Cool Paradox

Posted by Mike Walsh

8/8/06 5:33 AM

 


// THE COOL PARADOX

Andy Warhol knew a thing or too about creating hype. According to legend, he once had a club opening that was held entirely in the queue outside. Nobody at all got inside.

The problem with demand is that it is rarely evenly distributed. The hottest club, the most desired pair of jeans, the coolest new restaurant - when consumer interest explodes it creates scarcity, which is like adding rocket fuel to an already raging fire.

Economists have a word for this. Positional goods. Products and services whose value is derived from their scarcity. Not surprisingly, the measure of how much you enjoy a positional good depends on how much you have relative to everyone else.

As terrible and elitest as that sounds, ignoring the economic nature of 'cool' goods has dire consequences. When the 'impossible to get in' nightclub starts an open door policy, and the world's most daring denim brand starts a diffusion line for Walmart - their intrinsic value as a positional good starts to disappear. Accessibility is the enemy of scarcity.

Worse still, if you ramp up production to meet demand, you can be left in the lurch when the party moves on. Pity Bandai. The original Tamagotchi maker, which once sold a product so in demand that it started fights in toy stores - ended up creating a 6 billion yen loss ($60 million loss) due to unsold inventories when people could actually buy one.

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