The Hindu Business Line : Dynamics of scarcity

THE DOCTRINE of supply and demand lies at the root of market economics. Profitability requires scarcity, which is a consequence of confidentiality and uniqueness of the knowledge about the product. The more abundant the supply of a product, the lower will be its price. The more scarce the supply — and granting that competition is held back by barriers such as patents, expertise, and so on — the more likely the product will generate profit.

When there are such barriers, the price of a product will no longer relate directly to its cost of production, but rather to the customer value. In turn, this will relate to the product speciality and uniqueness, or to the cost that the customer would otherwise incur due to the scarcity and unavailability of the product.

In the pharmaceutical industry, for instance, there may be a big demand for a particular drug for which a company may have the patent. If there are no substitute remedies ready in the market, then that drug can very well be the bread and butter of that company.

Commercial organisations, therefore, focus on those opportunities wherein they can benefit from scarcity vis-à-vis keeping a keen eye on the market demand. In order to make successful strategic decisions in business, it is essential to develop an insight into and an understanding of how, why, and where does scarcity occur. And then, pursue with people — their skills and talents — to deliver new sources of customer value that are unique and difficult to replicate.

The concept of value innovation, which builds on customer preferences, is fast gaining ground in the market. What matters to customers is not simply the variety of choice and plurality of products, but rather the need to redefine the market in ways that produce powerful and distinctive products, and deliver them at the right place, at the right time, and at an affordable cost.

The Internet enables an organisation to anchor on market and customer information, which directly contributes to creating customer value. The Internet provides every business organisation with the opportunity to capture, store, and disseminate information about customers and their choice. In turn, this enables the corporate to make swift and shrewd decisions concerning the manufacturing and marketing aspects of their goods and services, which promote and provide an enduring satisfaction and value to their customers.

(The author is a Chennai-based freelance writer.)