Why does Li Jiaqi limit the quantity and price of goods when selling through live broadcasts?

This article briefly discusses an interesting marketing issue: why are there price or quantity limits in some marketing activities, and why do some products that do not adopt price or quantity limit strategies suddenly collapse? Then summarize general rules from special phenomena.

In microeconomics, there is a principle of supply and demand balance. The higher the price of a commodity, the higher the supply of this commodity in the market. A curve drawn in rectangular coordinates that shows the supply changing with price is a smoothly rising curve. This is the supply curve. The higher the price of a commodity, the lower the demand for it in the market. The curve of demand changing with price is a smooth downward trend. This is the demand curve. The intersection of the supply curve and the demand curve is the equilibrium price of the commodity, which means that when the price of the commodity is at the intersection, the supply of the commodity is equal to the demand.

The entire microeconomics is naive, and this principle of supply and demand equilibrium is also naive.

The actual situation is:

1. As long as the profit margin of a certain commodity reaches a certain value, the supply of this commodity will increase sharply, but the supply does not always increase smoothly.

For example, when the profit margin of a product is only 5%, everyone thinks that it is just a business that can make money, but not a business that can make money easily, so few people do it. But when the profit margin of this product grew to 15%, everyone suddenly realized that this business was very profitable, and the news spread very quickly. As a result, suddenly a large number of people began to supply this product, and the supply of this product increased sharply.

2. Changes in supply quantity require reaction time, and the reaction speed of supply quantity of different commodities is different.

For example, it may take about two years from the start of pig farming to the time the pigs are put on the market. Because the price of pork has skyrocketed, people all over the country suddenly start raising pigs in year A. Therefore, it can be predicted that the supply of pork will surge after A+2 years. However, if the supply of pork obviously exceeds the demand for pork after A+2 years, the result will be that the price of pork will plummet in year A+2. So what happened was that the group of people who decided to raise pigs in year A found out that they had lost all their money when they were finally able to sell pork two years later.

3. Once prices start to fall, it is difficult to reduce supply, while demand drops sharply.

As the price grows, more people will follow suit, supply will increase, and demand will increase. Until demand growth stops. Once the price falls, the supply will stop increasing but will not decrease until the price falls to the loss-making line, at which time the supply will decrease. Once the price drops, the demand will drop sharply because everyone is waiting to see how low the price will fall. If the price has not fallen to the right level, everyone will feel that the earlier they enter the market, the greater the loss.

4. Once demand begins to decrease and demand is less than supply, the market may face a collapse in prices.

Since there are often a large number of suppliers supplying a product, price is often an important factor affecting demand. Once a supplier decides to cut prices due to intolerance, it will easily lead to other suppliers following suit. Since everyone's price cuts are the same, the distribution of market share will be no different from before the price cuts. The result is that some suppliers will continue to lower their prices until other suppliers can no longer lower their prices.

The above four points determine that if the price or supply is not limited, once the supply exceeds the demand, the price will easily become disordered.

In May 2019, when Hong Kong was not yet in chaos, some hotels in Hong Kong cost around 1,500 yuan per night. By October 2019, they only cost around 500 yuan per night.

The price of Dong-E E-Jiao once increased 20 times in eight years, but in the past year, even though the price plummeted, sales have not kept up. This caused the listed company profits of Dong-E-Erhu to drop by 70%, and its stock price plummeted.

Therefore, the generally wise idea is to limit prices and limit supply. The fundamental goal behind this is to ensure that supply is less than demand . This is the only way to keep supply and demand balanced.

There are always long queues for Nayuki’s Tea in some popular shopping districts. Since there are always a lot of people queuing up during most of the business hours, opening multiple service desks can solve the queuing problem and thus accommodate more people who would have otherwise left because they were unwilling to queue. However, Nayuki Tea never does this, which is to limit the supply.

I have been drinking Coca-Cola for more than 20 years, but the price of Coca-Cola has never increased in these 20 years and its value has remained stable. In the past 20 years, Chinese people's purchasing power has increased several times. Hot dry noodles have increased from one yuan to five yuan, while Coca-Cola is still two yuan and fifty cents. This is the limit price.

