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Source link: http://archive.mises.org/11200/no-more-gifts-please/

No More Gifts, Please

December 9, 2009 by

A business in the private sector is utterly and completely dependent on customers for its revenue, so the revenue they spend on gift giving necessarily comes from the customers too! Why do they believe that they are fostering good will? FULL ARTICLE by Jeffrey Tucker

{ 34 comments }

Riekus de Poel December 9, 2009 at 9:38 am

Excellent piece! Never thought of it like that, but so true! Reminds me of a proverb that says that some people give gifts to pervert other peoples judgment. ( Pro. 17:23) Some of that may be at play in clouding judgment of whether your supplier is at the cutting edge.

newson December 9, 2009 at 9:45 am

companies giving gifts is like trying to laugh by tickling yourself.

Garrett Schmitt December 9, 2009 at 9:57 am

My sentiment on the matter is that gifts sent by a business to its customers come not from revenue, strictly speaking, but from profits–the owner’s income.

If a business economizes by not sending gifts to customers, it pockets the money. Lowering prices isn’t always a good idea in some luxury markets–or in any situation where a firm confronts inelastic demand.

Besides, it is my understanding the prices are set by consumers, not by business costs. It is easy to conceive a business selling at a loss. A consumer, however, never pays too much; if a good costs too much, the consumer doesn’t buy it all.

Jonathan Finegold Catalán December 9, 2009 at 10:13 am

This reminds me of an episode of The Office, where instead of upgrading their services, Michael decides to try to attract his old clients back through fruit baskets. He ends up driving his car into a lake in order to prove that technology is flawed.

Jamie B December 9, 2009 at 10:14 am

I don’t agree. I’m a business owner and I send gifts to customers and partners as a Thank you, personally from us, for doing business with us, helping us to be successful and helping us to continue to employ a staff. Like the commenter above, it comes out of my profit and does not mean I have to raise costs or choose that instead of hiring another person. I can show you many instances when these gifts, thank yous and such have led to more business, stronger ties to our customers and partners and to my business’ overall success. It’s not always simple economics and math in running a successful business.

PirateRothbard December 9, 2009 at 10:42 am

I just view the gifts as advertising… you don’t really believe marketing is going to end in a recession do you? I can’t be too worked up about this.

Pirate Rothbard

Outside Observer December 9, 2009 at 10:51 am

Jamie B, what kind of gifts do you give? Do you give useful discounts or free samples to valued customers? Do you give your partners a gift they actually appreciate? I worked for a company that gave gift baskets at holiday time. When the employees found out how much money the company was wasting on chocolate and candy, wrapped of course in a waste of cellophane and cardboard, management quickly switched to gift certificates that could be used at a variety of stores, from supermarkets to luxury goods. We appreciated the sensible switch.

Iain December 9, 2009 at 10:54 am

I agree with Rothbard…

Most comments in the article could be said about any form of advertising.

Everyone hates advertising (right?) but that doesn’t make it bad business. The less insightful customers probably like their gift baskets and keep on buying stuff.

Shay December 9, 2009 at 11:58 am

Iain, advertising makes the business known to more people. Sending candy gifts to current clients doesn’t.

And to others, I don’t see how sending candy doesn’t reduce available funds for investing in more capital to run the business better. I agree that if any gifts are given, they should be discounts for services, or something that the customer is sure to find useful.

Nelson December 9, 2009 at 12:16 pm

The author of this piece has obviously never run a business. Keeping loyal customers is worth more than the cost of relatively inexpensive gifts. My dad owned his own company and every Christmas he’d send gifts to his best customers. Why? Because relationships are an important part of doing business. Cutting back on this trivial expense falls under the category of “penny wise but pound foolish.”

HayekHeroes December 9, 2009 at 1:07 pm

Costco has sent me gifts. First, I get an annual check for all the money I spent during the year. I am sure that Costco would rather send me some cheap flowers. I’ll take the check instead.

DD December 9, 2009 at 1:08 pm

I wouldn’t be surprised to read a silly critique like this from a statist, but you Jeffery?

You sound like the “grumbler” from Mises’ essays who always complains that the entrepreneur is not looking for the best interest of the public.

