When Demand Shifts, Pivot, Whether Buicks or Chips

Marketing Viewpoint by Ruth Winett

When Demand Shifts, Pivot,
Whether Buicks or Chips

Balancing supply and demand is more challenging than ever, and price changes often disrupt the balance!

Balancing supply and demand has always been challenging in industries with long lead times, such as the construction, pharmaceutical, and automobile industries. Dramatic disruptions, such as Covid and high prices, are also affecting the delicate supply/demand balance in the electronic vehicles, snack foods, and office space industries.

When Supply Exceeds Demand—Electronic Vehicles (EVs) and Office Space

Car manufacturers have invested heavily in the production of electronic vehicles at the expense of traditional vehicles. In Q2, 2023 EVs accounted for “1% of vehicles on the road in the US” or “2.7 million new and used electric cars,” according to an Experian survey reported in Edmunds.com. This is an increase of a million EVs since 2022. However, for Volkswagen, Buick, and even Tesla, demand for EVs has been disappointing.

Although EV prices have fallen, demand for EVs has been lackluster. Among the reasons are battery problems (Volkswagen), limited ranges, costly home charging equipment (up to $1,600), scarce public charging stations, and lengthy charging times, especially in freezing weather. In early 2024, “the average price paid for the average new EV is $50,798, just 4% higher than the overall new car market average” [$48,844], according Ccaredge.com. Although EV prices have fallen, a $2,000 premium is significant.

The oldest GM brand, Buick, had hoped that the introduction of Buick EVs later in 2024 would increase its US market share. Buick’s US market share had dropped from 2.6% in 2002 to 1% in 2023.

Faced with declining US demand, Buick has shrunk its US offerings to just four models and has offered to buy out smaller dealers. Forty-seven percent of the dealers approached accepted the buyout: Many could not pay $200,000 to $400,000 to install equipment for servicing EVs and training staff. In late January, 2024, Buick announced it was pivoting to hybrid vehicles, a model that should appeal to Buick’s more conservative target market.

Another widespread example of excess supply is the market for office space. Covid accelerated a pre-existing trend; companies were already shrinking the sizes of their offices. San Francisco once had a shortage of office space but now has a surplus. This imbalance in cities everywhere negatively impacts office space owners, plus realtors, office space developers, and construction companies.

When Price Increases Affect Demand

The third leg of the supply/demand triangle is pricing, which can be both a cause and an effect of supply and demand imbalances. Following a breakdown in contract negotiations, Carrefour of France recently stripped their shelves of PepsiCo products, such as Lay’s Potato Chips and Quaker Cereal. PepsiCo had raised prices by 7%, nearly double the 3.7% French rate of inflation, triggering consumer resistance. Consumers in France have become “more selective” and are looking for “value,” explained PepsiCo’s CFO.

= Stripe Chewing Gum and Final Thoughts= While you cannot fully anticipate the future, you can gather information so that you will not be caught unprepared. Note economic trends; talk to your customers; and observe changes in their preferences and behavior—what they use/do, whether their purchase habits have changed and why. In addition, offer more than one product or service to protect yourself if demand falls for one offering. With more offerings, you have more flexibility when circumstances change. Invest in inventory management technology that will alert you when demand has fallen. Finally, keep in mind your company’s capabilities and its financial requirements, and if necessary, change plans. Pivot as Buick is doing.

When customers have lost interest, it could be time to abandon the product. Stripe fruit flavored chewing gum has been discontinued by the Ferrara Candy Company after a run of over fifty years. “…We considered many factors…, including consumer preferences, and purchasing patterns — and overall brand trends for Fruit Stripe Gum,” Ferrara Candy said. Will Buick make a similar decision in the US?

Sources:

https://www.electrive.com/2022/09/26/volkswagen-to-recall-10k-electric-cars/.

https://caredge.com/guides/average-price-of-an-electric-car-2024.

“Losing Its Juice,” The Boston Globe, Hiawatha Bray, 1/5/24.

“What Is the Percentage of Electric Cars in the U.S.?” www.edmunds.com.

“French retailer drops PepsiCo products,” Boston Globe, Liz Alderman (New York Times) 1/5/24.

“Pepsico, Carrefour Point Fingers,” Wall Street Journal, Jennifer Maloney, 1/9/24.

“Retailers Shift Inventory Strategy,” Wall Street Journal, Liz Young, 1/25/24.

https://www.nbcnews.com/news/us-news/fruit-stripe-gum-discontinued-54-years-rcna133400.

“Gas-Engine Models Boost GM’s Outlook,” Mike Colias, Wall Street Journal, 1/31/24.= Actionable Business Insights

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