The Ideal Cost of Ignorance
by Stevan Alburty


From The Net
April 1996


1996 by Stevan Alburty
    All rights reserved.

 

 

 

I find it takes up far too much time and mental energy to come up with my own brilliant ideas. And why bother, when it's so easy to merely appropriate those of others? Here's a fine one I have incorporated into my philosophy as genially as if I'd thought of it myself:

A former colleague of mine, Ted Colgate, has a theory he calls "The Ideal Cost of Ignorance." It states that there is finite amount of effort we are willing to exert while shopping before settling on a given purchase. We are happy, for example, to walk x number of hours in a mall visiting x number of stores. Or we are amenable to placing x number of phone calls to x number of merchants. Beyond that threshold, we are content to remain ignorant of the additional information and choices which might have been ours. Yes, we know that if we'd checked just one more place we might have found an even lower price, but we have reached our threshold, we have found our Ideal Cost of Ignorance.

If I were willing to spend more time shopping, I could, for example, have a closet full of clothing which would surely make me look like Brad Pitt. But I'm a busy man. I have a low Ideal Cost of Ignorance. All of the clothes I buy are hastily grabbed from racks without much inspection, which is why everything I own has a tendency to make me look like a Brady Bunch child to whom growing up has not been kind.

And yes, I could probably save a few pennies on my favorite wine by walking three more blocks to the discount chain instead of weaving and stumbling into my corner bodega, but hey - what do an extra few cents matter when you're buying it by the gallon?

The growth of electronic commerce on the Internet may ultimately have its greatest impact in lowering each of our individual Ideal Costs of Ignorance. With just a few well-placed clicks of a mouse, I can visit more stores in an hour than Tammy Faye Bakker can in a month. Yet we still visit individual "stores" or websites. Each merchant on the Internet constructs their own virtual real estate and the merchandise it contains is meant to be considered item by item in its own individual context.

An emerging new technology may break down those artificial electrical barriers, letting loose a tool which may be as powerful to consumers as it is shattering to the traditional rules of retailing.

Bargainfinder (http:www.bf.cstar.ac.com/bf/) is an experimental website from the Center for Strategic Technology Research, a division of Anderson Consulting. Using music on compact disk as its metaphor, Bargainfinder lets a user type in the title and artist of a desired CD. Its software "agents" then go off and search a variety of music stores on the Internet, reporting back on availability and pricing. In the time it took to read this paragraph, Bargainfinder can shop nine electronic stores without your even having to lift a mouse.

When Bargainfinder was launched last year, some of the stores it targeted reacted with all of the hospitality of Trojans with a second horse outside the door. Some of them blocked Bargainfinders' "agents" - partly because the searches overloaded their systems, partly from fear that Bargainfinder would display their prices in a less-than-flattering comparison.

Dr. Bruce Krulwich, Research Scientist at the Center for Strategic Technology Research, says "Some music stores on the Internet make a decision they're going to provide the absolute best CD store on the Internet - better reviews, better mechanisms for search, wider inventories - and they're going to charge a dollar or two more per CD because providing good service costs them more money. That's standard retail practice. Something like Bargainfinder calls that whole practice into question. It's no longer the case that they can translate a point of interest that they give somebody from their reviews and their ratings and their recommendations into a point of sale."

Not so, says Jason Olim, President of CDnow (http://www.cdnow.com), one of the stores Bargainfinder shops - or used to, before CDnow blocked its searches. "Everyone seems to have this post-holocaust vision of retailing over the Internet," he complains. "They think there's going to be an agent that's going to go out and find the cheapest guy and it's going to ruin the concept of retailing as a trust-building, loyalty-inducing, value-adding exercise." Olim says his customers rely on CDnow for its selection, its convenience and their information. "Retailing has never been about the lowest-priced product," Olim insists. "It's about the right product at the right place."

19th-century economist Alfred Marshall first articulated the theory of "elasticity," in which demand waxes or wanes due to changes in price. We may soon find out if the Internet is a marketplace as elastic as it is electric.