Cheap (40 page)

33
An almost pathologically honorable man
: In his book,
More Than They Bargained For
:
The Rise and Fall of Korvettes
(New York: Lebhar-Friedman Books, 1981),
New York Times
business reporter Isadore Barmash portrays Ferkauf as compulsively competitive, volatile, and loyal. Apparently he denied only one childhood buddy a job—a man who as a kid had violated the honor code of their neighborhood softball team by substituting his own name for Ferkauf’s on a chalkboard of players.

34
a supermarket, and a toy store
: unsigned editorial introduction, “Everybody Loves a Bargain,”
Time
magazine, March 10, 1961.

35
mass manufacture with mass distribution
: Marketing consultant Frank Meissner speaking to reporter Murray Gart in the
Time
magazine cover story, July 6, 1962.

35
was worth $50 million
: Silberman, “Revolutionists of Retailing,” 99.

35
“self-selection and checkout counters”:
Godfrey Lebhar,
Chain Stores in America, 1859- 1962
(New York, Chain Store Publishing Corp., 1963).

36
“everything directed at you and no one else”
: Letitia Baldrige, “I Shopped Them All,”
New York Times,
Op-ed, March 8, 2005.

38
“I’ve pushed my last baby buggy”:
Curt Wohleber, “The Shopping Cart: The Invention That Made Giant Economy Size Possible,”
American Heritage
20, no. 1 (Summer 2004).

39
shopping cart to put it in
: Britt Beemer, chairman of the market research firm America’s Research Group, Inc., as quoted in Joseph B. Cahill, “Hot Wheels, The Secret Weapon of Big Discounters: Lowly Shopping Cart,”
Wall Street Journal
(November 24, 1999), A1.

39
dominated the general merchandise sector:
For this, and for many other insights on the history of discounting, I am grateful to Misha Petrovic, assistant professor of sociology at the National University of Singapore. Dr. Petrovic was kind enough not only to speak with me at length on the history and politics of discount stores in the United States, but also to share an as-yet-unpublished monograph on the subject that was extremely helpful.

39
brand or provenance of these items
: This advertisement is available as a charmingly nostalgic tribute to discount stores of the 1960s developed by David P. Johnson at
www.wtv-zone.com/dpjohnson/60sdiscounstores/pag3.html
.

39
“rather than upon planned assortments”
: William R. Davidson and Alton F. Doody, “The Future of Discounting,”
Journal of Marketing
, 27, no. 1 (January 1963): 36-39.

40
‘Thick on the best, to hell with the rest’:
Sol Canton, president of Interstate Department Stores quoted in
Time
magazine, February 2, 1962.

42
choked off the money flow
: Adam Gopnik, “Under One Roof: The Death and Life of the New York Department Store,”
The New Yorker,
September 22, 2003.

42
bottom tier of the American steel market
: Japanese steel makers managed to scare away most of the American competition in this sector and then pursued American manufacturers into the higher tiers of the steel market. Today, Japan makes some of the highest quality steel available.

42
manufacturing sophistication and business savvy
: See, for example, Clayton Chris tensen, Thomas Craig, and Stuart Hart, “The Great Disruption,”
Foreign Affairs,
March/April 2001, 80.

43
one-third of their workforce overseas:
For a penetrating and thought-provoking analysis of early union support of imports and the Buy American campaign see Dana Frank,
Buy American: The Untold Story of Economic Nationalism
(Boston: Beacon Press, 1996).

43
more than a third of all department store sales
: In Misha Petrovic’s monograph, drawn from a citation from
DSN Retailing
, 2002.

44
routed to a truck for delivery to the designated store
: Frederick H. Abernathy, John Dunlop, Janice H. Hammond, and David Weil,
A Stitch in Time: Lean Retailing and the Transformation of Manufacturing-Lessons from the Apparel and Textile Industries
(New York: Oxford University Press, 1999), 57.

45
“the right to grasp for ourselves some advantage over others”:
President Jimmy Carter, televised speech, July 15, 1979.

46
only 29 percent of sales:
Walter Salmon, “Organizational Barriers to Department Store Success,” Harvard Business School Case 9-581-027 (Boston: Harvard Business School, 1980).

