Tuesday, September 27, 2011

High End, Low Prices


Target is a higher end discount store, that often has well known, upscale designers come in and create an exclusive line available for a limited time at unheard of prices.  When the Missoni collection became too big for even Target to handle, their website crashed and were unable to meet the demand.  This not only lost revenue, but also customers.  They put a lot of effort into advertising the event to increase demand for the product.  Such advertising included ads in Vogue, a popular high fashion magazine, and even creating a temporary store in New York at the beginning of fashion week.  This advertising drew much attention, and Target didn’t supply enough for the demand.  With their lack of supply Target lost precious revenue.  Had they either raised the prices or increased the quantity supplied, Target could have benefited from the demand they created.  When customers’ demands weren’t being met, their frustration increased.  Even orders online were delayed or deleted all together.  Customers are turning from away from Target to buy and sell the same goods on eBay for twice the price.  This secondary market, along with Target’s website crashing within the first twenty four hours are prime examples of excess demand.  This affirms Target’s need to readdress the demand curve for their Missoni goods to gain revenue and customers.  

5 comments:

Stephen Renard said...

If you were in charge of Target, what would you do to fix this problem? It's a good idea for Target to have items that are limited in quantity and are appealing to the public.

Anonymous said...

If I were in charge of Target, I would have created a larger initial supply. Target prides itself on its low prices that draw people into not only their clothing but to all of their departments, so I don't think raising the price should be the answer. Raising the price would decrease the clothes consumers which would in return decrease consumers of their other departments. The Missoni collection for Target created a gold mine and if the supply can meet the demand, the maximum profit will be made.

-Katherine T

Christina B said...
This comment has been removed by the author.
Christina B said...

Katherine, I found this very interesting and I certainly agree that target is a higher end discount store. I find myself shopping at target for certain pieces of clothes due to the low prices they offer, and I can certainly understand the large demand for the clothing collection. Since there was such a heavy demand but a low supply of the goods, the price was below equilibrium. This means the price was set too low, and Target and Missoni were not able to keep production up to meet demand. The low prices got buyers’ attentions and encouraged them to purchase more of these goods and increase their demand. By observing this excess demand, Target should have raised the price of the goods in order to get closer to the equilibrium price. I understand that the low prices draw consumers to Target, yet keeping the prices for the clothing where they are now will not benefit Target. They don’t have to drastically raise the price, in fact that would discourage buyers, but I believe that slightly increasing the price would bring them closer to equilibrium.
- Christina Bowman

kat3201 said...

Christina, I agree that the suggested economic decision would be raising the price, but it would have to go hand in hand with greater production. Even slightly raising the price wouldn't have an effect unless there was enough supply, but I agree with your opinion and value your input!