Supply and demand. It's one of the most important principles in economics.
Consequently, it's also of massive importance to marketing.
Scarcity Drives Margins
In 2013, the average price for a football ticket was $81.54.[ref]National Football League average ticket price from 2006 to 2013 (in U.S. dollars)[/ref] For less than a hundred dollars you could attend a professional football game at just about any stadium in the country.
The average price for the 2014 Super Bowl: $3,480. That's more than a 4000% increase over the season average.
The Super Bowl is not just "the" game of the year, it's also a hugely limited commodity. Throughout the year, you can watch games on TV and lose count of the empty $80 seats in the stands.
The highly limited nature of the one Super Bowl of the year, however, means two things:
- The game is absolutely certain to sell out
- Tickets will go for insane amounts in both primary and secondary markets - the most expensive Super Bowl ticket available carried a price of almost $450k![ref]Super Bowl 2014: Ticket prices not dropping on eve of game[/ref]
This phenomenon isn't strictly applied to high-end entertainment. In college, I worked at a summer camp that had a small camp store. We sold program materials, souvenirs, and snacks.
The year Vanilla Coke came out, I had the luck to have 2 cases hidden in my tent. My brother, the supervisor of the camp store, wanted to see if he could sell them - the store otherwise sold only Pepsi products and its nearest competitor was 17 miles down the hill. A can of Pepsi cost $0.35; my brother priced the Vanilla Coke at $5.
He sold out in an hour.[ref]After a fit of guilt, my brother refunded the kids who'd bought the far-too-expensive soda and issued an apology. But the fact that someone was willing to pay 1400% more for a can of soda just because it was rare shocked everyone.[/ref]
Digital Goods Are Cheap
I own a few digital albums that claim to contain "rare" recordings of older songs performed by my favorite bands. That these albums are, first, digital and, second, classified as "rare" amuses me.
I purchased the album once, and have the same song on my PC, my Mac, my iPod, my Droid, and my Kindle. The music is so rare that it takes me a whopping 5 seconds to make as many copies as I want.
Digital goods, by their very nature, cannot be made scarce.
In other words, the supply of a digital product is effectively infinite. As a result, the incremental cost of producing such a product is effectively nil.
Race to the Bottom
As more and more vendors enter the digital space, they try to make the same competitive moves they made with physical goods.
Namely: cutting margins.
Once a digital product is compiled, bundled, processed, or uploaded, though, the incremental cost of producing duplicates drops to 0 - meaning the lowest margin is giving the product away for free.
That's not sustainable for anyone.
Can Digital Goods be Sold Out?
I ordered a table the other day. Actually, I ordered it over a month ago - but I won't get it for another month because it's currently sold out. Even though it's already paid for, the fact that I can't have it right now just makes me want it more.
But can this sentiment be applied to digital goods? Can there be a hard limit on the number of digital records sold? On the number of eBooks available? On the number of software downloads released?
Would this limitation raise the price?
Is there a way, short of evil DRM restrictions, to effectively limit the supply of a digital good and thus raise its value?