Lifetime cost labels

2010-03-25

in Economics, Politics, The environment

To me, it seems problematic that people are excessively moved by the initial purchase price of various goods, giving much less consideration to total cost of ownership. For instance, when I used to sell printers at Staples, I observed that a $10 difference in price would often be enough to make a person choose one machine over another. My sense was that this encouraged printer manufacturers to make ever-shoddier products, hoping to capture the business of those who apparently care a lot more about the initial impact on their chequing account than on how long and well the product will serve them.

The same phenomenon is observable everywhere – in everything from clothes and shoes that fall apart in a few months to houses where corners have been cut in construction, at the expense of their efficiency, lifetime, and other factors.

I wonder if there is any way a labeling system could be devised to better express the real cost of products. For goods that have been available for many years, it seems like it should be possible to calculate the average length for which they remain in good working order, as well as tally up maintenance costs. Alongside the price, a label could display both the average number of years for which a product is likely to be useful, and the total cost of ownership divided across those years. The labels would have to be developed by some outside independent rating agency, somewhat akin to the analyses that are performed on automobiles.

Some will surely object that such ratings would be some kind of restriction on the free market. I argue that they are just the opposite. Rational choice models of economics hold that consumers have effectively perfect knowledge about what they buy, including factors like probable lifetime and upkeep costs. Actually providing this information in an effective and accessible way would help people to make rational economic choices. In so doing, it would mean that more people found themselves using more durable goods of higher quality. That, in turn, would cut down on total resource use and waste accumulation.

Such a system could be implemented in a number of different ways. Most ambitiously, it could be a national requirement, with a public agency producing the figures. A less elaborate option would be a voluntary rating system run by a non-profit entity which manufacturers could submit their goods to for evaluation. That would at least offer manufacturers of quality products a way to demonstrate their value through an independent estimate. Another approach would be for a quality-conscious retailer to implement such a system themselves. One example that comes to mind is Canada’s Mountain Equipment Co-Op. They could collect data from their members and produce estimates for durable products like tents, sleeping bags, stoves, climbing gear, etc.

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{ 8 comments… read them below or add one }

Mark March 25, 2010 at 11:42 am

Would be an excellent thing if it came out. I guess this is what a lot of magazines like “Which?” and “Consumer Reports” try to do, but I can see the use of trying to boil things down to a single number like total cost of ownership and then putting that on a label. Pretty huge practical hurdles though.

Byron Smith March 25, 2010 at 11:42 am

I was thinking about something quite similar just a few days ago and mulling over how to avoid having shoddy companies simply manufacturing their own “standards” through front “independent” companies if it is not done at a government level. There is so much disinformation generated by short term profit-driven companies that trust is a rare resource.

Byron Smith March 25, 2010 at 11:43 am

PS Though my thoughts were more about monitoring and noting the social and ecological impacts from various food products.

Milan March 25, 2010 at 1:01 pm

Another approach that could accomplish some of the same goals would be to require warranties of a particular length for different classes of products. That would force manufacturers to build them all to a higher standard.

It would surely encounter more resistance than a purely informational approach, however.

Sterling Lynch March 25, 2010 at 3:30 pm

I like your line of thinking on this problem.

It’s very true. People tend to pay insufficient attention to the long terms costs of their choices.

For this reason, the label system, which may be of great use to someone like you or I, won’t be of much use to the typical consumer.

If it was simply a case of educating the consumer at the point of purchase, in all likelihood some enterprising salesperson or manufacturer would already be doing it.

E.g. Sure, you save $10 dollars now but with our product you save money in the long run.

The most effective means to your desired end, I think, is to ensure the whole-life cost of the product is built into the price at point of sale.

For example, if manufacturers were responsible for the disposal of the products they produce, even after consumers use them (think beer bottles), manufactures would build the cost of “disposablility” into the consumer’s price.

A disposable pen, for example, is only as cheap as it is because someone else bears the cost of its disposal.

BuddyRich March 25, 2010 at 10:28 pm

I would love a TCO label but it would never fly.

Nevermind that our entire economy is based on continuous consumption with concepts like planned obsolescence but I also don’t think all or even most people are perfectly rational in their decisions, at least placing utility as their utmost priority.

For some people it’s form over function, and other classes of goods, it’s more about the status conferred vs an item with identical function. Often times that status is tied to the price paid as well as standing amongst your peers, it’s not even an absolute price thing.

Of course you can argue that even “superficial” concerns tie into utility.

Tristan March 26, 2010 at 1:23 am

“Rational choice models of economics hold that consumers have effectively perfect knowledge about what they buy, including factors like probable lifetime and upkeep costs. ”

The history of the 20th century is the history of the rise to power of public relations, i.e. advertising. Advertising has little purpose other than to make sure rational choice never occurs.

Which is to say that I entirely agree with your desire for lifetime cost labels. I believe very strongly in the capacity of humans to engage in something like rational choice, but that this capacity is stifled by the current system. Unfortunately, capital will not allow lifetime-cost-labels, anymore than it will allow genuine democracy, or the emphasis of human welfare above profits.

mudmama March 26, 2010 at 7:56 am

Maybe we have to petition brands we respect and trust to voluntarily do this, if enough do, then those that don’t will stand out as evasive about workmanship and LTC.

For instance MEC – I have a size 3 MEC snowsuit that has been worn by 5 children through 8 winters without any significant signs of wear. Next winter it goes onto child number 6 and a couple more seasons of use. The size 5 one I had had a faulty zipper and MEC replaced the zipper free of charge. I expect the same long life from it. I’ve had the same kind of longevity from Merrell mocs for kids.

I’m not a terribly informed consumer when it comes to electronics and I’d love help with this sort of thing. I try to choose small computer shops where the staff can help me with this and as they can’t compete monetarily with chains like Staples they make part of their business in repairs and upgrades – not selling new packages . I think they are more environmentally responsible and it requires actual knowledge of how people use their systems instead of flogging the latest product to come into the shop.

The other “problem” with a lifetime cost label is that it can’t account for the fickleness of consumers. I honestly don’t believe most consumers care about lifetime costs because they plan on replacing things well before their lifetime anyway. Manufacturers can have things breakdown as soon as the warranty runs out because by then most consumers are itching to replace them with the newest model because it comes in candy apple red.

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