MANILA, July 11, 2012 - Basic economics dictate that if the demand is high and the supply is low, the price will be high. On the other hand, it’s also clear that if the demand is low and the supply is high, the price should be low. Market movements over the past years, however, have led businessmen and investors to question that “law” of supply and demand.
The most noticeable of these movements currently has been the price of oil. Right now, the demand for crude oil remains relatively high. In a new wrinkle, merging markets around the world are now contributing to its high price. On the surface, this development proves once again that the law of supply and demand is valid. But there is one thing that is challenging that assumption and is also proving to be a bane to consumers.
It is a given that crude oil is not a renewable energy source. People who know oil are saying that this key resource is depleting. This scenario is not the main reason why pump prices are up, though. Oil production itself is a bigger reason for the current high cost of gas at the pump. Futures traders will trade on how many barrels will be produced and profit from the trade, regardless of where gas prices land.
Due to this practice, artificial markets have emerged since the prices of commodities are steadily marching towards the whims of market speculators rather than simple supply and demand. As a result, that law seems to have lost some of its enforceability. How does the market cope? Let us see how some companies have adopted a strategy of creating a demand for their products.
Creating demand for cell phones: Motorola
In 1973, Martin Cooper, an executive and researcher from Motorola invented the mobile phone at a time when that company was conducting research on cellular technology. Since Motorola invented them in the 1970s, cell phone sales grew very slowly, as they were expensive, useful spectrum was not widespread, and the people who bought them often did so because they already had plenty of money to spend. Mass consumers couldn’t afford to own one of these devices and felt that if they couldn’t own one, they probably didn’t need it.
Fast-forwarding to the 1990’s and we start to see a different world. The Berlin wall was torn down. You were able to watch a war unfold via satellite on then fresh and new CNN; and the Internet—once a cryptic, C-prompt style idiom—went click-able and graphical and soon people to interact with others with ease, geographical location notwithstanding.
Cellular phones were already better established in the market by this time, but they were still more of a status symbol rather than a need. People thought that having a handheld device to call someone without being tied down to a cord was pretty cool, but it wasn’t exactly life changing either.
Manufacturing companies needed to bridge the gap between luxury and necessity, or at least bridge the gap between perceptions. Advertising and proper marketing came to the rescue. Marketeers gradually shifted their strategy of “being-there-first” to one of demand-creation.
That former “first-to-market” strategy still works in the cell phone universe and elsewhere, but it is not as effective as before. The reason—more apparent today and still more in the future—is due to the rate at which technology is advancing. New products with upgraded features will be out in the market every 6 months, severely shortening the average market cycle.
Back in the 80’s people would say that Japanese technology was so advanced that that new VCR you bought in the store was already made obsolete by the latest Japanese technologies. Fast-forward again to 20 years later, and that impression still rings true. Just replace Japan with Korea and VCR with whatever touch screen device is available in stores, and presto! Another variation on first-to-market.
Nevertheless, no matter how great a new product or new product introduction might be, sales are still ultimately driven by demand. As a result, advertisers have been crafting and updating “rules” for creating demand. Nothing has been set in stone yet but the main points that seem to be evolving are these:
1) Know your customers, and
2) Know their needs.
Creating demand is easier than positioning your business to be in the forefront of the hot new-product niche. Market research itself will become easier because in simply creating a demand you will start something new, an empty canvass so to speak. If this kind of marketing strategy is done right, you, not your competitors, will be the one to dictate what your consumers will want to purchase. When you compare this to positioning your business to counter an upcoming product, you will have to worry about your competitors, consumer feedback, and your own resources.
You may not need to be first on the block—Apple, for example, was a major latecomer to the cellphone market—but whether early or late, you still have to ask yourself the question: what market segment you target when introducing your company’s products?
Going back to the previous example on cellular phones (as they were more popularly known before), only the rich can afford to buy them. There was no actual need for the mass consumers to get one for themselves.
In the late 1990’s Nokia started introducing its mobile phones into this still very young market. Their pricing was steep for a gadget that was still considered a luxury item, but not high enough so that only the super-rich could afford a Nokia device.
Urban professionals were the first to latch on to these newer Nokia phones. Students who could afford them bought the phones because of the SMS feature. Instant messaging, which was then only limited to bulky desktop computers had begun to go mobile. Work and communications that had heretofore only been possible on a personal computer was now becoming available on cellphone handsets, gradually transforming them into miniaturized portable computing and communications devices.
Today, everybody now wants to have his or her own phone, transforming what was at one time a luxury item and status symbol into a virtual necessity. Nokia started to capitalized on this new demand early on, launching ad campaigns that made it seem to consumers that life would be easier if you had a Nokia cellular phone. Mobile phone sales rapidly grew for Nokia as well as for other manufacturers. Perceptions gradually changed. What was once a luxury was now becoming a necessity, which began to grow demand by an order of magnitude.
This phenomenon is not about class distinctions, though it does have to do with the lifestyles of those belonging to the upper class and the desire of the middle and lower classes to emulate them. There is nothing wrong with aspiring for the good things in life (unless you have a very rigid anti-capitalist stance). There is very little doubt that once presented with an upgrade possibility whether in possessions or in life, anyone would choose the lifestyle of the rich. This is yet another kind of demand creation that’s addressed by what some marketing experts call “aspirational marketing.”
Whatever the flavor, demand creation is actually not a new marketing strategy. The fashion industry has been doing this for years, as was thoroughly explained by Meryl Streep, and other industries are now catching up. Fashion lines and styles that initially targeted the rich and famous will eventually trickle down to large retail stores at 30% off.
So logic would seem to dictate that the actual market segment businesses should be targeting is, in fact, the upper class, Occupy Wall Street sentiments notwithstanding. That’s because often-durable trends typically start in this segment.
An Apple a day
A decade has passed since the new millennium was ushered in and we are seeing yet another example of demand creation. The main instigator this time is Apple. Say what you want about how other companies possess better technologies than Apple; but the fact remains that ever since the iPod was launched almost a decade ago, every gadget that starts with an “i” has become a must-have.
Apple products are good, no doubt, but are they really a necessity? The logical answer should be no. But judging from how the consuming public reacts to everything that Apple does, the demand is there. The demand is so huge, in fact, that people are willing to wait outside the stores to buy that new “i” product, the latest of which is scheduled to be introduced today.
Creating demand is not just about knowing who and what your customers needs. It also requires that companies have a good marketing team to tap in the psyche of the consumers. Marketing is no longer a simple poster that says “Hurry while supplies last” to induce your customers buy your products. Marketing also means playing into customers’ desires and offering your products to them because they feel they need to buy them.
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