According to basic economic principles, the price of your product or service is determined by supply and demand. This is an unfortunate fact that many of us try to deny, but the science is there:
Supply and Demand:
- P – price
- Q – quantity of goods
- S – supply
- D – demand
The four basic laws of supply and demand are:
- If demand increases and supply remains unchanged, then it leads to higher equilibrium price and higher quantity.
- If demand decreases and supply remains unchanged, then it leads to lower equilibrium price and lower quantity.
- If supply increases and demand remains unchanged, then it leads to lower equilibrium price and higher quantity.
- If supply decreases and demand remains unchanged, then it leads to higher equilibrium price and lower quantity.
I am not sure about you, but I don’t like these economic principles. I don’t believe they are true, and neither should you…unless you want them to be true for you. If you’re willing to think and act strategically, you can easily manipulate the laws of supply and demand. It should be surprising to learn, however, that by manipulating the laws of supply and demand, you can make more profit in less time and with far fewer headaches.
Manipulating supply and demand is actually not difficult since there are only two variables involved: supply and demand. If you’re able to gain control over these two variables, you will be able to gain control of your pricing and profit margin. Over the past 3 1/2 years, I’ve become a serious student of learning how to defy the Law of Supply & Demand, and the results have been staggering. Our average price of a website has gone from less than $1,000 to now over $4,000, and our margins have gone from less than 10% to routinely in the 30% to 40% range, all as a result of the lessons I’ve learned.
Lesson #1: Positioning Yourself as a Rare Commodity
Diamonds are a rare commodity, right? Wrong! Actually, some of the largest diamond producers in the world have vaults full of diamonds, and if they were to release them into the market, diamond prices would plummet. This perception of diamonds being rare began with brilliant marketing done by De Beers. You may have heard the famous tagline they coined: a diamond is forever. In fact, in 2000, Advertising Age magazine named “A Diamond Is Forever” the best advertising slogan of the twentieth century.
At the core, what De Beers and the other diamond companies did was position themselves in the way their prospects wanted to feel. They understood that their prospects wanted to feel successful, important, better than others, caring and committed. De Beers made sure that its position was aligned with what its prospects desired and then simply advertised to those desires.
What do you think would have happened to De Beers if its stores were in the bad part of town and had holes in the carpet, rude sales reps and one carat diamonds starting at only $10.00? If you guessed that they would immediately ruin the rare commodity status that they had worked so hard to obtain, you are exactly right. Yet, this is exactly what most entrepreneurs do. We work valiantly to position and market our product or service, and we destroy all our effort because of one or two simple things.
Lesson #2: Gain Control Over Supply
No, I’m not advocating that you partake in monopolistic practices although it’s reported that is the approach that De Beers took. It’s even been reported that De Beers purchased large supplies of diamonds from its competitors and simply stockpiled them in order to gain control over the diamond supply.
So, as an entrepreneur with a limited budget, what steps can you take to take control over the supply of your product or service to the market? Is it realistic for us to think that we could ever control supply? The answer is an emphatic “YES!” In order to do this, however, you must first give careful consideration and thought to your position in the market.
For example, I imagine Nick Swinmurns’ initial pitches sounded something like this, “Hey, I have this great idea to start a shoe store that sells shoes online. Would you be interested in being a part of it?” And then I imagine he heard a bit of silence…and a LOT of “NOs.”After all, who in their right mind would buy shoes without being able to see them, touch them and, most importantly, try them on?
Tony Hsieh, now famous for taking Zappos from a struggling company to a company with over $1 billion in revenue, almost deleted Nick Swinmurns original voicemail pitching him to invest in the company. Why? Because you can buy shoes anywhere! There is no way you can possibly control the supply…or is there?
If you’re familiar with Zappos, think for a minute about how they have controlled supply successfully. Got your examples? Here are mine:
- Singular Access – You can buy shoes from thousands of places, but if you’re buying shoes from Zappos, there is only one place you can do that at, and that’s Zappos.com.
