Monday, October 16, 2006

Another Real World Example of Supply and Demand

Interestingly enough I am getting hits on my blog for an example from the real world of supply and demand about free local town newspaper, which I did blog about once in the past, here.

So here is another one from my real life about the price for used children’s VHS format videos.

In 1997-2001 I would frequent a children’s consignment shop that was near my former home. The shop sold baby and children’s clothing, VHS videos, toys, and baby equipment (strollers, etc.). The store was a great source for children’s videos and also high quality wooden toys were being sold at a fraction of their new cost. Back then there were not many children’s movies on DVD. The regular children’s TV shows such as Teletubbies, Thomas the Tank Engine, and the others were still releasing only VHS editions of their shows. The shows that by 2001 were releasing DVDs were not showing up yet in resale shops as the families were still using them.

This particular shop used to sell used children’s movies and children’s TV shows and cartoons for $2 or $3 each. I will take a guess that they had about 125-150 in their inventory. I used to buy some videos and would note that the videos would cycle through pretty regularly, the inventory moved. I then moved to another town and I stopped shopping there on a regular basis.

By 2005 the number of children’s DVDs had exploded on the market, with not just Disney movies being released on DVD but also the regular TV shows. A relative of mine refused to take free hand me down VHS tapes from me as she said that although she wanted them. She explained that she no longer owned a VCR and that she’d prefer to pay full retail for multiple new DVDs to build a collection with rather than to find a cheap VCR to have to use a lot of free VHS videos with.

In 2005 I visited the shop while in that town. What I saw was a surprise. There were at least 700 VHS videos on the shelves. The VHS tapes took over the original section of the shelving and they were double stacked (which actually made it very hard to find titles.) This made sense as apparently once children outgrew the children’s shows that the family owned, the families were letting go of them, as VHS was the only format available when those children were younger. I know some families who upgraded their collection to DVD—meaning if they owned Cinderella on VHS they then went out and bought a new copy of the Cinderella DVD and got rid of the VHS copy. The surprise, and this is the big issue---is that the price for the VHS had multiplied to $5.00, $5.50 and $6.00!

So there is a real life supply and demand story for you to illustrate a failure in the system.

Here there is a larger supply of the VHS children’s shows. The VHS format is a technology that is on its way out. The VHS videos are no longer in demand as the best technology and in fact some families no longer own a VCR to use them on. Yet the consignment shop has raised the prices by about 200%. Does that make any sense?

Back in 2005, I consoled myself with the notion that perhaps the store owner didn’t realize what was going on yet, not enough to realize she should lower her prices.

There was also the issue that for me as a person who still owns a VCR, that I was unwilling to pay $5-6 for a USED VHS tape. If they had kept the price to the original $2-3 I would have considered it for some. (In other words in Malcolm Gladwell language, the price point for the used VHS tapes has now gone over my tipping point.)

Another comparison is that in 2005 and also still in 2006, library fundraiser used book sales do carry used VHS and DVDs for sale. The prices on the VHS children’s tapes range by library sale. Some sell them for 50 cents, some for $1 and one sale had them for $2. Also some of the sales have half price day, ‘$5 per bag’ day and free day.

And the final installment is that I visited that less than two weeks ago (October 2006) and was again met with an even more chaotic site. The number of VHS tapes had multiplied since my visit there last year. There had to be 1000 if not 1200 VHS tapes for sale (still at the same prices of $5-6). This time the old shelf was still being used, double stacked. Then book shelves had been taken over with more, some were also triple stacked. There were piles of the videos on the floor, going up to over two feet high. Most of them had no cases (in my opinion lowering the salability), and it was hard to read the titles on the black cases, since they were stacked one atop each other on the floor. The place looked like a mess and it was hard to navigate through. I didn’t even bother to look at the titles as I wasn’t going to spend that much money on a used VHS tape.

So anyway, there you go. Apparently that store owner does not know about supply and demand. The supply for the VHS tapes is up, the demand is down even more than it was in 2005, yet she has kept the increased price, and over time as the demand for VHS tapes has gone down more, she has not budged on her too-high price on the tapes.

If I were the store owner I’d offer first a $2 per VHS tape blowout sale, then after one or two weeks I’d lower the price to $1 per VHS tape to get rid of them.

I would also seriously consider stopping carrying VHS tapes altogether, or would offer the consignment at 25 cents per tape and sell the tapes for $1 or $1.50 at the most.

What is also important to me as a customer is the appearance of a clean and neat store and the ability to actually see the product which I am being presented with as inventory to browse in a reasonably easy manner. With an over-cluttering of VHS tapes like that, it is not buyer friendly at all. It would be better to have a small inventory of tapes that can be displayed in a neat manner than to have a lot of tapes which is a complete mess.

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