By understanding the principles of price and quantity limits, we can know how to control the price of an emerging product or service.

When Li Jiaqi sells goods in his live broadcast room, he always limits the sales volume of each item. He predicts the demand in advance and then takes an insurance sales volume to ensure that these things can be sold out.

What happens if there is no limit on quantity or the so-called limited edition is not actually sold out?

Assuming that the traffic for a certain product display in Li Jiaqi's live broadcast room on a certain day is 1 million people, according to estimates, the potential demand is at least 3%, that is, if there is no limit on quantity, there is no problem with a 3% purchase rate for this product. However, the quantity is limited to 10,000 pieces, which means that the actual supply is only 1%. So two-thirds of the people who want to buy it actually can’t.

If the limit is set to 40,000 pieces now, the product can be sold in as many pieces as possible, and the more it sells, the more money you make. However, it is found that the product is not actually sold out because there are only more than 30,000 people who want to buy it. Then those who chose to rush to buy this time will not choose to rush to buy next time, because they know there is no need to be so anxious. The result is that the product cannot be sold out quickly. The result is that the rush to buy has lost its meaning and people no longer rush to buy. The end result is that people’s enthusiasm for purchasing in Li Jiaqi’s live broadcast room has decreased.

Therefore, the movie "The Gathering at Southern Station" held ticket sales activities in Li Jiaqi's live broadcast room and Kuaishou respectively. The leading actors were also present and the discount prices were also very favorable. In just a few seconds, Li Jiaqi's live broadcast room sold the original 150,000 tickets, and the number was temporarily increased to 250,000. With 5 million views on Kuaishou, it took 10 minutes to sell out the planned tickets. Essentially, it is a difference in operating strategies. Li Jiaqi has long followed the marketing thinking of limiting quantity and price to ensure that supply is less than demand.

Now let’s take a few true or false questions. Are the following marketing decisions right or wrong?

1. An egg-filled pancake shop is located at the gate of a university. It became an Internet celebrity shop due to a netizen’s Weibo revelation. There are always more than ten people queuing up to buy the pancakes. The shop owner decided to hire two workers to improve production efficiency. The shop owner believes that this will hopefully ease the situation of the original ten-person queue and attract more people who don't want to queue to buy, thereby increasing profits. Is the store owner's decision right or wrong?

2. A certain self-media, through market research, found that if the advertising price was set at 400,000, it could guarantee a continuous stream of advertising throughout the year, and could select 100 out of 1,000 businesses that requested advertising cooperation in one year. If the advertising price is set at 800,000, only 60 ads can be placed. The boss of this self-media decided to set the advertising price at 800,000. Is the boss's decision right or wrong?

3. An e-commerce platform is holding a mobile phone promotion campaign in rural areas, offering a subsidy of 500 yuan for the purchase of designated mobile phones priced at more than 3,000 yuan. In fact, the platform only loses 10 yuan for each phone sold, and an average of 50% of the users brought in by the sale of the phone will become loyal users of the e-commerce platform and bring 100 yuan in profit to the platform within a year. If there were no limit, this event could sell 100,000 units. The event organizers now face the choice of whether to limit the number of units to 70,000 or 150,000. The person in charge finally made a decision to limit the production to 150,000 units. Is the decision of the person in charge right or wrong?

————————————Think before looking at the answer————————————

Question 1: Wrong

(Although you can earn more in the short term, because you meet the demand too quickly, as demand decreases, it will immediately create an impression of being outdated, thus reducing passers-by's willingness to buy. And the additional costs due to the increase in manpower cannot be reduced quickly.)

Question 2: Wrong

(Although it seems that there are more transfers, due to the high prices, advertisers are more likely to lose money, and will be able to accept fewer ads in the future, which will lead to a situation where there is a price but no market.)

Question 3: Wrong

(E-commerce platform is a long-term project, which requires a large number of activities. We cannot just care about the gains and losses of a city or a place, but we must consider the long-term benefits. If the limited quota of this activity is not used up, it will damage the reputation of future activities. It will also overdraw the enthusiasm of users to participate in other activities in advance, making the effect of other activities reduced.)

Author: Jiang Liu

Source: Jiang Liu (leo2010water)