46
o
nly twenty survived that decade:
Abernathy et al., (op cit) 49.

47
double pack of Wrigley’s chewing gum in 1974:
Stephen Brown,
Revolution at the Checkout Counter: The Explosion of the Bar Code
(Cambridge: Harvard University Press, 1997).

47
react instantly to price fluctuations in their markets:
See, for example, Charles Fishman (op cit).

49
average employee earned in a lifetime:
My thinking on this benefited by a telephone conversation with Robert B. Reich, professor of public policy at the Goldman School of Public Policy at the University of California, Berkeley. Reich’s book
, Supercapitalism: The Transformation of Business, Democracy, and Everyday Life
(New York: Knopf, 2007) was also extremely helpful. See also Larry M. Bartels, “Inequalities,”
New York Times Magazine
, April 27, 2008.

49
by the news media and touted by the company
: See “The Price Impact of Wal-Mart Through 2006, an Update,”
Global Insight
, September 2007. At this writing the report was available on the web at
http://www.livebetterindex.com/2007GlobReport.pdf
.

49
was built on faulty statistics and self-interested analysis
: See for example Jared Bernstein and L. Josh Bivens, “The Wal-Mart Debate: A False Choice Between Prices and Wages,”
Economic Policy Institute
, EPI Issue Brief #223, June 15, 2006.

49
“Save money. Live better”
: This influence was evident by the large number of editorials and opinion pieces built around the counterintuitive notion that Wal-Mart had improved wages as well as lowered prices, thereby improving the lives of untold millions of Americans.

51
“best company to work for”:
See “Fortune Annual Ranking of America’s Largest Corporations,”
CNNMoney.com
,
http://cgi.money.cnn.com/tools/fortune/custom__ranking__2008.jsp
.

51
8 percent of the private-sector labor force:
Tamara Draut, “Economic State of Young America,”
Demos
, Spring 2008.

52
“Celebrity Style for $8.98”
: Eric Wilson, “Is this the World’s Cheapest Dress: How Steve & Barry’s became a $1 billion Company Selling Celebrity Style for $8.98,”
New York Times,
May 1, 2008, E1.

53
“a virtue I could never acquire in myself”
: Walter Isaacson,
Benjamin Franklin: An American Life
(New York: Simon and Schuster, 2003), 78.

54
“m
aze of urban streets and city blocks”:
William L. Nunn, “Revolution in the Idea of Thrift,”
Annals of the American Academy of Political and Social Science
196, Consumer Credit, March 1938, 52-56.

56
but not all of them are golden:
E. M. (Mick) Kolassa, PhD, chairman and managing partner of Medical Marketing Economics and an expert on pricing in the pharmecutical industry, told me that while it’s impossible to know precisely how much is spent on pricing globally, the drug industry spends hundreds of millions each year and is only one industry among hundreds of industries that do pricing research. Hence, the extrapolation to billions seems more than justified.

57
“was the price for which it could be sold”
: Diana Wood
, Medieval Economic Thought
(New York: Cambridge University Press, 2002), 135.

57
“yet is not required by strict justice”
: Ibid., 136.

57
Americans are intimidated by numbers
: See, for example, John Allen Paulos,
Innumeracy: Mathematical Illiteracy and Its Consequences
(New York: Hill & Wang, 2001) and Joel Best,
Damned Lies and Statistics: Untangling Numbers from the Media, Politicians, and Activists
(Berkeley: University of California Press, 2001).

58
all other numerals have a precise meaning
: Stanislas Debaene,
The Number Sense: How the Mind Creates Mathematics
(New York: Oxford University Press, 1997), 108.

58
“only small, round numbers”
: Ibid., 77.

60
“condensation occurs as a matter of course”
: Anna Freud,
The Ego and Mechanisms of Defense: The Writings of Anna Freud
(Madison, Conn.: International Universities Press, 1967), reprint edition.

60
can be evoked by even minor distractions
: Baba Shiv and Alexander Fedorikhin, “Spontaneous Versus Controlled Influences of Stimulus-Based Affect on Choice Behavior,”
Organizational Behavior and Human Decision Processes
87, no. 2 (March 2002): 342-70. In this well-known experiment, researchers asked subjects to memorize either a short or a long list of numbers and then presented them with a choice of chocolate cake or fruit. Those who were asked to memorize a long list were much more likely to choose chocolate cake, which the authors theorize indicates that their higher order brain is swamped in thought, allowing their lower order, more impulsive brain to assert itself.

