Marketing As Demand Curve manipulation

Jon Elordi

Jon Elordi

A staple of economics is the supply and demand curve. It’s a useful framework for understanding the economy and consumer behavior. It can also provide insight for marketers.

The relationship between marketers and economists is tenuous. Mainstream economists rarely see the need for marketers. At best they’ll claim that marketing can help solve the rational ignorance problems. Rational ignorance is that consumers are not all-knowing. There is a cost associated with learning more. At some point, the cost of learning more outways the benefit, and the person stop learning. Furthermore, people don’t know what they don’t know. Economists claim marketing can solve that inefficiency. This is pretty much the only positive thing mainstream economists have to say about marketing.

There is a relatively new field of behavioral economics that is friendlier to marketers. However, they are unfriendly to mainstream economics. They also have the unfortunate habit of calling people irrational. Something I desperately hate. It reeks of arrogance and an inability to sympathize with people. That being said behavior economists like Kahneman, Tversky, and Thaler study the physiology of choice. That psychology can mess with mainstream economic outcomes and assumptions.

There is a time and a place to go into detail about behavioral economics and the impact it has had on the field of economics. This isn’t it.

Behavioral economics’ addition of psychology of decision making into economics has made the field of economics more relevant to marketers. And marketers more relevant to economists. It’s changed economics from a dismal science of absolutes to a dismal science of perceptions.

Marketers do more than just solve the knowledge problem. Marketers use phycology to affect the demand curve.

Every Econ 101 textbook has a list of things that shift the demand curve(I added a few of my own). Each of these corresponds to techniques in marketing. Here they are:

  1. Changes in income level
  2. Prices of related goods
  3. Removal of Uncertainty
  4. Market Size
  5. Taste and Preferences
  6. Future expectations

1. Income Changes

Marketing is psychological and so is your perception of your income level.

The number one thing marketers and salesman try to do is show you how much value you’re getting from the product. By making the product seem more beneficial, it makes the price seem comparably cheaper, and the product more valuable. By extension making, you feel like you’re at a higher income level. By making the customer feel like their getting more bang for their buck, marketers can make the consumer feel as if their income has increased, and their demand curve shifts right.

2. Prices of Related Goods

This is referring to substitutes and compilatory goods. Substitute goods are just the other products you compete with. Marketers are notorious for bashing their competition. Look at political ads. Similar to income changes, by bashing a competitor you make their product not look as valuable, thus making the product more expensive in their mind. If you can make your competition seem more expensive, then you seem less expensive, and your demand curve shifts right.

3. Removal of Uncertainty

One thing that mainstream economics does not discuss enough that behavioral and Austrian economists emphasize is how much human beings hate uncertainty. In the book Alchemy by Rory Sutherland, Sutherland says that uncertainty is akin to a person experiencing pain. By reducing uncertainty, you reduce the pain a consumer feels. Thereby lowering the costs associated with that product. If you lower the cost you shift the demand curve to the right. Marketers do this in a variety of ways. The main one being social proof. It’s why marketers show testimonials and positive reviews. It reduces the uncertainty in the eyes of the consumer.

There is a reverse of the removal of uncertainty and that is the addition of uncertainty in the future. This is why websites will often tell you how much of a product they have in stock. If you see there is only one item left in stock, then the future is more uncertain since we don’t know when they’ll be back in stock. Thus moving demand to the right.

4. Market Size

This one is easy. The more people aware of the product the more demand there is for the product. This is the basis of every awareness campaign in the history of the world.

5. Taste and Preference

This is the obvious one that is related to marketing and persuasion. If you can convince people they need your product they will obviously buy more of it and this will increase demand.

6. Future Expectations

If people expect the price of something to increase in the future, they will buy more of it now. This is the usual time constraint you see on bad copy: “Act Now!” or “Limited Time Offer!” or “Memorial Day Sale!” But it’s more than just those slogans, have you ever been to a website with a count down timer? Let that timer go down to zero and see what happens. I’ll bet nothing happens and it’s just a phycological ploy to more the demand curve to the right.

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