The year is 1983 and it was Christmas-time. If you’re old enough, you’ll recall there were lines – no, hordes – of people, waiting, clamoring and paying top dollar for… a doll. A Cabbage Patch Kid, to be exact. As one store manager put it “…people were grabbing at each other, pushing and shoving. It got ugly.” Dolls were nothing new, so what explains the hysteria that exploded during the Cabbage Patch Craze?
What happened was a unique combination of viral, word-of-mouth, marketing and scarcity. There were only so many dolls manufactured, and a lot more demand than manufacturer Coleco ever expected. Couple that with the Christmas frenzy, and voila!! People were literally begging for dolls. A black market arose – dolls were going for $200 sometimes $300!
See Coleco messed up. When the frenzy began – they should have immediately raised prices. By doing so, they would have captured extra profits and would have stemmed the crazy frenzy (instead of my sleazy next door neighboor who was selling dolls out of the trunk of his car).
This is illustrates one of the most basic microeconomic principles: the interaction between supply and demand, and their impact on price. When supply exceeds demand, there’s a surplus of something – and a supplier will usually drop prices to move excess inventory. But when demand exceeds supply, there’s only two options: make more or raise prices.
What do Cabbage Patch Kids have to do with us, here, today? Well, lucky for me, we’re in a similar situation with the upcoming Superstar Speaking Academy in June. Last year we had 101 people register, and we thought that we would see SOME more people want to get in… but due to a variety of new promotional channels and word-of-mouth, the demand is higher than we expected. Way higher. And so while we had originally priced the event at $197 regular/$297 VIP until May 31st, we need to raise prices SOONER to manage our capacity, which, like the Cabbage Patch Dolls, is limited due to the venue (and we’ve already committed to it).