What do Diamonds and Windproof Umbrellas have in Common? Malik June 23, 2010 economy, Education 5 Table of Contents My Umbrella Story Windproof Umbrella Conspiracy Now tell me what windproof umbrellas and diamonds have in common Conclusion Related Sources My Umbrella Story I know these two products seem like quite the odd couple, but when I finish this post, you’ll see the similarities. About 3 or 4 years ago, I bought this great black windproof umbrella from the Walgreens right around the corner from my house. It was raining like cats, dogs, giraffes, elephants, tigers, and dinosaurs at the time so I was ready and willing to put down some good money for an umbrella, and when I say good money..um that’s about $15.00-$20.00 dollars. Normally I get those cheap-o street vendor $5.00 dollar “I’ll last about 10-minutes in the rain then evaporate” black umbrellas, and when it eventually meets it’s short demise I kindly dunk it in the nearest garbage can with the rest of the $5.00 dollar umbrellas that have been imploded or exploded by the wind or rain. So I walk into Walgreens and I’m looking at the umbrellas. One side (left) has the the $7.00 – $9.00 dollar umbrellas and the other side (right) has the $13.00 – $15.00 dollar umbrellas. The umbrellas on the left side seem enticing because I know these umbrellas are better then the street vendors and that extra $2-3 dollars will be well spent. I then look over to the right side and see a set of windproof umbrellas and instantly forget I was looking the first set.. I give it a couple looks, test it out for a minute or two and I’m sold. I now own my first windproof umbrella. This umbrella was a champ. No matter how windy or rainy, it held up. No more inverted umbrella embarrassment, no more charging forward and jousting with my umbrella in the wind looking to attack the next pedestrian, and no more buying cheap umbrellas. I have officially upgraded. A year later I mistakenly left that wonderful black windproof umbrella at a spot I used to get my locks re-twisted (at the time) and the young lady who does my hair (who now cornrows my wife’s hair) found it. I decided to part with my first windproof umbrella and let someone else reap the benefits. I’m pretty sure it was her first windproof umbrella and nothing would make me happier than passing down the legacy. So I go back to the same Walgreens to buy a new windproof umbrella and they only have blue and white (think New York Yankees). I really enjoyed my stealthy black windproof umbrella but I decided to go with the NY Yank themed windproof umbrella and I still have it till this day. I know at this point you are asking..”Can we get the the diamond part already?”. Yeah, we are almost there, the finale is coming. Like most people you accumulate umbrellas at home because: You forgot that it was going to rain today You didn’t think it was going to rain even though the weather man/woman said it was going to rain (usually he or she gives a T-storm or isolated T-storm type of forecast and you say..”I won’t need it”) You forgot your umbrellas somewhere. Normally when you go out you bring your umbrella because it’s raining. You reach your destination but when you are ready to leave it’s no longer raining. You are either going to remember “Oh its not raining let me bring my umbrella” or “Oh its not raining anymore [internal thought: I did not remember that I had an umbrella because it’s no longer raining] Then you get caught in a rain storm and you need something really quick. So you go with the cheap-o street vendor brand to prevent looking like you just jumped into a pool with your clothes on. Then you bring “I needed an umbrella urgently” no 846 home and soon the section where you keep the umbrellas looks like the area where people put their umbrellas at the door of a hotel. To your benefit, when company comes over and you need to go outside while it’s raining you can just pass them the cheap-o umbrellas while your “top notch top shelf” umbrellas remain in the special section that only you and your family know. It’s like a family secret. “shhh..don’t give them the good umbrellas”. So a couple weeks ago…yeah you guessed it..I get caught in a rain storm with no umbrella. Damn you weather man. You should by hung, drawn and quartered for your weather prediction blunders. Sorry I digress. I go to my favorite Walgreens spot and I go straight to aisle 7 to pick up a windproof umbrella and to my surprise not one windproof umbrella. I’m shocked. I feel like a 3 year old kid that has been stranded in the airport. Now what? Okay, I’ll just go to your competitor Duane Read which is right around the corner and get it there. So I walk straight to the umbrella section and once again…no windproof umbrellas. I can’t believe this. I’m shocked. So I settle for some umbrella that is worst than the cheap-o street vendor umbrella but I have no choice. At this point, time is short and I don’t have the luxury to shop around. So where did all the windproof umbrellas go? Back to Table of Contents Windproof Umbrella Conspiracy To be honest I’m not sure where they all went. They went from being available like a kit kat in the candy section of any drug store to being scarce like looking for Scarface on VHS in BestBuy. However, I have a