Sunday, June 03, 2012

Signal Strength

I made a mistake common to all inexperienced entrepreneurs: I ordered too much of certain items and too little of the ones that customers wanted.

I thought that carnival-goers in our middle-class 'burb would not pay $3 for premium ice cream, so I only bought a few cases of Magnum bars, which sold out quickly. I thought that the $2 It's-It sandwiches and bars from Fremont's Wonder Ice Cream would move because they were a better value; alas, the customers didn't react as I thought they would.

Two actions allowed us to end up with a small profit, even after paying for the booth fee and equipment rental: 1) we bought boxes of additional Magnums from local merchants to replenish the high-end inventory; 2) we immediately marked down some of the $2 items to $1.  Unit sales picked up. Still, at the end of the weekend we were stuck with 10% of the original order; it's now sitting in the pre-school freezer.

Our experience was a microcosm of how the free market works: first, producers guess what the market wants; second, customers react to the offering; third, business people read the customer signals and change prices, quantities, and product mix.  The motive for producers and consumers is un-virtuous profit,  but the cycle seems to work a lot more quickly than in a planned system that changes every two years (at best) on election day.

But enough heaviness: today was perfect for sitting on the grass (with an ice cream bar) and enjoying the music....

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