Ron December 9, 2009 at 1:08 pm

Jamie B. – When you say “It’s not always simple economics and math in running a successful business”, I only agree with the math issue. Economics is involved in all human decisions since our actions are always based on whether or not we’ll feel subjectively better off for following one course of action verses another.

Iain December 9, 2009 at 1:17 pm

Thanks for your comment Shay, I do see your point but still think sending gift baskets to clients is (a form of) advertising. The money is (imho) being spent based on the judgement that the existing customers will now spend more on the companies products. Probably also in the hope that they will hold the company in higher esteem and mention this to other people. If that judgement is poor then good riddance to the company (or at least some of it’s money). Recessions still aren’t good (admittedly the article didn’t really say that ;-). I think the same applies to all other forms of advertising. Money is spent on things other than production to improve sales. It’s hard to know if it’s wasteful from the point of view of revenue or not. In terms of resources…? In terms of benefit to society?

Daniel December 9, 2009 at 1:26 pm

I don’t see how a gift basket is a form of advertisement. Does the gift basket say, “hey guys, 2 for 1 special this Saturday”?

Iain December 9, 2009 at 1:43 pm

That’s splitting semantic hairs… My point is that the basket is sent with the aim of increasing revenue. It may or may not do that.

Are we naive enough to think the basket is (typically) sent as a thank you? Advertising has progressed beyond 2-for-1 deals to occupying pretty much every space in our heads.

John A Rolstead December 9, 2009 at 1:55 pm

Jeff Tucker does run the mises.org business. He is deeply involved in that.

I think the best way to cover the concerns of the article and satisfy the commentors would be to give a gift of money. You would be advertising the fact that you appreciate thier business and wish for them to return. The Costco example is perfect.

George Reisman makes it clear that all business owners choose between consuming profits or reinvestment. The only reason to send gifts would be to drum up business, so it would be an expense out of profits.

Now Jeff, the printed version of this article advertises a christmas tree ornament with Mises crest. How about sending one of those to all of us?

greg December 9, 2009 at 1:57 pm

This article is a prime reason why accountants make poor marketing managers. And is why most CEOs come from the marketing ranks, not accounting!

In a down economy, there is value showing your company is not on the edge of failure and is going to be around in the future to service your purchases. Think about when GM was going bankrupt and all the customers that went to Ford.

Business and the study of economics in never as simple as counting the beans. So don’t tie the movements in the markets to just beans and money supply.

Iain December 9, 2009 at 2:05 pm

CEOs come from marketing because they are taller and more manly.

new_england December 9, 2009 at 3:13 pm

This post really hits home for me. Part of my job is in “office services” which consists of mail room, shipping/receiving and general mundane tasks. I can’t tell you how many sales reps come in to my company with loads of chocolate, gift baskets and other nonsense.

One guy routinely brings these big tubs of popcorn. People just take them and put them in the common areas which soon become littered with popcorn. The nightcrew then has to spend extra time vacuuming the mess, which is then charged back to our company.

I may have to print this article out and post it in the employee room.

chuckv December 9, 2009 at 4:36 pm

One of the biggest gifts in the financial industry is tickets to sporting events. Obviously, clients are taken to games throughout the year, and not just around the holidays. From what I’ve heard, however, the lawyers/execs whose companies spend money on tickets to take clients to games know that this is inefficient in terms of advertising, but they are instead trying to mask the price of the tickets (can be in the hundreds) from their significant others.

PirateRothbard December 9, 2009 at 6:30 pm

Saying that companies ought to give money instead of instead of gifts as rewards is like saying your wife ought to just accept cash on her birthday instead of a thoughtful gift.

gray shambler December 9, 2009 at 6:32 pm

Hope I’m not too far off subject, but it’s been my
experience as a wholesaler that Walmart forces
down costs irregardless of quality and the quality of their goods are suspect.

Deborah Tiedemann December 9, 2009 at 9:25 pm

“But some bad business practices have survived this downturn, and number one on my list is the practice of sending gifts to customers during the holiday season. I simply cannot believe that this still goes on.”

Oh, but it does go on, Jeffrey…and rightfully so, in my opinion! As a customer who purchased several books from the LvMI bookstore and also donated cash to LvMI this year, I was not expecting a “Christmas gift”. My only “motive” is in seeing LvMI and its ideas prosper.

