Monday, July 22, 2019

Derived Demand and Decision Making

You, me and everyone else makes decisions and mentioned that businesses have some addition criteria they take into consideration when making their decisions, especially regarding what to stock and what events to run and promote. Primary among these criteria is that of “derived demand”.
Stores almost never buy games because the owner wants them (except in those cases where the store owner opens the store because of their love of the game as is the case with a lot of card shops). Store stock games there is customer demand for them, ergo store “demand” for games is “derived” from customer demand for them, hence derived demand.

Derived demand is the concept that business make purchases because of demand for a product or service that is caused by another source. In its basic form, stores buy merchandise for resale that they believe their customers want to purchase. This is why one store stocks WarMachine while another carries Flames of War, while one store has a fantastic selection of independent graphic novels, and another has almost none. Stores purchase products based on what their customers tell them they want by what they purchase.

Case in point Cardfight Vanguard. A number of stores in the St. Louis area do well with it. We do not. I think we have sold one pack in the past 2 months. Every once in awhile we get someone who asks for tournaments and we tell them that we will happily host them when sales show there is a demand for them. So far, demand has not justified any more support for the game. We would like to run tournaments for it and Force of Will and DBZ and Arkham Horror and Flames of War etc. but the sales for them just don't justify us putting in the effort. 

Derived demand is one of the problems that led to Hasting's bankruptcy. As I understand it, headquarters ordered much of the product for the individual stores and did not take into consideration individual demand for pop culture products, especially POP figures and comics, by customers at the stores. Sales of those need very close monitoring else a store can develop a bad case of inventory creep, with product sitting on the shelf instead of turning into cash. A wall of POP figures looks impressive but each one represents money tied up in inventory instead of in the bank account.

Derived demand is also the driving force determining whether a store offers a large number of tables for gaming, with ameninties such as timers, play mats and store provided terrain for miniatures, or just a single table with half a dozen chairs at the back of the store. If customers come in wanting to use playspace, and sales justify making the space available for it, stores will provide the space and upgrade it based on customer demand. Of course, if customers come in and ask for play space but do not purchase the related product to support it, the store will reduce or even do away with tables, opting to use the space to display product and/or services for which there is more demand. It all comes back to the customer.

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