In 1969, Laurence J. Peter published “The Peter Principle,” which asserted that “In a hierarchy every employee tends to rise to his level of incompetence.” Now, although Dr. Peter claimed to be kidding, we often see the Peter Principle play out—productive employees will be promoted over time, taking on new roles and responsibilities which they are sometimes ill equipped to handle. According to one study, the data were clear: not all great salespeople make great sales managers.
Nevertheless, people like being promoted and tend to take pride in their positions, even when done poorly. If this is how we feel in relation to our employment patterns, perhaps the same can be true for our consumer habits, particularly since Dr. Peter asserted that his principle was “the key to an understanding of the whole structure of civilization.”
So, to shift from internal matters and production practices within an organization to external matters and consumption practices for a firm’s customer base, it seems the Peter Principle can still apply.
As our earning power increases, so too does our purchasing power, and we go from smaller simpler purchases to suit our needs (what groceries should I get for dinner tonight) to complex and bigger purchases to suit our wants (what Traeger grill should I get for the summer season). And given that we lack the expertise for truly knowing the worth of all our product purchases, we are guided by reviews, the news, and marketing messages.
Marketers promote value, or the perception of it, to consumers and change positioning statements and product features according to changing preferences. For instance, mayonnaise marketing campaigns used to focus on flavor, now they focus on nutrition—such as including avocado oil or emphasizing the presence of Omega-3. The recipe tweaks and promotion campaigns tell us we can all feel less guilty about the overuse of this sandwich spread (even though the avocado version isn’t really healthier and few of us know why Omega-3 matters).
Nevertheless, the more we can spend, the more options we want. And although consumers are more educated today than ever before, purchase decisions are becoming increasingly based on emotions—and marketers are leveraging this fact.
Consumers in advanced markets look for psychological attributes rather than primary ones; that is, feelings trump function. This is why people will pay big bucks for a Prada bag even though a Prada knockoff would likely suffice at a fraction of the price. Brands like Prada sell on the basis of exclusivity and esteem, which is why premier labels would rather destroy excess inventory than donate it.
Now all of this is not to say that if someone wants to spend a chunk of change on an expensive purse, they need to justify doing so—it is their money, they can do what they like. Consumers should maintain authority over their purchase decisions. However, consumers should also be educated about when the Peter Principle may be setting in, especially when basing their purchases according to a company’s purpose rather than its product offerings.
For example, take Patagonia patrons. By buying Patagonia, they are showing support for (allegedly) “the world’s most responsible company.” Patagonia is a company that cares for the environment and inclusivity so much so that it has even redirected a greater amount of its marketing resources towards forms of activism rather than the advertising of its products. It has even gone so far as to limit who it will sell to if the customer doesn’t “prioritize the planet.”
Its morality marketing has swooned well-off consumers and its success rates in sales have prompted others within the industry to follow suit by putting “the climate” before the company and its customers.
What is rather laughable though is that a truly environmentally friendly and inclusive business would be your community thrift store—selling what is already in existence and at a cost conducive to nearly every budget. But don’t even think about donating your used Patagonia to those in your local community, instead send it back to Patagonia to receive credit toward more of their products via the Worn Wear collection. Now, instead of getting a windbreaker vest for over $100, you can get a used one for a cool $69.
Nobel Prize-winning economist Milton Friedman would surely call Patagonia’s efforts for social responsibility a lucrative form of window-dressing, but it is more severe than that, particularly when consumers are ill-informed on the positions Patagonia is postulating.
For instance, Patagonia has denounced the use of PFAS despite incorporating this chemical compound in its own products as a moisture barrier for its durable water repellent product offerings. PFAS is found in many household items and although misuse and overuse of these ‘Forever Chemicals’ is problematic, prohibiting use of them in proper form is also problematic given the benefits they bring.
Similarly, Patagonia has made its position known on being anti-fossil fuels, and this is another
realm that is hotly debated and multifaceted. Alex Epstein, an advocate for fossil fuel use, recently released his second book on this topic and makes a strong case for why oil and natural gas should be harnessed. It should also be noted that the American Petroleum Institute has called out Patagonia’s absurd stance given that their products require petroleum use.
In being unable to detach itself from both fossil fuels and PFAS use, Beth Thoren, Environmental Action & Initiatives Director at Patagonia asserts, “we recognize we are part of the problem” and Patagonia calls on consumers to join them “in cutting through the blah, blah” (a nod to Greta Thunberg). And consumers are. With a mission statement declaring that “We’re in business to save our home planet” who wouldn’t want to be part of Patagonia’s purpose via a purchase?
Ethical claims, social labeling, and ESG ratings are all the rage right now, but few consumers know what it truly means—yet they are voting with their dollars to jump on the bandwagon. As one business writer noted on Medium, “Millennials and Gen Z are known to be the generation of social activism” and so companies are catering to this crowd. These generations have a great interest in environmental concerns, but interest doesn’t equate with understanding and good intentions don’t always result in good outcomes (particularly when imposed from on high).
Everyday consumers can determine if they like a piece of clothing; what they can’t understand is the complexity involved in making it. As such, it would be best to focus on product function and value over social fervor and virtue.
Just like when those who are promoted to power positions should be educated about managerial practices, so too should those who have increased spending power be educated on marketing tactics and the true implications of their purchase.
Consumers should stick to abiding by the trader principle, which promotes progress in and of itself. And, as Ludwig von Mises observed, it is important to remember that profits are a path not just to prosperity but social harmony.
“It is profit and loss that force the capitalists to employ their capital for the best possible service to the consumers,” the economist wrote. “It is profit and loss that make those people supreme in the conduct of business who are best fit to satisfy the public. If profit is abolished, chaos results.”
Innovation and efficiency is what advances a society—and so production should focus on core competencies and customer needs rather than aiming to be society’s savior.
Firms need to go back to serving markets and stop selling their subjective stance on moral matters to customers who are not fully clued in to their cause-related campaigns.
This article, Why Gen Z Should Ditch 'Virtue' in Consumer Purchases and Embrace the Trader Principle, was originally published by the Foundation for Economic Education and appears here with permission. Please support their mission.