Within a few hours after the September 11th attacks, you could not find patriotic items like flags anywhere. Even before the day was out there were secondary markets set up selling flags and other patriotic items for more than ten times their price before the attack. Many store owners were not collecting the price premium. Supply and demand should drive prices. When external factors create unexpected demand, the savvy entrepreneur should adjust prices to maximize profits. If they don’t, others will capture the premium by creating a secondary market.
On an unexpectedly hot day at a football game, a cold bottle of water should be offered at a premium rate, while on an unexpectedly snowy day a steaming cup of hot chocolate should be sold at a premium. Failure to adjust your price based on external events means that you run the risk of selling all your stock prematurely. This leaves your customers willing to pay more for your products or services, but with no real option but to buy them on the secondary market.
Often the time window to maximize profits is short and fleeting. Consider the Furby craze a few years ago. Stores had waiting lists and sold out of the product before they could get them on their shelves. Buyers lucky enough to get a Furby sold them on eBay and collected huge profits, yet today you couldn’t give one away.
What process do you have in place to examine external factors that will affect the demand for your product or service? And do you have a process to maximize revenues when demand spikes occur?
