Emo’s Demand Theory
Economic theory is completely wrong.
Supply and Demand.
Two lines intersecting lines.
What people often forget is that supply and demand are the result of many variables.
Demand is “a consumer’s desire to purchase goods and services and willingness to pay a specific price for them.”1
Desire x Willingness = Demand
While “Willingness” is primarily an income constraint.
(e.g. Making $1 million dollars/year, you’re more willing to purchase something than at $50,000/year)
Desire on the other hand is a bit more complicated.
Emo’s Demand Theory states that:
Price x Scarcity x Story x Utility = Desire
Price
In economics, you’re taught that as Price increases, demand decreases.
This is not true.
With the exception of commodity and commodity adjacent markets such as gold, copper, and steel products where value is objectively measured….
If you increase Price enough, demand actually increases.
Why is this?
Well, because of exclusivity and perception of value.
If you go to a cafe and the coffee is $3, “that’s a good deal”.
There’s a line out the door.
If you go to the same cafe and the same coffee is $8, “that’s outrageous”.
Hardly anyone goes to the cafe.
But, if go to that same cafe and the coffee is $15…
You’ll find it populated by rich gossiping wives and people having business meetings.
That cafe just became “the place” where people hang out be “spotted” and be the “who’s who”.
Expensive cafes, gyms, and country clubs exist because high prices communicate exclusivity and perception of high value.
Price causes Demand.
Utility
Utility is the simplest concept to understand.
Utility means your product is used to make customers’ lives easier.
A woman needs something to hold her stuff, so she buys a purse.
A man needs something to tell the time, so he buys a watch.
These items are chosen for their Utility.
Scarcity
Scarcity is not the same as supply.
Scarcity is customers’ perception of supply.
We desire things perceived as “hard to get”, even if they aren’t in short supply.
Humans believe that if a thing is “hard to get”, it must be because other people want it.
Therefore people want that thing, because by having it and other people not…
They can impress others and gain status.
I have friends in the artisan pizza business.
They perpetuate the rumor that their artisan pizza restaurants “only make 100 pizzas a day”.
Customers will line up around the block, hoping to snag one of the first 100...
You may say, “That’s not efficient they should produce more to meet demand!”
Their secret?
The real number of pizzas made is not 100, it’s 150.
Innovative marketers trying digital Scarcity out, their online stores are only open sometimes and they list how many products they have sold of total production.
Scarcity is a question of:
How many products are perceived to be in the market?
Where can they be accessed?
How can they be accessed?
Story
Story is similar to Scarcity, but they are not the same.
Where they differ is Scarcity is a logistical variable while Story is an emotional variable.
Story is the methods you use and values you communicate to create your Story.
If you’re a surf brand that sponsors Kelly Slater or a fitness brand that sponsors Arnold Schwarzenegger…
These sponsorships tell the story that you have credibility in the industry.
Now that we covered how Demand is calculated
Price x Utility x Scarcity x Story = Desire
Desire x Disposable Income = Demand
We must ask the question:
Why do these variables affect Desire?
The answer comes down to evolution.
Humans like to imagine we aren’t animals.
“We’re different!”
But the truth is you are an animal.
Everything Humans do is to attract, evaluate, and choose mates.
Both the reproductive and the “mates” friends type.
Why does Price affect Demand?
Humans evolved to value Price because possession of expensive things indicates access to resources.
Owning expensive things indicates in today’s world: “I have money”.
Why does Utility affect Demand?
Humans evolved to value Utility because it indicates intelligence.
You can buy things that are high Price, highly Scarce, and have a good Story…
But you will be regarded as stupid if those things have zero Utility.
Things with lots of Utility indicate intelligence... we view people with Swiss army knives or toolboxes as intelligent.
Why does Scarcity affect Demand?
Humans evolved to value Scarcity because possessing things that are “hard to get” indicates social intelligence and status.
Owning Scarce things communicates the person has social skills and status that allow them to “skip ahead”.
Why does Story affect Demand?
Humans evolved to value Story because it indicates our values to others.
When finding mates we look for people with mutual values.
So, we use things to indicate our value systems.
Whether it’s a Patagonia vest, a Gymshark hoodie, or a Loro Piana sweater…
We use things with Story as a shortcut to find people that believe in our same values.
We buy things because they indicate our resources, intelligence, status, and values.
https://www.investopedia.com/terms/d/demand.asp#:~:text=Demand%20is%20an%20economic%20concept,to%20decrease%20the%20quantity%20demanded.