It's Market Value, Stupid!

Sales and the art of persuasion.

Ask your great-grandparents, and, assuming they're old enough and still around, they'll remember the lack of material wealth during their youth.  During the Great Depression, most people were lucky if they could find enough to eat.

When World War II started, the unemployment problem vanished; but since all of America's factories were building tanks and guns, there weren't many consumer goods available to purchase.  For most of the 1930s and 1940s, today's consumer culture simply didn't exist.

In the 1950's, factories were changing from war production to making civilian products.  Thanks to twenty years of poverty and shortages, the pent-up demand was tremendous; nobody could make enough cars, refrigerators, or other household goods to meet American demand, to say nothing of the desires of the rest of the world.  Even building new factories like mad, automobile companies could sell pretty much all the cars they could manage to make.

As factories all over the world started up during the 1960's, however, markets changed from being production limited to being demand limited.  It was no longer good enough just to grind out the product, you had to persuade people to buy from you instead of from a competitor.

Markets are now saturated, especially the car market.  In America, there are 1.1 registered vehicles for every licensed driver.  There are more cars than people who can drive.  Building cars that last longer makes market saturation worse - the longer cars last, the fewer new cars you can sell.  Manufacturing is no longer the limiting factor in making a profit, the difficulty is marketing.

GM and Toyota don't sell cars to Americans who don't have cars; pretty much everybody who can legally drive has one.  Instead, they persuade people who already have cars to trade in perfectly good cars for new and different ones.

In order to sell new cars, car companies must offer products whose value is enough better than the value of a familiar, well-running vehicle to justify the cost and the hassle of swapping an older car for a new one.  That's an exercise in creating value; the problem is product design and product placement, not manufacturing.

The Value of Value

I have a techie friend who asked what his son wanted for Christmas a few years ago.  The son wanted an iPod.  Dad found out that an iPod played stored music, did his homework, and said, "Let's go to Radio Shack and get your iPod."

"You can't buy an iPod at Radio Shack."

"Sure you can," Dad replied, "the one at Radio Shack costs half as much and holds twice the music."

"But Dad, that's not an iPod, that's not what I want."

Dad gave his son the money to buy the Radio Shack music player; his son got a job, earned the difference, and bought a genuine iPod.  The value of the real Apple iPod, as distinct from the Radio Shack clone, was great enough to persuade the son to get a job!

The Value of Carbon

Right now, Saving the World by reducing carbon footprint has a very high value to many people.  Ignoring the past and going forward, which generates less carbon - buying a Toyota Prius that the EPA rates at 45 MPG and 4.2 tons of carbon per year or buying a Detroit SUV rated 21 MPG and 8.3 tons of carbon per year?

Think about it.

There's a waiting list for the Prius.  Toyota will happily make you a new one, but that produces scads of carbon.  Nobody talks about all the carbon that's generated when you mine the iron ore to make the steel, pump the oil for the plastic and rubber, make the batteries, ship all the parts all over the world, and do everything the manufacturer has to do to put a new car on the road.  When you buy a Prius, you generate many, many tons of carbon before you even drive off the lot.

SUV's, on the other hand, are no longer in fashion.  Nobody wants them; you can get a used one cheap.  Buying used recycles an entire car at one fell swoop.  The SUV was made a while ago; recycling it doesn't generate any new carbon.

If you're serious about cutting carbon, you'll never buy a new car again, but your recycled SUV will get your carbon-hating friends mad at you even if your exercise in recycling saved many, many tons of carbon compared to buying a new Prius.  What's the value of having your friends scorn you versus having them applaud you for Saving the Planet?

That's the difference between what a product actually delivers and perceived value - recycling an existing SUV produces a lot less carbon than buying a newly-manufactured hybrid, but nobody will believe you even if you have the facts to prove it.

Will Offensicht is a staff writer for and an internationally published author by a different name.  Read other articles by Will Offensicht or other articles on Economics.
Reader Comments
Excellent point. If one wants to be particularly earth conscious, one should buy a 3rd or 4th generation used car. Imagine driving around in a 1975 Cadillac Fleetwood with a diesel engine. Your friends would hate it UNTIL you told them the story. This is genius. I love making liberals' heads explode.
November 17, 2008 6:14 PM
Add Your Comment...
4000 characters remaining
Loading question...