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.
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.
The movie, “The Wolf of Wall Street”, starring Leonard DiCaprio, was based on the life of Jordan Belfort. In my favorite scene from the movie, Jordan thrusts a pen into the hands of his sales team and says “Sell me this pen.”
One guy says “This is the best pen ever
made,” another “This is the last pen you will ever buy,” but none make a
convincing enough pitch.
Finally, after Jordan takes his pen
back, one salesman grabs the pen from Jordan. He hands him a piece of paper and
says “Write your name on this piece of paper.” When Jordan realizes he no
longer has a pen, the salesman says “Oh, you don’t have a pen anymore… supply
and demand, bro.”
I love this scene because it
demonstrates a fundamental selling mistake made by most salespeople who try to present a product’s features and benefits.
It does not matter how good your product
or service is; the customer will not be inclined to buy it until a need for it
is recognized. First, you must create the demand for your product or service,
then you can sell your supply.
In another example, Fred Bear created a market
for his archery products where none existed by convincing the state of Michigan
to create a separate archery hunting season.
If you think strategically, you can
manipulate the laws of supply and demand. By manipulating the laws of supply
and demand, you can make more profit in less time and with far less effort.
Most entrepreneurs fail to realize that
they can manipulate supply and demand. By gaining control over these two
variables, businesses can gain control over pricing and profit margins.
Control Supply
Some companies have successfully leveraged an oligopolistic market structure, such as Opec and cell phone providers, or have established virtual monopolistic market structures, such as De Beers, Standard Oil, and Carnegie Steel to control supply.
As a business owner with a limited
budget, what steps can you take to control the supply of your product or
service? Is it realistic for you to think you could ever control supply? The
answer is “YES!” You must carefully consider your position in the market.
You control your schedule and determine
when and with whom you can meet. When you get a call from a customer and your
reply is “My calendar is wide open, when can we meet?”, you are
saying that supply is high… and as every economy 101 student knows- with high
supply, prices fall.
Instead, ask some questions to pre-qualify
the prospect and only offer up a few times where you can meet. This sets the
expectation that you are in high demand and have limited resources, even if
this is not the case.
Having a personal brand in a niche market will act as a multiplier. I encourage every business to find its Blue Ocean by going through the exercise of creating a Business Model Canvas. Being in an uncontested market blue ocean means that what you offer is unique in some way, and therefore, supply is limited.
Create Demand
Consumers like purchasing and doing
business with businesses that are in demand. In-demand products and services
all have premium prices associated with them. These brands have successfully
manipulated the law of supply and demand by creating a demand.
To succeed in most businesses, you have to be scalable, which means creating a word-of-mouth epidemic. Therefore, you must locate, attract, and nurture “social agents” to help spread the word about your product or service.
Social agents, sometimes called social
influencers, are people that share your message with others. While a social
agent may never do business with you, they love recommending you to others.
