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Supply and demand

We all like to believe that we are pretty shrewd operators and that whenever we buy something we get it at a fair and reasonable price. This is great in theory, but what actually constitutes a 'fair and reasonable price'? Let us look at just one example of a price that could be considered absolutely outrageous; a fictitious anti-cancer drug called 'Overpricedferin'.

Overpricedferin is a drug which treats a rare form of cancer and it typically extends the life of the average sufferer by about one year. A full treatment of the drug costs around 25,000 and there is a very good reason for this price tag; it allows it to under the maximum 30,000 which the UK drug regulation body, NICE, considers reasonable for an extra year on a sick person's lifespan. This drug merely extends a lifespan, and does not cure the underlying illness but merely postpones its effects, and it delivers pretty awful side-effects to those who are forced to take it but despite that hundreds of thousands of cancer sufferers clamour for it and demand that their doctors prescribe it for them. In the United States where there is no national health service cancer sufferers have remortgaged their homes spent their retirement nest eggs in order to have access to this drug. The cost to the manufacturer of producing it? About 100 for a course.

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The manufacturers of Overpricedferin argue that they have had to spend a huge amount of money in order to not only develop the drug but also to test it and ensure that it was safe, and there is some merit in their arguments. But they will not state however that this sum is absolutely dwarfed by the amount they spend on actually marketing it, with lavish sales literature, heavy advertising, expensive conferences to which they invite top medical practitioners etc.

If, on the other hand, several more drugs were developed which had the same effect as Overpricedferin and the price would fall for the simple reason that more companies would be competing against each other to provide a product to consumers who, because of their very limited life expectancy, would be unlikely to buy another product as well. If an effective cure was discovered for this particular cancer the price of Overpricedferin would fall even further as sales slipped towards Zero!

We have now discovered the first law of marketing; every product on earth is worth what most people would pay for it, and what the supplier would accept for it; the law of supply and demand.

Copyright zdintelligence.com 2007