Today’s consumer has many choices, whether shopping online or shopping locally. With the continual expansion of e-commerce, local businesses face fierce competition to attract buyers. Increased competition tends to lower prices, providing greater incentives for consumers to shop around before making a final decision. Sometimes, however, the best price is not always the best deal.
A recent study by the Pew Research Center shows that two out of three Americans who use the Internet have purchased a product online. In addition, the study found that over 60% of those using the Internet in 2007 researched a product online—double the amount in the year 2000. The study, however, is not all positive. The same report shows that over half of the people who make online purchases said they were frustrated, confused or overwhelmed with problems encountered while shopping online. The study also finds that people are still concerned about entering personal data, such as credit card numbers, on a Web site.
In addition to concerns about personal data and other related issues, consumers need to consider the potential impact of their shopping decisions. Saving money online for a specific purchase may end up having higher costs than anticipated. For example, most online purchases do not include local sales taxes which are needed to provide fire and safety protection here at home. As local sales tax revenue declines, local communities may face difficult choices of cutting services or raising the tax rates.
Some studies show that locally-owned businesses re-spend about 80% of their income within the local community.
Using an economic concept called the “multiplier effect,” it is estimated that one dollar spent at a locally-owned business will return five times that amount within the community through city taxes, employees’ wages and purchase of materials and supplies at other independent businesses. In addition, these businesses will return that dollar to the community through school funding, social services and contributions to local non-profit organizations. Local chains also return money to the community in much the same way, even though the multiplier effect is somewhat lower.
Following are several factors to consider when making choices about where to make your next purchase:
- Shopping locally supports local jobs. With today’s economic environment, providing local jobs helps ensure local communities will maintain lower unemployment rates. Lower unemployment tends to translate into more prosperous communities, lower crime rates and less demand for tax dollars to provide unemployment compensation.
- Shopping locally provides local tax dollars. Fire, police, water, sewer, roads and other city services are highly dependent on sales tax revenue from local purchases. Maintaining the city’s infrastructure is critically important to promoting and protecting property values.
- Shopping locally protects local businesses. Having strong, vibrant local businesses creates greater competition which then increases the availability of future goods and services while reducing the price paid for them. Local competition fosters a community of growth and prosperity, serving as a magnet for a greater variety of local services. Empty store fronts and abandoned property offers little incentive for other merchants to expand. Supporting local businesses ensures that other necessary services, such as grocery stores, restaurants, hair dressers and pet groomers, remain open as well.
- Shopping locally supports local culture. Each community is somewhat unique and has its own sense of character, which is the reason you choose to live there. Unique shopping areas such as downtown Edmond or the newly-developed Town Center near Tinker offer a sense of pride and community spirit not found online. Local merchants are also more likely to provide monetary support of local causes, local schools and other local needs.
- Shopping locally increases potential for quality customer service. As evidenced in the Pew Study, not all shopping experiences are positive. When products fail to work or meet consumer expectations, local merchants are much more likely to provide quality service options to resolve the problem resulting in a higher standard of service. Numerous services show shoppers receive better customer care and service from local sellers who are concerned about preserving their local reputations and ensure repeat business.
Sue Lynn Sasser, PhD, is an associate professor of economics at the University of Central Oklahoma.