Economists Please

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Originally Posted by airshifter

This is a much more correct statement IMO than Ioan's view of more product creating waste. Consumers will flock to any product most of the time, it just has to be available to them. And a company that always has extra inventory is much less likely to miss out on sales, while the company that lets inventory fall too low watches profits walk away when that product isn't sitting on the shelf.

Product saturation into the market creates both on hand inventory and visual advertising impressions, and both are a good thing.

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Depends on the POV of each.

Your POV is that marketing is great and people need all the crap that they see advertised.
Mine is that we don't need even 50% of what is produced nowadays.

You're looking at having economic growth no matter what.
I am looking at having a sustainable and well balanced model that will make it possible for my grandchildren to see what real nature looks like.

Each to his own, but one is wrong IMHO.

It's usually best to slightly under produce, as you know you are going to sell each unit you produce, and a slight shortage is often good for marketing, just as long as it's not too much or your customers will seek alternatives.

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Originally Posted by ioan

Depends on the POV of each.

Your POV is that marketing is great and people need all the crap that they see advertised.
Mine is that we don't need even 50% of what is produced nowadays.

You're looking at having economic growth no matter what.
I am looking at having a sustainable and well balanced model that will make it possible for my grandchildren to see what real nature looks like.

Each to his own, but one is wrong IMHO.

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airshifter didn't endorse that model of business. He just stated how it works in the real world while you stick to an ideal model. That's the difference.

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Originally Posted by Rudy Tamasz

airshifter didn't endorse that model of business. He just stated how it works in the real world while you stick to an ideal model. That's the difference.

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I thought I made it clear that it depends on the POV.

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Originally Posted by Starter

There is a happy medium between under production, with the resulting loss of sales and higher cost per unit and over production, with a resulting glut of product forcing drastic price reductions to move it. Successful companies operated there. The others go belly up.

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This whole debate about over vs underproduction seems silly to me as it depends entirely on what market you're operating in.

For expensive products production should exactly match demand as items are made to order.

For most products production levels should slightly exceed demand to cater for DOA items and to ensure market share is not lost purely due to unavailability of items. Once the production line is set up the cost of producing more units is only a small part of the overall cost of development and production for a particular item so it makes sense to produce more than required. Also if excess stock is left over that is often not the manufacturer's problem but the retailers'

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Originally Posted by ioan

Depends on the POV of each.

Your POV is that marketing is great and people need all the crap that they see advertised.
Mine is that we don't need even 50% of what is produced nowadays.

You're looking at having economic growth no matter what.
I am looking at having a sustainable and well balanced model that will make it possible for my grandchildren to see what real nature looks like.

Each to his own, but one is wrong IMHO.

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The point of view has very little to do with the reality of product production and distribution. I've never said we need all that is produced... you certainly don't need the computer you respond on, or for that matter food purchased at a store. But reality shows that the majority of the world capable of purchasing such things does, and we do so frequently.

Modern production and distribution methods are one of the primary reasons we get products for the costs we do. Producing only on demand would drive prices up greatly, and be much less efficient of all resources involved. Many of the everyday items we purchase cost next to nothing to manufacture, the money spent is more on the supply line, sales and marketing end of the product.

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Originally Posted by Malbec

This whole debate about over vs underproduction seems silly to me as it depends entirely on what market you're operating in.

For expensive products production should exactly match demand as items are made to order.

For most products production levels should slightly exceed demand to cater for DOA items and to ensure market share is not lost purely due to unavailability of items. Once the production line is set up the cost of producing more units is only a small part of the overall cost of development and production for a particular item so it makes sense to produce more than required. Also if excess stock is left over that is often not the manufacturer's problem but the retailers'

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Even in the case of some products which are a "guaranteed sale" to the retailer, the manufacturer more often stands to make greater profits though saturation of the item to ensure that nobody wanting one goes without. The profits on the units sold far outweighs the cost of buying back the units that remain unsold. As often as not the manufacturer convinces the retailer to continue selling the item at a reduced price that is usually still making both of them money while promoting the brand and expanding their potential customer base for future sales.

I do fully agree that for the vast majority of common items that consumers purchase on a regular basis, underproduction is never desired. Starter's point is also quite valid in that overproduction should be trimmed as close as possible, but most industries don't worry about it much in lower cost items. The discounted items often created by such excess allow for potential to expand the customer base by luring them in with the low price.

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Originally Posted by Malbec

This whole debate about over vs underproduction seems silly to me as it depends entirely on what market you're operating in.

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Markets are incredibly efficient at establishing one thing only - Price.

If a major supplier can radically cut off supply to a market, they can massively shift the supply curve to the left. This can have quite marked effects if the demand for a particular good is relatively inelastic. The 1973 Oil Crisis is a good example of this. By shutting off oil wells, OPEC made the prices rocket.

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Originally Posted by Rollo

Markets are incredibly efficient at establishing one thing only - Price.

If a major supplier can radically cut off supply to a market, they can massively shift the supply curve to the left. This can have quite marked effects if the demand for a particular good is relatively inelastic. The 1973 Oil Crisis is a good example of this. By shutting off oil wells, OPEC made the prices rocket.

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That assumes a near dominant share of the market though by a single supplier.

In most market segments there are usually several suppliers available and therefore a failure of one to supply will eventually lead to a loss in market share.

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Originally Posted by airshifter

The point of view has very little to do with the reality of product production and distribution. I've never said we need all that is produced... you certainly don't need the computer you respond on, or for that matter food purchased at a store. But reality shows that the majority of the world capable of purchasing such things does, and we do so frequently.

Modern production and distribution methods are one of the primary reasons we get products for the costs we do. Producing only on demand would drive prices up greatly, and be much less efficient of all resources involved. Many of the everyday items we purchase cost next to nothing to manufacture, the money spent is more on the supply line, sales and marketing end of the product.

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Allow me to disagree, the POV is very important.
You look to it from the POV of the person who wants to get most for his buck no matter the consequences.
I do not share your POV and will pay more for products if that makes the Earth a better place in the long term.
Money is not everything.