couple theories: They fell out of fashion. Like any trend, there was a huge push then for some reason no one wanted them. A simple act of supply and demand. No malicious intent there. Did those stores see a drop-off of their non-windproof umbrellas sales because the windproof umbrellas held up a lot longer? In my case, I usually have to buy several umbrellas a year because they get smashed by strong winds and rain. However, since I bought my windproof umbrella I haven’t had to buy another umbrella. It’s literally been 3-4 years. Let’s do the math: Hypothetical non-windproof umbrella sales if I didn’t buy my windproof umbrella: Roughly 2-3 umbrellas a year at $5-$10 dollars a pop for 3 years = $45-90.00 dollars. Now lets multiply this by several thousand because obviously I’m not the only one buying non-wind proof umbrella. Let’s just say 2,000 people for one store for each year. That’s anywhere between $90K-180K over 3 years. Hypothetical windproof umbrella sales using my windproof umbrella buying pattern in part a. So in 3 years I had to buy 2 wind proof umbrellas because I lost one. For the sake of this exercise, lets say the average person buys 1 wind proof umbrella at the price point I bought my windproof umbrella which was roughly $13 bucks over 3 years: 1 wind proof umbrella at $13 dollars over 3 years = $13 dollars. Using the same 2,000 people for one store each year that’s 26K over 3 years. As you can see the hypothetical gross revenue of the windproof umbrellas is 40% less than the lowest revenue estimates for the non-windproof umbrellas and 85% off the highest revenue estimates for the non-windproof umbrellas. I was a lot more careful with my windproof umbrella because of the following reasons: It was extremely valuable/reliable (product value) I paid a little bit more so I didn’t want up another $13 bucks where $5 bucks (cheap-o non windproof umbrella) I felt less obligated to be responsible. Not to mention I knew it was going to implode any minute so my care for my non-windproof umbrella was a lot lower and reckless.(behavioral value based on price and quality) I was also less likely to forget my windproof umbrella at random places because it was a good umbrella. Back to Table of Contents Now tell me what windproof umbrellas and diamonds have in common The point of this whole entire hypothetical economic exercise is to demonstrate several key economic and behavioral conditions that impact our buying decisions and patterns. In this scenario (I believe) windproof umbrellas and diamonds are both impacted by artificial or false scarcity. In this specific case, I believe that windproof umbrellas are experiencing a certain type of “artificial scarcity” because it is less profitable at the low to mid-tier umbrella market to sell windproof umbrellas next to the non-windproof umbrellas. When I say “artificial scarcity” I’m stating that companies are purposely making the availability of windproof umbrellas more scarce because it is less profitable for them in regards to umbrella sales. My wife was just looking for a windproof umbrella and literally had to hunt every single pharmacy (i.e Walgreens, CVS, Duane Reade, etc) in NYC and could not find 1 windproof umbrella. She just happen to be in Home Depot at the time and on a whim looked for a windproof umbrella and found a few. Same price as the one I bought 3-4 years ago, $13 dollars. Even when you go to direct umbrella manufactures and suppliers windproof or wind resistant umbrellas are seldom mentioned. I’m not exactly sure if the distributers and suppliers are in direct “kahoots” with one another, but clearly the availability of windproof umbrellas has been minimized from the manufacturer to the distributer. So in the case of the diamond industry De Beers buys up tons of diamonds off the market to lower the total amount of available diamonds globally, hence making them “artificially scarce”. Just imagine the natural amount of water that existed in the world was 5 trillion gallons. Then a water corporation, let’s call them De Water, would selectively buy hundreds of millions gallons of water out of the total 5 trillion gallons then put those hundreds of gallons in a water container. Over time the total available gallons would decrease hence making it scarce which means the price per gallon of water would slowly go up. In the case of De Beers just swap out water for diamonds and you’ll get a sense of what we are up against. Since the late 1800s, De Beers has regulated both the industrial and gemstone diamond markets and effectively maintained an illusion of diamond scarcity. It has developed and nurtured the belief that diamonds are precious, invaluable symbols of romance. Every attitude consumers hold today about diamonds exists–at least in part–because of the persistent efforts of De Beers. Moveover, by monitoring the supply of diamonds throughout the world, De Beers has introduced and maintained an unprecedented degree of price stability for a surprisingly common mineral: compressed carbon. Such unique price stability lies within the cartel’s tight control over the world’s supply of diamonds. De Beers’s operating strategy has been pure and simple: to restrict the number of diamonds released into the market in any given year and