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The Furby Factor

May 20, 12 The Furby Factor

Invitations to the After Party

It’s Christmas and you’ve been camped outside of Walmart for 72 hours awaiting the moment the doors will slide open, and you will make your mad dash for the toy aisle.  This year’s hot product?  The Furby… Tickle Me Elmo… a Playstation 3… whatever it may be, it will be yours.  There is limited production, and so each store is guaranteed only 20 or so before the holidays.  Your kid will not be disappointed!  You will throw elbows, punches, kicks, jabs and throw down if you have to, but your kid is getting this year’s hot item. If you have a free hand, you will reach for two or three, and you will take them home and immediately post them on eBay, guaranteeing you 1000% markup!

Does this scenario sound familiar to you?  Inevitably you’ve heard of the holiday dash, Black Friday, or some other consumer sale that drives the crowds out at all hours, in all conditions, en masse.   This of course for a product  that is either at an incredible price, or is at the normal retail price in very limited supply.  What I am referring to as ‘the Furby Factor’, is simply one of the most basic economic laws known to mankind.  i.e. Supply and Demand.  This basic principle states that there is an equilibrium in the price of a good, based on the amount of said good produced and the quantity desired by the market.

We don’t often think about this basic principle, but it permeates every facet of society.   Take the monthly water bill for instance.  Are you in a drought?  Your municipality will most likely increase the per unit cost of water, because scarcity will require that only those who can afford to spend more on water, will use it.  Or what about favorable weather conditions that create a bumper crop?  Rather than a drought, mother nature has been kind to you and you have produced such a bountiful harvest that you can’t pick the crops fast enough before they go bad?  In turn you rush the product to the shelf, and you find that every other producer has also received the same good weather, and the abundant supply requires that you lower your price to move the surplus product.  After all, it’s good to sell all of your produce at half-price, versus selling half of the produce at full price and having the other half rot.  In selling 100% of your product you are doing more than creating revenue.  You are creating brand awareness and customer loyalty in both the end consumer, and middle-man retailer.  All of this especially in a time of good harvest, where you are showcasing the best quality product.

But what of other industries?  How about the Automotive industry?  If you are a producer of automobiles, and you find that the cost of gasoline has driven down consumer demand for gas-guzzling SUV’s, you may consider offering incentives to consumers to move them off of the sales lot.  These incentives may even include selling vehicles at production cost, or at a loss, so long as you have brought customers into your showroom.  This allows you to make up the difference on the sale of fuel-efficient, high-demand vehicles.  These are the vehicles, which due to gasoline prices, now demand a premium price.  After all, when you own a car lot, your space is a premium.  You can only afford to have so many vehicles on your lot.  When a vehicle sits too long, it is costing you both in real estate, in advertising fees, and in basic cleaning and maintenance fees, etc..

The examples that have been shown, are examples of how supply and demand affects us in our everyday lives from a market standpoint.  The market speaks, and we as consumers and producers in turn respond.  But what happens when the Furby Factor is manipulated?  Maybe with benevolent intentions, but contrary to market demand?

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