I was therefore pleasantly surprised to receive a 2010 LvMI calendar, as well as a courtesy subscription to “Free Market”. From my perspective, customers appreciate knowing that they are valued, whether the “business” is non-profit or for-profit.

I most certainly will continue to donate to LvMI.
I most certainly will continue to purchase my books through the LvMI bookstore.

Thanks to all of you at LvMI for enriching my life.
Sincerely, Deborah Tiedemann

Daniel December 9, 2009 at 9:29 pm

PirateRothbard, I think Tucker’s point had to do with the recession, in that, customers would, perhaps, rather receive a discount than a fruit basket.

Thomas December 9, 2009 at 11:11 pm

I work in purchasing and therefore get plenty of gifts from my vendors. I don’t see it as a waste of money for a company to send a “Thank You for your business” and also as a way of saying “We’re here if you need us”. I have so many vendors I honestly forget about some of them and a gift can be a good form of advertising. Many companies send calendars and the one I end up using I look straight at their company name for a full year. You can’t tell me that doesn’t win them some extra business.

As far as lowering costs… It depends on the company but I’d be willing to bet most small businesses don’t spend so much on gifts that they could lower costs by an appreciable amount. Between lowering costs a few cents and sending targeted gifts to a few of your best customers the choice is obvious.

I also don’t buy the argument that gifts come out of the customer’s pockets. If that was true then so would a price decrease. Either way the offending company will have less money than it started with. It’s really a question of business strategy and you can’t say which is better than the other without the details of the situation.

Deborah Tiedemann December 10, 2009 at 12:55 am

Lagniappe! Why, thank you, Mr. Businessman!
“As the gifts from these businesses pour in, think of it as a sign that this recession reminds us to reflect on the beauty of voluntary exchange.”

Xan December 10, 2009 at 5:31 am

I dont agree. There will always be the small-minded purchase manager who thinks ‘whats in it for me?’. send him a 50€ discount notification and happy christmas card and he will cut off your company. Heck, i even know some and have listened to some buyers brag about this!

You do have a valid point about the waste per se, but there is a psychological part here that is ignored completely in the article.

People are petty, self-serving and will always be like that.

Dont wonder though, i could really use one of those 42″ Flat TV:s and huge presents myself so maybe they have a point to why they abuse their positions of power. After all when you go high enough you reach your full incompetence potential real Dilbert style quickly.

This is a bad article, you have a valid point there but take a too crude approach to it.

Thomas December 10, 2009 at 10:03 am

I generally agree with you, but you seem to overlook that the incentives for the customer (the company) are not always the same as the incentives for the buyer (the employee).
If you deal with professional buyers, they get the gift but they don’t bear the marginally increasing prices.
So you might buy yourself some extra business at the expense of your customer.

The Crash Consultant December 10, 2009 at 10:56 am

I must admit, Jamie B makes excellent points on the other side of the coin. I guess its not a case of “one size fits all” argument. There may be thoughtful gifts and senseless ones, thoughtful givers and those going through the motions. I would like to think that the book” How to make friends and influence people”, would argue the other side of the coin.

CHolbrook December 10, 2009 at 12:26 pm

Nice piece Mr. Tucker; but I thought it was going to be about the Institute being bombarded by gifts from fans.

Stephen December 12, 2009 at 6:46 pm

This assumes that customers always buy on price, which they rarely do.

It’s not advertising, it’s marketing which is aimed at building brand capital.

Very few companies can compete on price alone. Those that do put up few barriers for their competition. Over time it is very easy to imitate efficiencies.

A company like Walmart can do so only because they have such huge economies of scale. This is their protective barrier.

The market efficiencies come from over time learning the right amount to spend on the gifts (and of course, the right gift) to get the best value in brand capital. It is those who get this efficiency right that are successful.

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Warren Bullins July 18, 2011 at 9:15 am

In this awesome design of things you secure an A for hard work. Where exactly you misplaced everybody ended up being on all the specifics. As they say, the devil is in the details… And that could not be much more true in this article. Having said that, permit me reveal to you just what did do the job. The writing is certainly incredibly convincing which is probably why I am taking an effort to comment. I do not really make it a regular habit of doing that. Second, while I can notice a jumps in logic you make, I am definitely not confident of exactly how you appear to connect your ideas which inturn make the actual conclusion. For right now I will, no doubt yield to your point but hope in the foreseeable future you actually link the facts better.

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