Commentary
Nothing In Life Is Free -- But It Can Be Gotten Cheap
- by Cory Treffiletti , Featured Contributor, July 27, 2011
Nothing in life comes for free, but you can get everything at a discount. It's now a fact of life that everything, and I mean everything, can be purchased at a discount! It started way back in the day with Amazon giving away free shipping to incentivize consumers to give them a try, but in the last couple of years the trend has spread like wildfire. There are two primary sources of deals and discounts these days, and the path is blazed by GroupOn and RetailMeNot.
We all know about GroupOn, Living Social, HomeRun and the host of companies that have emulated their business model by offering daily deals and discounts for any subscriber. These businesses provide discounted access to services and products, sometimes as high as 65-75% off the original cost. These deals are limited in nature, and serve to provide companies with a temporary bump as well as access to a whole new pool of potentially loyal customers. When used properly, these services provide an invaluable lead-generation opportunity that can benefit a brand.
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RetailMeNot is the enigma in this space, and one that definitely benefits consumers, though I'm not 100% certain it benefits brands. If you've ever visited the site, you know it offers coupons and discounts on all kinds of brands and services. Whenever I'm about to buy anything online, I open another browser window and type in the retailer to see if they have a coupon saved. The results tell the likelihood that the coupon still works, and in almost every case I end up saving money. I recently bought a pair of golf pants from a niche retailer, and ended up with 20% off. I had no idea RetailMeNot ran so deep in the retailer category, but after that experience I was absolutely sold. I will never pay full price again!
As a mentioned, this kind of service is amazing for consumers, but I have to think retailers are not too excited. If retailers forget to pull down a coupon code, or remove it from their checkout system, it can live in perpetuity. Some of these codes are holiday codes; I'm sure those retailers never intended to give me a Christmas discount in July.
Coupon cutting is all the rage online, and there are numerous cases where brands offer limited-time coupons to their most loyal customers, and Websites or blogs take them and run, making them available to their hundreds of thousands of readers online. Brands actually pay for these coupons. When a coupon goes "off the reservation" like that, it can cost a brand hundreds of thousands of dollars to keep up.
The other concern here is that daily deal sites and coupon discounts are teaching a whole generation of shoppers that the ticket price is rarely ever the actual price, so retailers and marketers are going to have to factor this into their pricing strategies going forward. Will retailers start pricing higher to satisfy the discounts they offer? Will some retailers adopt the old "Saturn-like" pricing of "no haggle, stress-free shopping"? Will the online retail marketplace just become a means of under-cutting local business?
This last question is a timely one, as Congress mulls passing an online sales tax to be enforced on a national basis. I personally think it is only fair that online businesses charge a sales tax because these companies create significant revenue that may not be properly used to cover state or federal expenses, but they are taking away sales from local business that do pay those taxes (or at least they used to). I read recently that online sales take away billions of dollars in state and federal taxes, and that could help us in a period where we should be trying to balance the budget.
There are a lot of moving parts to this discussion, and in the majority of the argument the consumer wins -- which is great. I just hope we aren't setting a bad precedent for years to come in retail.
What do you think?
A review of Bastiat's "Negative Railroad" discussion would be worthwhile.
There is no doubt that online shopping has cut local, state, and federal tax income. It has also adversely impacted small local businesses, in some ways.
But whenever we make progress in our economy, somebody is hurt. The automobile put many blacksmiths out of business, and horse trading fell to the wayside. Taxing the auto business would, in the long run, have hurt its growth though one could argue the taxes would act as a salve for those who lost their jobs in other industries.
Of course, that isn't how taxes work. And once they are in place, they tend to stay in place. I'm reminded of the Federal Excise Tax on phone use. First put in place for the Spanish American War, it was ended then reinstated until (in 1934) it was put in place rather permanently. It was partially repealed in 2006, but still exists today.
Not to mention, once the Feds grab their piece of the pie, then States will want their portion.
And at that point, the "benefits" of online begin to degrade. Sure, it may help local businesses, but overall there is a cost to the consumer.
We cannot solve our debt problems by taxing businesses more. These taxes are passed along to consumers, which will impact purchasing, which will further erode the economy.
We can close many loopholes in tax law that exist, which are misdirecting billions, and allowing some companies to pay little or nothing.
I do what I can for local businesses, but the reality is that if shopping online brings me savings and convenience, then I will shop online. Sadly, this hurts local business people. But why must I alter my behavior just because someone feels it is important to save a business that is losing relevance?
I don't see a bad precedent at all. If the government wishes to help the small business people, there are alot of ways it can do so without raising taxes. But discussing those options will open a whole new can of worms. So it's easier to find a boogeyman (online shopping), weave a tale of woe, and provide a seemingly simplified solution - tax it!
I'm not opposed to taxes. But I'm opposed to picking and choosing winners and using tax policy to manage that. The government chose to let this industry grow without taxes, and it created a wonderful new vehicle for technological, economic, and employment growth. Now it wishes to attack this growth because it came with some costs.
For alot of reasons, the parable of the ant and the grasshopper comes to mind.