.

I think it definitely kept people out, but I also think that out of those who paid to get in, they were more likely to make a purchase, possibly due to some fallacy related to sunk costs.

Urso March 27, 2013 at 10:07 am

This is one of the few situations where I think this strategy could work. I’d pay $5 for the chance to play a ’51 esquire or an L-5 from the 1920s. I would not pay $5 for the chance to browse the aisles of a store that sells bread which isn’t really bread to a customer base made up largely of hypochondriacs.

Lisa March 27, 2013 at 3:13 pm

This may be an indication that you are not in her customer base anyway.

Willitts March 27, 2013 at 9:49 am

Let’s call it what it is: she’s lazy and snooty.

Some “rat bags” don’t know what gluten free means and they are not sure they need it. Others know what it is, look at the prices, and realize they can get it on the internet for less. It’s called “shopping.”

Anyone who holds their customers or potential customers in such contempt deserves to be annoyed and have their store go belly up.

I went shopping yesterday at a half dozen stores. Depending on how I feel today, none of them might get a sale or only one will. Or maybe ill change my mind about one item in a month. If one store had a different color item, I would have bought yesterday. If one store gave me 40% off their absolutely ridiculously high price, I would have bought yesterday. So maybe six people think I’m a “rat bag.” Tough! I’m the one with the credit card and I can wait to buy what I want.

dearieme March 27, 2013 at 10:23 am

She must surely have been tempted just to offer lousy advice. Why belly-ache when you can cause belly-ache?

Anyway, she has a perfect right to charge a consultancy fee. I’ll bet economists do, and they don’t even know what they’re talking about half the time.

Richard Besserer March 27, 2013 at 10:37 am

Rubbish. I can, and do, use the Internet to look at prices and reviews of health food without ever going near her store, and many, if not most customers did that before coming in. They come to her store to save themselves the trouble of waiting for a mail-order purchase. They leave as soon as they figure out that the convenience premium she charges is excessive—or, more bluntly, that she’s trying to rip them off in an attempt to cover costs that make her store uncompetitive and for reasons best known to herself she cannot or will not get under control. (She hasn’t apparently considered moving online herself or to a more affordable storefront.)

All the $5 entry fee will do is scare even more people away. The world media’s reporting on her making a fool of herself won’t help either.

An entrepreneur who blames a fickle public and not his obsolete, uncompetitive or simply ill-conceived business model for the fact that he can’t make a living will not stay in business long, and does not deserve to.

JimH March 27, 2013 at 10:41 am

It is sad to see another small business owner who doesn’t understand free-market capitalism.

First step is to form a cartel with other gluten-free merchants, then hire lobbyists to push for certification of all gluten-free product salespeople as a public health issue.

Second step, push for licensing of all establishments selling gluten-free products, making sure to grandfather in all cartel members.

Third step, restrict the number of licenses to prevent new entrants.

Fourth step, raise prices to reach a new, higher, rent-seeking equilibrium.

Problem solved, an obvious market failure has been remedied.

Urso March 27, 2013 at 10:59 am

I chuckled.

Bernard Guerrero March 27, 2013 at 1:42 pm

+1. The “Bread Fakers Petition”?

Milt March 27, 2013 at 10:44 am

Bookstores should charge a fee to enter. One dollar…and if you buy something (a coffee even) you get the dollar off your purchase. I’d gladly pay a dollar to browse for a while, especially if it means keeping a bookstore in my neighborhood. If you actually buy something, it doesn’t cost you anything. If you’re showrooming to buy online, you gotta pay the price (well, not THE price, but a price!).

JWatts March 27, 2013 at 10:49 am

That model wouldn’t bother me, as long as, the paying the minimal fee was fast and easy. Swipe my card and walk in. One charge per family not per person. Whether it’s a profitable model or not is harder to predict.

dan1111 March 27, 2013 at 12:36 pm

Prediction: charging $1 a visitor would hurt profits, because it would remove the guilt that some people feel about reading books in the bookstore.

Hazel Meade March 27, 2013 at 10:46 am

You know what I want?
I want an app that will map out locally for me where I can get a specific product. Not just map out where all the walmarts are, or where the home depot is. I want to know exactly where brand X of obscure lightbulb is physically located so I can go drive over there.

The biggest obstacle to getting what I want (and the reason for shopping online), is that it is so difficult to know what kind of store something you want might be located in, and then you have to search out that type of retail outlet, and then they might not even have the item you’re looking for. If I going just cut through that and go directly from an online review of product X to a map showing me where there is a store selling product X locally, it would save me a lot of hassle.

Chris Hartman March 27, 2013 at 11:14 am

How about: $5 entry fee, credit of $6 against purchase.

dan1111 March 27, 2013 at 2:15 pm

That’s only slightly better than the “burn it down and collect the insurance money” business plan.

bluto March 27, 2013 at 12:11 pm

I’ve started wondering if there might be some value to a show room type of retail operation charged a membership fee, had expert product advisors and lots of demo models of say many electronic items (tables, smart phones, cameras/lenses), with terminals in the back allowing one to order the product from their choice of online retailer (perhaps even with advice about who was the cheapest, quickest shipping etc). People seem to put a value on a show room experience but current retail models make it difficult for retailers to capture that value.

j r March 27, 2013 at 12:30 pm

The sign is one approach. The other might be to learn some sales techniques. People are in her store and interested in her product and she loses them. Alec Baldwin might have a few words to say about this.

dead serious March 27, 2013 at 2:05 pm

Gluten is for closers?

The Other Jim March 27, 2013 at 12:34 pm

What we have here is a dope with a very strong sense of entitlement.

She is not entitled to make a living selling things that can be bought cheaper elsewhere. She thought she was, but she is not. She is bitter, she is blaming other people who are behaving entirely rationally, she is lashing out at her potential customers, and she will soon be out of business.

At least then she can go on welfare, and people will mail her money directly.

Evan Harper March 27, 2013 at 4:46 pm

Isn’t the answer here that Georgina should close her store and be hired by an upscale supermarket as a specialist consultant / salesperson?

Harold Lloyd March 27, 2013 at 5:41 pm

The US is going to have plenty of wasted retail space in the future if stores fall victim to show rooming. More downtowns to gentrify!

magnus March 31, 2013 at 8:10 pm

The answer is to close the store and become an online business. that way she doesnt have to speak to anyone.

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