- Seemingly Endless Inventory – Sure, you can buy a new pair of boots from your local boot store, but do they have 3,251 different boots from which you can select? I didn’t think so.
- Surprisingly Remarkable Service – There’s nothing worse than going to a store to purchase those new boots and when getting there, having the sales rep to begin divulging all the reasons why today is the worst day of his life. You hear that on the way to his work, his car (which really isn’t his, but his girlfriend’s) broke down. He had to hitchhike to get to work, and, as luck would have it, the guy that picked him up knew his girlfriend. Not only did he know her, but he knew her very well…too well. Your sales rep proceeds to tell you all the details about the fistfight between him and his girlfriend’s other guy friend…and all the reasons why he knew all along his girlfriend was a tramp. All of this takes place while you sit, waiting for him to get the boots, and your two kids are busy destroying the shoe department. Zappos understood the drudgery (for some) of making a trip to the shoe store and the typically poor service delivered there. So, if you want surprisingly remarkable service when purchasing your shoes, you need Zappos.
- Shocking Return Policy – Most are familiar with the now infamous Nordstrom tire return story. That’s the one where a customer came into the store asking for a refund on the tire they had purchased. Although Nordstrom had never sold tires, the clerk refunded the customer’s money. Shocking…right? That’s why the story has been shared and passed around for decades, but it’s a tribute to the exceptionally liberal return policy Nordstrom has in place. Zappos took a page out of the Nordstrom’s playbook when it came to structuring their return policy. You get a full 365 days to return your shoes…unless, of course, you purchase them on February 29th, which entitles you to a 4-year return policy. That’s right, you can wait all the way until the next leap year rolls around to return your shoes. Not only is Zappos liberal with the amount of time they give you to return your shoes, but they will cover the expense of shipping the shoes back. What other shoe store will match that return policy?
- Shopping in Your Underwear – I’m not advocating it, but if you choose to do so, you can order your next pair of shoes while sitting on your sofa in your underwear. This makes shopping for shoes easy. And with free shipping both ways, what do you have to lose? They have made shopping for shoes on Zappos.com truly risk free. If you want the largest selection of shoes in the world, remarkable customer service, an industry leading return policy AND the experience of shopping while sitting in your pink polka dot underwear at home…then you have only ONE choice, and that’s Zappos.com. You see now how they control the supply.
Here’s how you control your supply:
What about you? How can you control supply? Let’s assume that you are the proud owner of a marketing consulting business. You are the secretary, the IT guy, the salesman and the consultant. For the sake of this example, let’s assume that you are a little less than busy. Okay, let’s be honest. You desperately need a few new clients. The phone rings, you answer (which you shouldn’t be doing), and it’s your dream prospect wanting to schedule an appointment with you.
Your, and my, natural reaction is to say I can meet any day and any time you want to meet. In fact, if you say this, you would make a huge mistake. By admitting that you can meet with your prospect at any time, you are admitting that your schedule isn’t very full. If you’re admitting that your schedule isn’t very full, you are indirectly admitting that you must not be very good at what you do. After all, if you’re so great at providing marketing advice, wouldn’t your schedule be fully booked?
Don’t fret! The situation isn’t as dire as you may believe. You control your schedule, don’t you? You determine when you are available, right? Of course, you do. Although you may not have meetings with other clients and prospects, you should have appointments scheduled with yourself. You have to study the latest marketing techniques, you have proposals to write, phone calls to make and children to take to softball practice. You are busy! You only have a limited supply of time, so be sure your prospective client knows this.
Becoming the most respected marketing consultant is a difficult challenge, one that I wouldn’t recommend attempting. However, becoming the number one direct response marketing consultant in the lawn care industry isn’t so difficult. Notice the difference? One is very vague and broad, and the other is very narrow and specific.
Trying to position yourself in the general market as the most respected marketing consultant is a lot like a novice mountain climber deciding to attempt to summit Mount Everest as her first mountain. This novice climber will quickly discover that she simply doesn’t have the stamina to reach the peak, and she will quickly give up on her lofty goal. This is exactly what most entrepreneurs do. They try to summit the biggest peak first, fail, and then lose hope.
