Game Theory and Clothing: How Shoppers and Retailers fight for savings
Clothing is one of my passions. I love adding new clothes to my wardrobe and choosing different combinations of outfits. However, as a college student, saving money is also one of my priorities. Thankfully, sales exist, and I’ve managed to buy a substantial part of my wardrobe for heavily discounted prices. In the article I chose, the game theory behind sales is explained, as well as the strategies companies use to counteract the savings buyers get from clothes.
The clothing industry is tricky for both buyers and sellers. Buyers are constantly searching for the best deals on clothes, while also trying to find clothes that fit their style. Sellers want to move as much inventory as possible, but they want to move that inventory at the best possible value they can. Sales give each the best of both worlds, or at least some of it. Throughout the year, although typically at the end of the summer or winter season, brands slash their prices in order to get rid of unwanted stock, as well as to make some money off of clothes that would otherwise remain unsold. We can look at this as a game. Here, we use the example of a simple T-shirt.
Imagine that the value of a T-shirt to me is 40$ (For demonstration purposes only. I don’t spend that much on T-shirts). The value that I get from buying a T-Shirt is 40 – x, with x being how much I purchase a shirt for. If I choose not to buy the shirt, the value I get is 0.
Imagine that it costs a company 10$ to produce a shirt. The value that company gets from the shirt is y – 10, with y being how much the shirt is sold for.
I have two strategies, and so does the store. I can choose to buy or not buy, and the store can choose to put the item on sale or keep the same price. This is represented below.
| No Discount (Price 50$) | Discount (Price 20$) | |
| Buy | (-10,30) | (20,10) |
| Don’t Buy | (0,-10) | (0,-10) |
If I buy the shirt at the normal price, I’m losing value. The company has managed to make me pay more for the shirt than I value it for, and thus has managed to benefit off of me. The best case scenario is that the shirt goes on sale, and I get a value of 20$ from the shirt, since I’m paying less than I would have had to if it hadn’t been discounted. In my experience, this is what generally happens, and more often than not I wind up getting good value for my clothing at the expense of companies, although they are still making money.
In an ideal world for the company, this sale wouldn’t exist, as the company wants me to pay the full price for the shirt, maximizing profits. However, I also have the option of not buying the shirt. While I don’t lose or gain from this scenario, the company loses heavily, as it has lost money on an item that was meant to make it money.
In the real world, companies are working on solutions to this problem, and trying to get customers to pay as much as possible. Companies like Zara and H&M have developed a business model that eliminates sales altogether. Rather than the typical Fall/Winter and Spring/Summer seasons, clothing racks are updated every two weeks. This causes the strategy of buying at discounted prices to disappear. Now you are faced with the choice of either buying for 50$ or buying nothing at all. While it might make sense in the game to never buy clothes, as the value is negative, in reality you can’t do this, as you need clothes to wear. This puts customers in a difficult position.
In the real world, other companies exist and you can always choose to take your business elsewhere. However, many people are passionate about clothing, and when people see something they like that is more expensive than a cheaper but less stylistically appealing choice, they may not always go with a cheaper option, and lose value but reward themselves. However, when they do, companies might not sell enough to keep operating, and go out of business. Thus, this complicated buyer/seller game always produces some winners and some losers. The example I presented is very simple, but it gives a general idea of the buy/don’t buy strategy and shows how companies try and create strategies to benefit themselves. Who would think that going to the mall and picking out your favorite clothes and brands could be so complicated?
Article Used: https://mindyourdecisions.com/blog/2007/10/30/game-theory-tuesdays-shopping-for-clothes-and-the-problem-of-using-money-tips/