60
“r
esponse to block the cognitive assessment”:
Jodie Ferguson, “Beliefs of Fair Price Setting Rules: Pervasiveness in the Marketplace and Effects on Perceptions of Price Fairness,” dissertation delivered in abstract form at Fordham Pricing Conference, September 28, 2007, Fordham University, New York.

61
“the laws of society, is not altogether without it”
: Adam Smith,
The Theory of Moral Sentiments
(1790, 6th edition), Part 1, Sec. 1, Ch 1:9.

62
“An Analysis of Decision Under Risk”
: Daniel Kahneman and Amos Tversky, “Prospect Theory: An Analysis of Decision Under Risk,”
Econometrica
47, no. 2 (1979): 363-91.

63
are projected far into the future:
See, for example, D. Soman et al., “The Psychology of Intertemporal Discounting: Why Are Distant Events Valued Differently from Proximal Ones?”
Marketing Letters
16, nos. 3/4 (2005): 347-60.

63
the distance estimated by the students
: Plenary lecture at the annual meeting of the American Association for the Advancement of Science, February 15, 2008, in Boston.

64
“for a new field of research”
: As announced in the press release from the Royal Swedish Academy of Science, October 9, 2002, available at http://nobelprize. org/nobel__prizes/economics/laureates/2002/press.html.

65
when making financial transactions
: Thaler compressed and compiled many of these cases into a book. See Richard Thaler,
The Winner’s Cure: Paradoxes and Anomalies of Economic Life
(New York: The Free Press, 1992). My description of the Ultimatum Game was informed by Thaler’s chapter on the subject (pp. 21-36) and also by conversations with Dr. Patrick Kaufman, chairman of marketing at Boston University School of Management.

66
Emotion, Reason, and the Human Brain
: Antonio R. Damasio,
Descartes’ Error: Emotion, Reason, and the Human Brain
(New York: Harper Perennial, 1995).

66
true not only for humans
: There is a rich scientific literature giving evidence that humans are biologically programmed or “hardwired” to be fair and to demand fairness in others. See, for example, E. Fehr and B. Rockenbach, “Detrimental Effects of Sanctions on Human Altruism,”
Nature
(March 13, 2003): 137-40.

66
but for other primates
: Megan van Wolkenten, Sarah F. Brosnan, and Frans B. de Waal: “Inequity Responses of Monkeys Modified by Effort,” Proceedings of the National Academy of Sciences 104, no. 47 (November 20, 2007): 18854-95. See also Sarah F. Brosnan and Frans B. M. de Waal, “Monkeys Reject Unequal Pay,”
Nature
425 (2003): 297-99.

68
“don’t talk to each other much”
: Splendid unpublished profile of Daniel Ariely by journalist Andrea Baird.

69
“correlation did not exist”
: Ibid.

70
lead us to fits of impulsiveness
: This insight came thanks to a discussion with Alan G. Sanfrey, professor of psychology at the University of Arizona.

73
not their execution
: Emily Singer, “The Real Pain of Dread,”
Technology Review
(May 18, 2006), available online at
http://www.technologyreview.com/Biotech/16887/page1
.

73
nucleus accumbens went quiet
: In addition to my interviews with Dr. Knutson, I referred to Brian Knutson et al., “Distributed Neural Representation of Expected Value,”
Journal of Neuroscience
25, no. 19 (May 11, 2005): 4086-12.

74
in exchange for getting it over quickly
: Gregory S. Berns et al., “Neurobiological Substrates of Dread,”
Science
312 (5775) (May 5, 2006): 754-58.

74
called by Antonio Damasio
: Antonio R. Damasio,
Descartes’ Error,
173-174.

76
“illusion of objectivity”
: See, for example, Emily Pronin, Thomas Gilovich, and Less Ross, “Objectivity in the Eye of the Beholder: Divergent Perceptions of Bias in Self Versus Others,”
Psychological Review
111, no. 3: 781-99.