The smart novice mountain climber understands his limits and picks smaller peaks to conquer before setting Everest as his goal. Once he summits his first mountain, he gains confidence, recognition and credibility as a true mountain climber. He is then able to use the skills and knowledge he obtained while summiting the smaller peaks to successfully climb Everest.
If you’re going to succeed in your chosen market, you must first position yourself as the one and only in your field. And the only way to do this is to pick a small market and lay claim to your title. By positioning yourself in this manner, you immediately gain control over supply while also manufacturing demand for yourself.
Lesson #3: Manufacture Demand
People like purchasing and doing business with those in demand. Think Apple, Lamborghini, the hottest club in L.A., Hotel Zaza, and Richard Branson. All are in demand. Everyone wants to either have one or be associated with one. If you carefully examine each, you’ll discover that all have premium prices associated with them. They have all successfully manipulated the law of supply and demand by manufacturing demand. However, Apple makes the easy case study on how to manufacture demand. Here’s how they manufacture demand:
Begin with Evangelists
They are brilliant at generating a buzz around the latest to-be-released gadget. Through careful study, you’ll discover that Apple always begins the process of manufacturing demand with their evangelists. They fill an auditorium with journalists, bloggers, and other influencers and then wow them with all the new features and benefits of the gadget.
Tell Them What to Share
At the Apple release events, every portion of the event has been carefully engineered and rehearsed to ensure one thing: that their evangelists understand the core message Apple wants to carry them back to their markets. Not only do they want them to understand their core message, but they also want them to influence exactly how it is communicated.
Have you ever noticed how before every big gadget release from Apple, a prototype of the gadget ends up getting left in a restaurant or club and magically ends up in the hands of a reporter? Coincidence? Maybe, but I doubt it. Although Apple would never admit it, I’d be willing to bet that these “accidents” are carefully planted by Apple.
Water the Seeds
It never fails that as an Apple release is drawing near, more information is leaked to their evangelists. They magically find fuel to add to their evangelists fire to help them spread the word.
Allow the Seeds to Germinate
Apple always announces the release of their newest gadget well before its release date. This gives adequate time for the evangelists to spread Apple’s message and for the critics to launch their attack. Having critics is vital to the spread of Apple’s message. This battle between critics and evangelists causes both to become more entrenched in their beliefs about Apple’s products. It causes their evangelists to passionately defend their beliefs and support of the soon-to-be released gadget.
What About You?
With your limited budget and limited time, what can you do to manufacture demand? The great news is that you can follow Apple’s process but on a smaller scale. The first step is to identify and understand your evangelists. You have to treat them differently than your regular customers. You have to give them access to and information about your new product or service. You have to tell them what message to spread and how to spread it.
Don’t complicate the process. Keep it simple. Just do it.
Lesson #4: Never forget Lesson #1
I’m serious. Don’t forget Lesson #1.
It all sounds too easy, doesn’t it? All you have to do is convince your clients and prospects that you are a rare commodity. But how can you pull that off with what you sell? DeBeers did it with diamonds. Many other companies, both small and large, have done the same with their products and services.
You just have to figure out a way to control the supply of what you produce or provide. That’s not possible with your product? Zappos could have said that too. After all, there are a million shoe stores, but they are the only one to provide the freedom and quantity that they do. What can you provide that others in your market can’t? And lastly, start creating your own demand.
“But this all sounds like conspiracy theories and shady business practices.” Keep telling yourself that while your competitors run off and start making their own demand like Apple did. So, yeah, it is easy. You just have to actually put these formulas into practice.
Do you have your own formula for controlling supply and demand or want to comment on the above post? Please share in the comments below.
About The author: Wayne Mullins is the founder of Ugly Mug Marketing and the author of So You Have a Website…Now What? Wayne and his team work with some of the biggest names on the web helping them stand out from the competition and make more money. You can read more on his blog.