At first glance, you might think that Rivendell bikes are 20 years old. They are nothing like the modern bicycles. Instead of titanium and carbon fiber, they are made out of steel. Rather than electronic gear shifters, they still have mjavascript:void(0)anual derailleurs. And yet a cycling enthusiast goes crazy when he sees one of these bikes. In fact, each one of these bikes sells for $1,300!
The Rivendell bikes are manually made. But that still doesn’t justify spending $1,300 over it when other manual bikes are available at a cheaper price. And to buy one, you have to fill five lengthy forms! So why would any one pay $1,300 for a bike that isn’t as good as other modern ones? Because the “Rivendell bicycle works” have perfected the art of scarcity. They cap the total number of bikes supplied. They don’t sell more than 600 bikes a year.
But Rivendell bicycle works have not only decreased supply. They have also increased demand. They publish a quarterly magazine called the “Rivendell Reader” that contains everything from medical advice for cyclists to essays on good riding. The subscription costs $20 a year. And they have more than 6,200 subscribers. Imagine having 6,200 subscribers who know that there are only 600 bikes to be sold? The competition to get a new Rivendell bike is intense!
But that’s not all. Rivendell bike also sends a catalog that sells bike parts and other Rivendell accessories. Everything from rain capes and woolen pants to tools and handlebars. As people can’t buy the bikes, they buy the accessories instead. In fact, on an average, each subscriber spends 260$ per year! And they all are walking advertising machines for Rivendell. They showcase the products and accessories increasing the demand!
Action summary:
* Decrease the supply. Increase the demand. And then you can increase the prices. You can make less number of products but still earn higher profits.
* Spread the word of your company by selling accessories. Give people a chance to buy your company shirts instead of Nike ones. Make your accessories cool so that people would buy it and more importantly: show it to their friends.
* Build loyalty by publishing a newsletter. Send useful information to customers from time to time and they will end up buying more.
