9/08/2011

Shift in Demand

Kill two birds with one stone. The University of Maryland and Under Armour may have done just that. By introducing a new uniform during their first football game this season, designed by Under Armor, they may have increased demand in both products. The wild uniforms drew a lot of questions and in turn spurred a lot of interest. The uniforms definitely caught my attention, causing me to ask questions and dig deeper into the uniforms. The article, “Under Armour, Maryland Score Marketing Touchdown with Unique Football Uniforms”, found on Forbes.com, gives us insight that both parties received good advertising from the new uniform. However, advertising is only the first step. In order for this to be beneficial it must increase revenue by increasing demand. Is this marketing ploy enough to cause a shift in demand for the parties?

7 comments:

Kevin said...

There is no doubt that this is a clever and sound marketing practice. Is is enough to cause a shift in demand? Yes, but how much of a shift? The University of Maryland is drawing unique attention to itself by having new uniforms with the Under Armour signature. The move influences more Maryland fans to purchase Under Armour apparel. The University will most likely be thought of more this season. It's like Boise State's blue football field or Oregon's colorful basketball court. The key to marketing is to imprint the name or product in the minds of consumers. I think this free advertising is going to increase Under Armour apparel purchases and draw more positive attention to the University of Maryland, which will hopefully in turn result in more students and media attention, which in turn results in more cash flow for a short time.

Dr. Tufte said...

-1 for no title (waived for Block 1). I'd like you to add a title to this Gunny.

Ooh. The thinking here is good, but the jargon is poor. No one likes jargon, but we use it to be precise about what we mean ... so it is important for me to point it out when I have an opportunity. In this case, I think Gunny means "increasing quantity demanded" not "increasing demand". A lot of people use the latter, but does it really mean anything if demand is a line or curve? How do you increase one of those? Clearly, Gunny partially recognizes that by switching to the word shift in the next sentence.

As to the economics, it only makes sense to want to shift demand to the right if it increases profits, not revenues. This is a common mistake in the business press, and often of managers as well (usually because it's easier to give incentives for sales rather than the bottom line). Anyway, changes in profits depends on both the shift in demand and the slope of supply (marginal cost). This is why we spend a lot of time on these things in principles of microeconomics and managerial economics — it just isn't that straightforward to show that an increase in word-of-mouth advertising is a good thing.

Kevin is a little more careful, but in a different way. Notice how his position focuses on marketing and finance (the focus on cash flow at the end). Both of these are great, and no problem here ... but they don't make the same mistake as in the original post because Kevin isn't specific about the economics.

Jack said...
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Jack said...

This marketing strategy will increase the quantity demanded of under Armour products. At least for short term gains.
How much will this marketing strategy increase the demand for under Armour? What will Nike do to compete? Will they also market in the same way? If Nike markets in a similar way then under armors sales may not increase as much as expected. What other substitutes might affect the quantity demanded and profit of under armors marketing campaign?

Dr. Tufte said...

Jack's point about Nike is why we cover strategic thinking (game theory) in Chapter 10. This is probably the most difficult chapter in the class (certainly in Aplia), but it's also rich, meaty stuff that students like to try and work through.

The case with Nike is very likely to end up as a prisoner's dilemma.

Recall that prisoners' dilemma is a situation where two parties get an outcome based on their individual decisions, and the best choices by the individuals lead to the worst outcome.

In this case, Under Armour only benefits if Nike does not do the same thing. But, of course, Nike does want to (and probably will) do the same thing. When they both do the same thing, they'll both end up losers: they will have spent money for word-of-mouth, but had all the potential revenue they might have gotten cannibalized by their competition.

Farva said...

Nike has done the same thing. I was watching an ASU football game last week and remember thinking that their new uniforms and helmets were kind of catchy. After reading this post I googled it to see if it was another one of Under Armours attempts but wasn't surprised to see it was Nike's doing. Nike did it last year with Oregon and has recently announced that they have contracted with Arkansas. Here is the article: http://abcnews.go.com/blogs/lifestyle/2011/04/new-nike-uniforms-take-asu-by-surprise/

Dr. Tufte said...

One of the cool things about economics is that tools can be applied to make forecasts that have a better chance of being right than those from other social sciences!