Don’t some companies understand Supply & Demand theory?

The world is still trapped deep inside the worst economic turbulence of our lifetimes. Many businesses are closing or really battling to stay afloat. In Cape Town three high end, well  known restaurants closed last month, well ahead of the toughest time of the year – our winter!

At dinner with some friends last night, one of the guy mentioned the completely exorbitant rent the  one restaurant was paying in Camps Bay. No one was surprised that they could not make it. Not sure where the landlord is hoping to find a new tenant, but I suspect he may either have to drop his rent a lot, or let the site remain empty for quite a period.  Maybe he should have adjusted his rent sooner!

The dinner was held at a restaurant in a new high end hotel in Cape Town. Apparently occupancy levels are running at around 12%! I would have thought that deals would be floating around there like crazy, but their room rates are still very high.

I recently tried to find a great deal for my daughter Jessica’s upcoming trip to the USA, where she will work in a Maine summer camp. In South Africa, where there is quite a bit of competition, the airfares are low at present. On the international routes, with limited competition to the USA, the fares still very high, despite low occupancy. Best rate was via Dubai.

It seems that some marketeers believe that running specials ‘damage their brands’ and thus ignore the realities of current supply and demand curves. Others seem to think ‘best to milk the few customers around’! My personal view is that consumers are smart and all understand how tough the economy is for consumers and businesses alike.

I suspect a lot of them (myself included) don’t admire companies who believe their brands are ‘above’ a tough economy and may actually perceive those companies as either arrogant or stupid or both. So they end up selling very little and may go bust in the process – ‘great brand’ gone at the end of the recession!

A reduction in demand

Supply and demand theory is well understood.For most products, varying levels of demand exist at different price points.Obviously different levels of supply impact demand and the prices too!

Generally the demand goes up at the lower price points. These curves also shift based on the consumer’s general confidence levels in the economy.

Right now most demand curves have moved well to the left i.e. at a given price there is less demand than a year ago.

So, will wineries damage their brands by taking stock of the current economy and offering special price promotions? I believe not. I think it shows the consumer that the winery understands the realities of the current economic crises and is acting rationally!

Vintages roll on relentlessly and wineries need to move their wines in order to fund the expense of getting the new vintage into barrels or bottles and boxes. We have put some of the wines that we need to move on special promotion and the volumes have picked up quickly.

I wish some of the businesses I have to buy from would do the same!

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2 Responses to Don’t some companies understand Supply & Demand theory?

  1. Louise Chain says:

    Good article Dana. Here in Australia prices have definitely followed demand and everything is negotiable. There’s an abundance of bargains and if you want to get away to an upmarket resort you can pick up a bargain on lastminute.com or several other websites. Cheap flights are available. Restaurants here are still heavily booked but I have noticed in the city that a lot of smart operators are changing their profile – formerly upmarket coffee shops are changing to take-away. Dropping the price point but increasing the customer base. Take a look at an article on the twitter TIME site – 10 ways your job will change. Some very interesting insights. Keep up the good writing – Louise

  2. Dana Buys says:

    Thanks Louise! There are also some companies here that do the logical thing. Eg one of my favourite restaurants in Cape Town is Geisha’s – they make excellent food and if you go there over lunch you get 50% off their sushi prices!! That is a great deal at for high quality food and a sensible reaction to the quiet time.

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