perpetuate the myth that they are scarce and should therefore command high prices. For more details on scarcity and marginality you can go to these great articles from Mises.org on marginality and artificial scarcity. So simply, prices are impacted (excluding misnomers like government and cartel price controls) by the natural ease or difficulty on the availability, including cost of production, distribution, and manufacturing; of a particular product or resource. In addition there is also “subjective value”, which falls into the area of behavioral economics. (i.e. I prefer the windproof over non-windproff) In the context of diamonds, De Beers, who own roughly 60% of the diamond market have been accused of creating “artificial scarcity”. I don’t disagree with this accusation. They also put together one of the most successful marketing campaigns in history for their diamond business: Over the last century, De Beers has been highly successful in increasing consumer demand for diamonds. One of the most effective marketing strategies has been the marketing of diamonds as a symbol of love and commitment. A young copywriter working for N. W. Ayer & Son, Frances Gerety, coined the famous advertising line “A Diamond is Forever” in 1947. In 2000, Advertising Age magazine named “A Diamond Is Forever” the best advertising slogan of the twentieth century. Other successful campaigns include the “eternity ring” (as a symbol of continuing affection and appreciation), the “trilogy” ring (representing the past, present and future of a relationship) and the “right hand ring” (bought and worn by women as a symbol of independence). De Beers is also known for its television advertisements featuring silhouettes of people wearing diamonds, to the music of Palladio by Karl Jenkins. A 2010 commercial for Verizon Wireless parodied the De Beers spots. Back to Table of Contents Conclusion There are a multitude of psychological, marginal and environmental factors that go into a point of sale for any product. When products are sold there are a multitude of “micro” decisions and conditions that are related to psycho-science and economics. Or in this case, “neuralnomics”, if you will. Some of these decisions can be driven on a subconscious level. If you read how supermarkets sell their products, it reads like some white paper out of psychological science magazine. In many instances the line between psychology and business has become increasingly blurred. As you can see I find the topic of behavioral economics and the roots of scarcity quite fascinating. You probably had no idea that something as random as windproof umbrellas have been brewing in my mind like this. Although this is a very simplified example, it’s just one example of how many variables can impact the sale of just one product. Related Sources Thanks to Ads, Kids Won’t Take No, No, No, No, No, No, No, No, No for an Answer Tag Team: Tracking the Patterns of Supermarket Shoppers by KnowledgeWharton What Does Marginality Mean? by Robert P. Murphy IP and Artificial Scarcity by Stephan Kinsella From Louis Vuitton to the local street-corner brand, umbrellas tested. by Aja Mangum Predictably Irrational: The Hidden Forces That Shape Our Decisions by Dan Ariely Back to Table of Contents Share this: Click to share on Twitter (Opens in new window) Share on Facebook (Opens in new window) Click to share on Google+ (Opens in new window) Related 5 Responses richard d December 2, 2010 hey, I found your site because I was looking for windproof umbrellas NYC on google. I bought one of those “shedrain” windjammer umbrellas from Home Depot, and it broke the 3rd time I used it. Luckily, I got it from Home Depot and they took it back, vs buying online. I get 90 days for the rain and wind to bust it. Any idea on what brand or type to get? Reply Malik Abdul Rasheed December 7, 2010 Hey Richard, So funny, my wife bought that same cheap-o wind proof umbrella from Home Depot and all though it’s holding up, not as good as the first windproof umbrella I have. I’m going on almost 5 years with the first windproof umbrella and it’s on it way out. I bought mine at Walgreens. It doesn’t have a name, but it pretty darn tough. I have checked countless places and it’s really hard to find a one these days. I swear, it’s the biggest conspiracy this world has every seen Reply richard d December 8, 2010 hey thanks for the email reply. I totally forgot that I responded. Actually the umbrella from Home Depot came in 2 sizes and cost $9 and $13. Your theory makes sense though, umbrella makers can’t make new features or designs every 6 months to get the sheepish consumers to upgrade (like Apple), so they have to make them cheap and fail. Seriously though, NYC has some serious winds. it was 15mph wind with gusts up to 28mph, and I thought Chicago was the Windy City Reply windproof umbrella October 11, 2011 hey, your umbrella story is very funny and special, thanks a lot for your sharing. Reply Malik Abdul Rasheed October 11, 2011 Glad you enjoyed it. Now that I’m living in the Qatar, I no longer need an umbrella, windproof or not. Reply Leave a Reply Cancel Reply Your email address will not be published. Name* Email* Website Comment Notify me of follow-up comments by email. Notify me of new posts by email.