Product lifecycle management and the scarcity principle

Product lifecycle management and the scarcity principle

Peter Laughton
4 Nov · 4 mins read

We live in an age of plenty.

Manufacturing has become incredibly cheap - it is very cheap to produce huge quantities. Often the biggest of a product is the research and development required to design and build that product. TechInsights estimates the tear down cost of an iPhone 11 Pro Max is $490. Given a selling price of $1 199 that actually manufacturing costs is well under half - the bulk of the cost is retailer margin (reportedly very tight for Apple - we have heard as low as 10%), Apple's R&D, Marketing and Profit are far greater than the actually cost of making the thing.

Moreover, manufacturing can produce huge volumes, very, very quickly.

Its is incredibly easy to make sure that huge volumes of retailers world wide have plenty of product.

You can see this in consumer behaviours.

At the original iPhone launch consumers queued for hours (and even days). The iPhone 11 sells many times this volume, but apart from some half-assed attempts to drum up a queue (I am looking at your Mr Manager of the Apple Store in Reading), getting hold of an iPhone 11 on or close to release date is not a thing.

Great! you may think, surely that is best to maximise sales?

The answer is not quite. Apple very carefully targets manufacturing to hit just short of supply.

FIFA did not do well this year...

Whilst heading Electronic Arts Germany about ten years ago had a 'disappointing' year for FIFA. Much was made about 'Football fatigue in the games market' and 'it is time for the next console generation'. Indeed people were forecasting the demise of FIFA (hah!).

The reality was that FIFA was doing quite well - we had actually sold through 10% more than the prior year. The issue was that we had expected to sell 20% more... and had enthusiastically stocked the market accordingly. Retailers and consumers looked at the piles of product in MediaMarkt and assumed this indicated poor sales.

The issue was that we had sold in too much. We struggled to get reorders for November and come Christmas retail had already moved on to the 'next big thing' and we did eventually get our stock shortage... but in the week before Christmas when it was just too late to do anything. I remember looking at the GamesStop in Cologne two days before Christmas and after much complaint of being 'over stocked' had to put up with the manager berating me because they were out of stock for the busiest trading days.

97%

My experience has been that the ideal forecast is to slightly under sell a product. We tried this again and again, and the ideal was to hit 97% of demand. That created sufficient pressure to 'better buy this now' whilst at the same time minimising any sales loss from the product simply not being available.

Further reading:

1. https://blog.hubspot.com/marketing/the-scarcity-principle


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