Marketing: Don't flood the market
Vendors of diamonds, stocks and Furbies have a lot in common.
"I'M SORRY, SIR, it is not for sale," says the clerk at Manhattan's big toy store, FAO Schwarz. "It's a display model."
A kid wails, "Why can't I have it, Dad?" Suddenly all the kids want it.
Why are Furbies in such short supply? Because Hasbro, the manufacturer, seems to have deliberately made them scarce.
"They made about a million, which is not a lot. At my neighborhood store they have built up a backlog of 500 orders in the past week or two," notes Margaret Whitfield, a toy analyst for Tucker Anthony in New York.
If you want to sell, play hard to get. This law, in fact, may be biologically determined. In one interesting experiment, researchers reportedly trained female fish of a type that ordinarily have male fish chasing after them to turn the tables and chase the males. The behavior made the males impotent. If the males didn't have to work for it, they didn't want it.
Carefully orchestrated supply, in contrast, can make sellers rich.
Look at diamonds, skillfully manipulated for decades by De Beers Consolidated Mines Ltd. and its fellow cartelists. They could produce diamonds a lot faster than they do, but that would drive the price down and make diamonds less desirable.
On Wall Street such behavior is not unknown: Keep that initial IPO small while hyping demand for it and you can create insatiable demand for the next round of financing.
It's old hat in the toy business. Ty Inc. has made a mint off its Beanie Babies by taking different models of these stuffed animals off sale before demand is satisfied, giving rise to a belief by who knows how many Americans that the cheaply made imports have some kind of collector's value.
For Hasbro, with $3.5 billion in 1998 estimated sales, a million Furbies retailing for $30 each add up to less than 1% of sales.
Nonetheless, restricting supply is a good move because it makes retailers happy with Hasbro. This is one product for which they won't be stuck with unsold inventory.
"Oversupplying product is probably the greatest risk associated with fad marketing," warns Karen Raugust in the EPM Fad Study, an analysis of marketing fads published this year by EPM Communications, Inc. of New York City.
What to do if your kid wants a Furby? Persuade her that Tickle Me Elmo is a better doll. It's certainly a better buy. Two years ago this toy was so hard to find that people were paying $500 for it on the black market. Now you can get one for $20.