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Berkonomics

Demand pull – cost push.

Place your cash bets behind proven demand.

The term, “demand pull – cost push” was created by the great economist, John Maynard Keynes, to describe the two primary drivers of economic inflation.  Demand pull: too much demand for a product or service and not enough supply cause a competition for the product that drives prices higher without increasing the intrinsic value of the product.  Cost push: labor or parts costs increase, causing the product or service to be priced higher without adding intrinsic value.  As a student of economics, I studied Keynes and his many theories of macro and micro economics, but this one kept returning to me as an excellent way to describe a completely different business principle.

All of our enterprises have limited resources, even the largest of the Fortune 500, and especially the smallest of competitors in a market.  Most new product introductions are planned with a broad campaign aimed toward the whole of the marketplace, committing resources such as money and manpower to the effort.  I have learned over the years that this may not be prudent.  Instead, seeding various segments of the market, vertical niches, with focused attention in form of marketing and sales efforts, will quickly yield positive results from some niches and perhaps no interest from others.  It is upon the moment of understanding which niches respond positively to the new offering that a company should push costs into increased marketing and sales efforts into those niches, concentrating fire power and overwhelming the niche, instead of making few waves in an ocean of broad opportunities and becoming lost in the process.  To describe this, Keynes comes to mind. Push the costs into market niches where you seed your marketing, and experience the pull of customer demand as a result.  Cost push – demand pull.

  • Dave, I agree 100%.

    In my first sales/marketing role in a start-up BU inside a small business, I had to launch a new product with very limited resources (the data sheet printing was a large expense 🙂 ) I decided the only way we could be successful was to use this approach.

    I targeted key influencers in their segments (before the term early adopters and chasm were coined) and our efforts were incredibly successful. In my next role in a larger BU inside a $1B company, I learned that these segmented markets can have their own “language” in how they describe their marketplace and the more your collateral uses that language, the more you can accelerate adoption rates for your product.

    I have some specific terms that I use to describe this method; let’s discuss at our next joint meeting.

    Keep up the posts, I forward them to entrepreneurs all the time!

    Thanks,
    JP

  • Part of the trick, too, when introducing a brand-new product or service into the marketplace, is knowing how much to charge. This can be difficult when you have no baseline for comparison. A company for which I did marketing introduced a new service and we found we had an immediate demand — unfortunately, we didn’t price our service high enough and managed to lose money on every project we did in the initial rollout. In retrospect, we should have done cost-plus pricing (since the major portion of the service consisted of aggregating and reselling other vendors’ products), but we were neophytes in the area we were getting into. Obviously some primary research with our target customers would have helped…

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