Monday, 8 February 2010

Snow and demand

The snow in America seems to be pushing consumers out to the right-hand end of the demand curve. So how should retailers respond?

First Marginal Revolution (Alex for once) points to this Bryan Caplan article:
A blizzard is about to hit DC...people unsurprisingly rushed to grocery stores to stock up....For any given type of product, the most popular brand always sold out first. There were no Eggo waffles, but plenty of Wegmans brand waffles. All the national brands of hot dogs and sausages were gone, but there were plenty of obscure sausages still on the shelves.
Can you guess my explanation? Click through to the MR link to see my answer in the comments, or look at the comment from Eric on Bryan's page for a similar idea.

Then Pricing for Profit asks the question: how should hardware stores optimise their profits when everyone wants a snow shovel? By now of course the answer is clear - at least if they have any foresight.

Simply get a bunch of cheap shovels with an unusual brand into the storeroom; put them on the shelves for $95 in the expectation that nobody will ever buy one. Until, that is, the snowstorm comes and all your regular shovels sell out.

And back to that MR item: a completely different, quirky but plausible theory from another commenter:
"This is exactly the reason LTCM failed: under time pressure, people flock to the name brand vs the equivalent non-name brand product (e.g. on the run vs off the run treasuries.) The spread widens in the short-term. In the bond markets, people fight for a fraction of a basis point most days, yet happily pay a bit more in an emergency for the reduced cognitive effort to ensure safety.
Posted by: gorobei at Feb 7, 2010 1:49:08 PM"

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