Are consumers rational? Not, it seems, when working out the actual cost of their purchases over the whole lifetime. Consumers buy cheap and then pay later.
I was doing some work recently with Ingersoll Rand, one of the world’s leading air-conditioner companies. Air-conditioning is an energy-hungry beast. It accounts for nearly half of domestic electricity consumption in some US cities, and is a fast-growing drain on energy in the developing world.
Some 85% of US homes have an aircon unit. Yet the majority of these do not meet current Federal minimum standards. Consumers mostly plump for the cheapest option at the point of sale. This is bound to be less energy efficient. And I’d wager that it’s much more likely to break down. So, what seems like a bargain unit when they buy it, means that the consumer pays through the nose on energy and servicing costs for years to come.
And, not surprisingly, the figures from Ingersoll Rand show that this tendency has got worse during the economic downturn.
We see this same lack of judgement across many other product and service areas – from houses to washing machines, from cars to printers, as our work with Kyocera has shown.
Business customers are slightly better at taking this into account – but not much. While companies may be more able to take a long term view, purchasing decisions are often fragmented between different parts of the business. Costs and benefits are unequally shared. And governments are not much better at assessing the whole life cost of procurement – they still take a very narrow view of value.
This consumer illiteracy is bad news. It is costly for the planet. It is costly for taxpayers. And it is costly for the poorest sectors of our society, who too often end up paying more overall because of a supposedly cheap initial deal.
Surely resolving this should be more of a priority for both consumer education and for government policy?