Tuesday, October 07, 2014

Conscious cluelessness

My family and the families of the majority of the people I grew up with have been bourgeois for several generations. This means that as the years march on by, stuff that was acquired maybe a century ago in the first flush of affluence trickles down towards us. 

To take just one example, my peers and I tend to have a basic understanding of the value of silver. I mention this because my recent visit to Taxco  Mexico's traditional hot spot for the mining of that precious metal and the fabrication of artifacts from it — left me scratching my head a little. All tours to the city are obliged to stop at one of the big workshops on the outskirts. Arriving visitors are handed a basket, plied with tequila and encouraged to start loading up with trinkets. However, in my own case, the prices on the labels represented a rather obvious barrier to participation. 

For instance, I spotted various sets of newly-hewn cutlery that were on sale at an average price of $12,000. Now I happen to know that a set of top quality antique silver cutlery can be purchased on ebay for less than a fifth of that. Surely these Mexican artisans, working right beside the famous Taxco vein, would be doing a brisker trade if they passed on some of their lower costs and thus offered visitors a clear proposition in terms of value? One that say pandered to the notion that they might have taken the time to become informed before entering the fray? 

It's the sort of misgiving I often feel about the manner in which prices are set in parts of Central America...

La Tostaduría Antigua on 6a Calle Poniente sells a pound of coffee for Q200 (softening the blow with the nonsense offer of a free cup of coffee with each bag purchased). This is pricier, almost incredibly, than a pound of the finest gourmet coffee from the Zelaya family's Finca Santa Clara....all the way across the ocean at Fortnum & Mason in London. And that comes in a tin that's worth forking out ten quid for in itself! 

The 'Fortnum's Test' can be applied elsewhere: a slice of Manchego cheese will be both more expensive and less yummy for example when purchased from Antigua delicatessen Pal Paladar than when acquired at its more illustrious equivalent in Piccadilly. 

These enterprises appear to have made the conscious decision to price their product according to what they deem a certain target consumer is able to pay, as opposed to say the underlying economics of their own business model. The prevalence of this tactic would suggest that it must, to some extent at least, work. 

Tellingly, the members of our tour group in Taxco that appeared to have the least concern for value were the Chinese. And this got me thinking about how it's the newly-emerging middle class that is possibly the easiest social group to exploit economically, because their otherwise rational purchasing decisions are so often scrambled by the need to reinforce status through consumption. In short, a group for whom spending  and being seen to spend  is often an end in itself. Conscious cluelessness, if you like. 

Guatemala has its own, albeit more fragile version of an emerging middle class, which one can detect most easily by looking for strange distortions in the relationship between price and value on the 'high street', especially here in Antigua, and in the more aspirational product areas. 

The wine trade is a particularly illuminating example, though much of what can be said of it could also be said of the restaurant business for which it might act as a handy analogue. For a start, most of the quality and value-for-money is to be found around the lower price points. Indeed, pretty soon after the bill or receipt reaches a certain threshold, the quality will tail off dishearteningly into mediocrity. 

A wine costing in excess of Q60 at the Bodegona will quite often be nowhere near as tasty in terms of quality or value as those sold for less.  Now, over the past ten years this venerable supermarket-substitute has increased the range of different wines it purveys, but this has had no real impact on the underlying value structure. In fact, five or so years ago when the selection on the shelves had at least the appearance of restricted variety, some really very good wines would occasionally  and all too briefly  turn up in the mid-price bracket. (e.g. Marques de Riscal...).

There are a number of obvious reasons for this. Take firstly the demand side. Many young Guatemalan consumers of plonk are the first generation in their family to do so and are often aware of the cachet that comes with this. They did not grow up in a major wine-producing country and were usually not introduced to the habit by well-informed parents during their adolescence. Thus they are more likely to be swayed by price as the predominant yardstick of quality, because it's the per bottle cost that has been acting as a limiter on the extent of their experience of different wines. 

Then the supply side. Wines imported from European countries such as Spain, will tend to be more expensive in order to reflect the transportation overheads. So, like the Manchego cheese at Pal Paladar, it doesn't really matter if it is a rather lacklustre product in the refrigerated display, because the premium seemingly derives from the distance. 

Most of the wines on sale in Guatemala hail however from the bottom end of South America, where the more interesting low-volume vineyards sell most of their best vino up front to the restaurant and retail sectors of the developed world. That leaves a small ocean of surplus, less delicious stuff that needs to be branded up ('Frontera', 'Casillero del Diablo' etc.) and flogged at developed world prices here to the likes of Guatemala's only partially-discerning consumers. 

In Antigua it's the particular combination of visiting and ex-pat gringos combined with a young, aspirational middle class that makes this sort of marketing so prevalent. The gringos can't spot the problem with the price because they are used to paying  in a largely non-transparent way  taxes on the sale of alcohol which have no equivalent here, and the local, nascently-sophisticated yuppies can't spot the problems with quality and value because there is so little superior, affordable wine on sale here. 

Having a significant chunk of population that will pay whatever you ask for your product regardless of value has always worked well for perfume manufacturers. It may indeed account for the resemblance of certain Asian cities like Hong Kong to hypertrophied Duty Free shops and China's rampant economic growth on a wider scale might be said to owe a great deal to the demographic that lives to spend. Conversely, the apparent faltering of the US as global economic leader might be put down to the fact that relative affluence is now less of a novelty for many American families that make up the middle orders. 

Yet here in the developing world I would contend that a system which pays the emerging middle classes salaries which reflect local conditions and yet encourages to spend as if they resided in the developed world is one that is not only going to leave that group permanently over-extended and vulnerable, it is also going to widen the chasm between them and the less upwardly-mobile classes in the agricultural and informal sectors  a phenomenon which does not strike me as the best way forward for the Guatemalan economy in terms of even development. 

Here in Antigua a fila of pan frances at almost any bakery costs Q2, yet an order of Naan bread at our local pseudo-Indian eatery Ganesh will set you back Q25. Bear in mind that this is not a piece of flatbread that has been baked to order in an open stone oven in the traditional Indian manner, but rather something that is highly likely to have been removed from the freezer and warmed to approximate-palatability in a microwave for several minutes. 

Not only will whole swathes of the population find it impossible to overleap this, on the face of it, somewhat absurd and counterproductive pricing chasm, they would not be far wrong should they conclude that its hardly worth the bother anyway, as it represents for them, to use the appropriate British phrase, a bit of a rip-off.