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GP9Oct: Prix Fixed

Best of the Week. On Tuesday Albertus Seba’s Cabinet of Natural Curiosities crossed our doorstep. Published by Taschen, this marvelous, over-sized coffee-table book beautifully illustrates the fauna and flora collection of a wealthy 17th-century Dutchman who prized all the natural oddities he collected. This handsome volume is a reproduction of the original commissioned by Seba, which now resides in the Hague. It sells for $150, and we understand another printing is on the way. You will learn more about Seba and Taschen on Best of Class in future weeks.

Pickpocketed. Seba’s creation might seem a bit dear to you, no matter how lovely, until you check on the prices of the most ordinary things in today’s local marketplace. For instance, the dry cleaners is now ill-satisfied with its $10 tariff for a mere wisp of a dress, having invented some mysterious “up” charges which tack on another $5 if the fabric is silk or anything other than synthetic fibers.

Volumes are falling as we get deeper and deeper into this recession, so merchants and manufacturers are using sleight of hand tricks to bring in the same dollars for less product or service. Retailing began to get mushy in this year’s 3d calendar quarter, and the pricing gambit has been picking up steam ever since. A candy bar may still cost $.50 or a $1.00, but there’s less of it. AT&T promotes cheap long distance, but you may discover that 30% of your monthly bill consists of surcharges. When you open a Sony TV box, don’t be surprised if there’s no cord to attach your new tube to the cable system. Hewlett-Packard and the other printer makers have figured out how to charge a king’s ransom for their ink cartridge replacements, although some Singapore insiders think Dell’s entry into the printer market will soon prick a hole in this balloon. Real estate and housing are still sky high, propped up by the lowest Fed rates in 40 years (even so, this market is now getting softer). We’re paying more for less, uptown prices for downtown merchandise, a sign that our markets are not quite working. So Seba’s book might even seem cheap by comparison, when we learn how little our dollars buy us elsewhere.

What does all this, you may ask, have to do with the “price of tea in China,” or with the direction of the global economy? We would assume that price inflation in a deflationary world (and lots of prices are out of whack around the globe) suggests that the worldwide credit bubble still has not completely burst, and we have a ways to go before we achieve economic stability. The bizarre excesses have not been cleared out of the marketplace, no matter where you sit in the world.

End of Obsolescence. We have said in previous weeks that in this unusual recession, with severe slippage in several markets not seen for several decades, business leaders should consider going upmarket, charging more for providing much more. Simply building products that don't break down or wear out at the drop of a hat would be a major accomplishment, meriting a handsome pricing premium. Ending obsolescence is a compelling idea in a world plagued by breakdowns. As we have also said, however, one’s strategy outside one’s own borders has to be somewhat different. These volatile times virtually command businessmen to have razor-sharp strategies, even though the temptation is to use disposable razors and other short-term tactics that merely get you through tomorrow or next week. Our contention is that “winging it” will put you on the road to bankruptcy.

Priceware. Prices now are crazy, totally divorced from both reality and any sense of value. Retailers are using price-optimization software from which they expect a payback in 12 months. Among the distortions this produces are different prices for the same goods, even at chain stores only a few miles apart from each other. Analysts crunch inventory and sales data from each store trying to find out what the traffic will bear, there being a different tolerance for pain from store to store. Only a foolish consumer now does one-stop shopping, since prices are bound to be out of line on some items at any one shop. At some drug stores, for instance, extra margin these days is packed into non-pharmacy items, with plenty of greeting cards, of pedestrian sentiment and design, selling at boutique prices.

This same price aggressiveness is also seen in business-to-business sales, with as much as 20% in extra dollars tacked onto some expensive electrical equipment when it is revealed that very few sales are lost as a result. Eventually, of course, this leads to trouble: airlines have strained relationships with their all-important business passengers, who have found themselves sitting beside economy passengers who have paid half or less for the same seats. The problem, we emphasize, is not high pricing. It’s the failure to deliver more for the money. It’s offering commodity goods for luxury prices. When the prices of things begin to bear some relation to value, one will know the world’s economy and individual businesses are on the mend.

Three Musketeers to the Rescue. In coming weeks, too, we will be talking about D’Artagnan on the Global Province, who, as you will remember, left Gascony to join the Three Musketeers. Well, D’Artagnan is a hit restaurant in Manhattan as well, and, as importantly, a $30 million a year specialty meat distributor of foie gras and duck and rabbit and lamb and quail and wild mushrooms. Obviously you will run up quite a tab at the restaurant, but, pleasurably, you know in advance that it uses superb ingredients, since it serves as a showcase for its owners’ products. In other words, you are paying up, but D’Artagnan is much too honorable to pick your pocket. It deserves a premium.

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