Pushing demand to push up your price (or why iPods are getting cheap)

Remember that classic old supply-and-demand curve in Econ 101?

We’ve been thinking recently that marketers are in a constant battle with consumers over where the demand curve falls. At any given supply (shown above by the vertical line), marketers want demand to be higher (and thus be able to sell products at higher prices). At the same given supply, consumers are constantly evaluating other choices, which could shift demand (and thus prices) lower.

A classic example is land; they aren’t making any more of it. So marketers could push property in Florida to raise demand and prices, or consumers could realize the real estate bubble has burst and avoid land in Florida, pushing down demand and prices. Supply is what it is; the demand curve shifts, and prices must follow.

The role of marketers is to attempt to shift the demand curve at any given supply quantity.

This dynamic is especially at play in the release of new technology gadgets such as the Apple iPhone, or the GPS devices now being affixed to car windshields, or flat-panel TVs. These new products emerge with no real competitors; producers plan to ship a set amount; marketers therefore send out messages to try to manipulate where the demand curve falls.

What’s interesting about this push-and-pull is that eventually consumers wake up, realize the new product isn’t that special, and the entire demand curve shifts downward at any given quantity. The Motorola Razr phone launched in 2004 and people were willing to pay $800 (the initial price without a service agreement). Now, the Razr is fading out. Same phone. Same features. Same quantity on the shelves. But marketing could only keep the shift of the demand curve at bay for a little while.

Why does the demand curve shift down for technology? We think it is perceived scarcity. When a new gadget appears, the marketing message is this is special, rare, and thus scarce. Perceived scarcity drives up the demand curve. Eventually, consumers begin to view the “new thing” as a commodity, say, just another cell phone, and the perceived rarity/scarcity goes away. Demand then falls down at any given supply.

Really, the current consumer mania over technology is just bubbles of perceived scarcity floating over our innate demand. What today looks hyper-cool, special and scarce tomorrow looks like just another computer or cell phone. The scarcity bubble always bursts, and the marketers of technology then blow more.

Interesting lesson for your own business. What will you do to make your product appear more rare? And how will your marketing keep the demand curve up, to support prices and margins, while consumers gathering intelligence constantly begin to push it back down?

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