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Tuesday, May 03, 2005

10 minutes with NPR: Economics and advertising

This was on yesterday, but I was too damn busy getting a brief out the door to address it. Morning Edition did a story on a local developer right here in lil' ol' Dallas who has come up with a brilliant way to market his homes. The area being developed was called Castle Rock, or maybe it was Fraggle Rock. Castle Hills seems familiar, but this is the only hill ever seen within miles of Dallas.

Whatever the case, NPR reported that the developer has come up with a new sales technique. It takes 1/2% of the sale of each home and donates it to a foundation it has established that then distributes the funds to local public and private schools. Due to the shortness of the story, NPR really didn't elaborate on how the system works beyond saying that hundreds of thousands of dollars have been pumped into the local school system.

In case the developer's motivation was a mystery, their spokesman stated that it had instituted the program because it realized that education was an important issue "to people." Not "to us," but "to people." You have to admire a business that is willing to do the right thing in a blatant attempt to cash in and that does not try to appear altruistic in the process. Honesty is the best policy. Meanwhile, if your company needs a spokesman, I think I know one that's out of a job.

In an amazing stroke of luck, NPR actually found someone with a basic grasp of economics to explain the situation in simple terms. They approached one of the builders who stated that the developer passed the cost on to the builder, who then passed it on to the buyer through increased building costs. I believe this is roughly the way the Pentagon comes up with $500 screwdrivers. No one is losing any profits here -- not the developer, builder, contractors, or subs. However, the developer has discovered that in a hot housing market it's relatively easy to hide the costs inside a $300,000 purchase price. Therefore, the person paying for this educational largesse is the buyer, but the developer gets credit for it and gets to use it for advertising purposes (and likely a large tax write-off). Brilliant.

The only way this works as a selling tool is that people are idiots who have trouble with simple economics. How do we know they're idiots? Easy, Bentham explained it nearly two centuries ago. If, hypothetically, the developer is donating $1,000 to the educational foundation on a certain home, and, as I've noted, the cost is figured back into the price of the home, then the buyer is effectively donating his money to the foundation. If the donation was the best use of the buyer's money, then he would have donated it to the foundation anyway. As it is, parents or parents-to-be are forced to donate to the general fund when they could be using that money to benefit their own children as they see fit, while everyone else is essentially subsidizing the education of other peoples' children.

And, thanks to NPR, the developer gets liberal approval by essentially selling these homeowners milk from their own cows.
Centinel 12:38 AM #


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