Women used to think of Rent the Runway for parties. It was a cheap way to have an expensive dress for one night. You just went to their website, chose the dress, got it several days later, wore it, and mailed it back.
Now you can see below that the firm rents much more than party dresses. Their website offers you an entire wardrobe. Through their $89 plan, you can get up to four dresses a month. Each one arrives dry-cleaned, in a garment bag with a prepaid postage label. Purses and coats are also a possibility:
For the $1,068 that a basic RTR plan would cost, a shopper could buy many fewer dresses at a retailer:
Our Bottom Line: Transaction Costs
Whether its Airbnb, BlaBlaCar, or Rent the Runway, the way to think of the sharing economy is through transaction costs. The sharing economy only works when transaction costs are so low that sharing rather than buying makes sense.
For starters, please think of a transaction cost as what you need to do for a purchase, to get a job, or to accomplish some other task. Beyond the dollars you spend, the transaction costs include hassles like standing in line, filling in complicated forms, and waiting for a person to pick up your phone call.
In the sharing economy, we could identify three categories of transaction costs:
- Finding the shared items.
- Transferring the shared items.
Returning to RTR, they nailed it. They made the search and transfer easy. And the trust, ranging from cleanliness to dependability seems to be built into the “contract.”
So, if you are wondering why you have these relationships with strangers through the sharing economy, it is probably because of the low transaction costs.
My sources and more: After hearing about transaction costs in the sharing economy on Econtalk, I realized that Rent the Runway was the perfect example. Among the countless articles on Rent the Runway, the Wall Street Journal had a good update. However, if you go to just one link, do listen to this Jenn Hyman interview from How I Built This.
Our featured image is from Rent the Runway.