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March 27, 2017 March 27, 2017

Studying supply and demand in tea market

Posted on February 9, 2017 by Taber Times

By Nikki Jamieson
Taber Times
njamieson@tabertimes.com

A couple of weekends ago, I found myself spending $70 on tea.

It wasn’t even on many individual types of tea. It was all one this one big massive tin of tea.

While I was a little hesitant to be buying so much tea in one go, after an internal battle I decided that I didn’t care. It’s my favourite blend of tea, I’ve only been able to find it in the summer the past couple of years, and that tin will last me for a year.

It’s a pretty good idea for that tea company though. Capitalizing on the recent resurgence of tea popularity, they release limited editions blends throughout the year, and it’s always a gamble whether they bring it back or not.

So if you find yourself just loving one of those fancy teas, you end up going to every store you can find to stock up, before it is all gone.

Personally, I’m hoping they will make it a regular blend. But then people like me won’t buy the $70 tins, just the more reasonably priced small bags.
Then again, we might make more trips, and buy other stuff as well.

In university I had to take some economics courses. One of the few things I remember from them is that scarcity of a product drives up demand. If people know there is only a finite amount of something, chances are, the bigger demand there is for it. Case in point; my tea. Although I have a lot of tea, about 300 grams, if it was available all year round, would I have bought so much in one go?

Although in most cases, supply and demand tend to meet at an equilibrium, or when a product costs this much, demand most be this much for there to be enough of a product to meet the demand for it.

If it costs too much then few will buy it, but too little and you can’t produce enough to meet the demand. Scarcity of a product tends to screw this model.

Under the scarcity principle, the supply and demand don’t meet at an equilibrium, so it says the price of the good must rise until one is reached, even if it means only a few can pay for it.

If something is scarce or hard to come by, it is seen as more valuable by those who want it. A good part of the reason why diamonds are so expensive is because the supply is so restricted.

Oil is less expensive when refineries around the world let it flow onto the market — even if it never really is reflected at the gas pumps — but when less people produce it, the price skyrockets — which unfortunately does show at the pump, totally unfair in my opinion.

Creating scarcity has been an ingenious plot for companies since the words ‘For a limited time’ had first been uttered. But what has been a greater achievement was making something, changing the colour on it and then sticking a special edition sticker on it, while charging twice as much for it. It’s still the same thing, but because of the perceived value of it, people will pay more for it.

It’s the same with beloved childhood classics, which disappear for a few years and then return ‘newly restored’ with extra scenes, behind the scenes and new features. While exceptions may be made in some cases — we did go from tape to DVDs to Blu-rays and digital downloads very quickly — do you really need four versions of it, just because one had director commentary, another ‘The Making of…’, one with deleted scenes and one with a new song?

Of course, getting a lot of money for something doesn’t mean much if not many people can buy it. For instance, if you make 1,000 copies of a limited edition movie poster, but only 80 people buy one because they are so expensive, it’s not very smart. Reduce the price by a bit, and more people will buy it. And just because something is scarce, it doesn’t mean that everyone will want to buy it. For instance, if you had a rare teddy bear, you would have to find the right buyer, since the average person wouldn’t want a $5,000 stuffed animal.

And although in some cases it is a marketing ploy, in others there is reason to the madness. I mean, would anyone really drink egg nog, a well-known winter-holiday drink, in the summer? And why bother test-driving new flavours for ice cream when it is 30 below outside? No one is eating it!

And in some cases, the originals are always the best — just look at the Star Wars franchise, the first three movies will forever remain classics, while some people like to believe the prequels don’t exist. Granted, the franchise can be found everywhere that sells movies, so it’s not scarce, but remember that childhood movie that I mentioned earlier? Star Wars could go down that same route so quickly.

Chances are, I will continue to buy my $70 tea tins when said tea is available. That doesn’t mean I won’t stop hoping it becomes a permanent edition though.

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