Tuesday, October 07, 2008

How Supply fails Demand | Pots of Honey

So what plagues local business? In many cases it's the same problem we have in politics as well: there simply is the wrong paradigm. It is self-centered, rather than being other-centered. Or, if that sounds too much like marriage counseling, let's put it this way: too many sellers try to solve their own problems, rather than those of other people. Nothing wrong with that, but it's not how you can succeed in a market. After all, who likes to spend their money on other people's problems? Charity is not a business model, at least not in retail.

Now in the last few days, an email exchange that perfectly illustrates this problem. (Note: I changed names, and the person is not even local. But it demonstrates the perennial problem.)

Dear all,

Many of you have purchased honey produced by my in-laws out close to Bakuriani. This year we have a bumper harvest and I can honestly say that the honey is even more delicious than ever. Its great with tea or over hot cereal and is especially effective at warding off colds. Most of the honey sold in the bazroba is adulterated with sugar water, but the one we offer is all natural. Price is 15 GEL per liter [around 10 USD], different sizes can be arranged.

Please contact me off list or call XYZ at 877-1234567 to arrange delivery.



From: Hans Gutbrod
Subject: Re: honey for sale

To: Anna

Date: Saturday, October 4, 2008, 12:19 PM

Hi Anna,

I really liked the honey, but I think you'd market it more effectively if you sell it in small doses. The 1.5 Litre pot that I bought last year (or even the year before?) is still sitting in my apartment, and I am still scraping it...

I think if you sell it in 250g jars, maybe with a small cute label, for 6 GEL, with 1 GEL going towards the charity your husband runs, you'd have even more uptake.

Anyway, I'd happily take 4 jars of 250 g each, and would pay extra for the jars.


-------- Original Message --------

Subject: Re: honey for sale

Date: Sun, 5 Oct 2008 12:21:00 -0700 (PDT)

To: Hans Gutbrod

Hi Hans,

I've sold small jars in the past at the Christmas bazaar, but it's really not worth our time, not to mention the mess.
We have 2 tons of honey this year! If you'd like 2 half-liter jars, I can do that.



So effectily Anna (not her real name) is trying to solve her problem of 2 tons, rather than my problem of how to consume that honey.

Pooh the Bear would be impressed.

Note the maths: 4 x 250g @ 6 GEL = 24 GEL; subtract additional cost for label and jars, and you still could make more than 20 GEL, an extra 5 GEL on the 15 GEL per liter. And that price is realistic, since the market that Anna is advertising to is NOT price sensitive, merely focusing on quality and convenience.

At least as important, Anna is cutting herself off from a natural extra market: honey as a nice gift in and from Georgia. A small, well-labelled glass of honey works well, it's a present that anyone would like to give and receive. Conversely, who will schlepp 1 liter pots anywhere?

These giant pots of honey to me are emblematic of why supply so often fails to meet demand. Sweetness undesired, at least in that shape and form. No wonder, then, that you still have so much foreign honey lining local super-market shelves. I sometimes even wonder whether these little stories and lessons are not at least as important in characterizing the business malaise than the larger economic explanations.

Any other instances you have come across? Any suggestions for how we could measure this phenomenon?


Eistein G. said...

Dear Hans.
Fortunately I know the "honey-business" quite well. A cousin of mine have some bees in northern Norway. Every year he sends me a litre in 4x250 g jars. It's not worth the trouble of course. Now his businesmodel is to get in to the stores with his product. Then he only have to mess around filling the small jars but can deliver a big quantity in one deliverance with a volume discount for the shop. The shop sells it and he collects his money at delivery and dont have to spend time selling it.

Now his problem is that he has high quality but a too low volume and thus too high price to compete with the big producers that delivers to the chainstores. So he mostly end up with selling medium quantities to smaller shops. It goes without saying that he looses money on this, still his compulsive obsession about bees and honey keeps him repeating this bad business year after year.

I will suggest for him to sell jars at 1 litre or more. That way he can loose money without all the mess :-)

HansG said...

well, you see the problem is that too many beekeepers think they should sell honey. That is their mistake.

Instead, they sell sweetness. Natural, considerate. A small glass, a nice label, something to make you feel good, and to make you feel good when giving it as a present...

Paul C said...

too many sellers try to solve their own problems, rather than those of other people. Nothing wrong with that, but it's not how you can succeed in a market.

Interesting - actually I think that's exactly how a lot of successful businesses start. In this case the problem is not that supply fails demand, but that these honey-folk are failing to market their product effectively...

I would offer to take a jar off their hands, but there's enough of it already in my part of the world..