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September 25, 2013
Supply exceeds demand
By: Mark McDonald

Supply > Demand? It sounds counter-intuitive to economic fundamentals. But it is becoming a fundamental of business in a digital world and one of the twelve self-evident truths in the digital world. Rising consumer choice and the power of those choices illustrate the shifting relationship, as does the commoditization of products and services.

Technology is intensifying this shift helping to move supply and demand in opposite directions and creating asymmetric markets.

Supply is global as demand is increasingly tribal

From Chinese electronics to Chilean apples, it is increasingly rare that the products are produced and consumed in the same market. The supply chain is global. The combination of international, trade, logistical, managerial and technological innovations has transformed the nature of supply. And the global efficiencies of the supply chain encourage production.

While supply is global, demand is going tribal, as customers define their own markets and associations via shared identity and interest. Digital marketing and social media fracture mass markets into a million micro-segments. We do not live in a market of one, so much as we live as members of multiple tribes, either defined by ourselves or defined by marketers for our consideration.

Technology is creating an asymmetric relationship between supply and demand. The global supply of goods and services is greater than the demand of any individual tribal market. This imbalance is structural so long as supply remains global and demand remains tribal. Any imbalance creates pressure for innovation and change; this is certainly the case for digital technology as it is changing what it means to be a supplier, marketer and consumer.

In a digital world, everyone is a supplier, marketer and consumer

I’ve said before that everyone is an actor on the digital stage. Digital technology gives everyone the tools to play multiple roles. As digital technology connects people and information in new ways, they define new types of suppliers, marketers and consumes.

Digital technology lowers barriers to production and increases supplier and product diversity. Technologies related to digital publishing, collaboration and manufacturing give everyone the means of production. At the same time, business services delivered over the cloud provide capabilities previously reserved for corporations.

Digital improves the chances of finding tribal markets by lowering advertising and search costs. Individuals get to market through services like Etsy, Shopify, Amazon Seller and eBay, to name a few. The net result is a potential explosion in the number of small and mid-size enterprises tapping into a latent desire to produce and enter the market. Micro producers connected to micro consumers.

Consumption completes the cycle. Digital technologies give customers and consumers more information and a greater ability to choose what they want, when and how they want it. This underpins a level of individuality that drives the consumerization of everything from IT, to music to public sector services. Mobile solutions, logistics and information-based services provide products targeted at individual and tribal needs.

Living in a world where we have more than we want

The modern marketplace is one of great diversity and choice. New products and services emerge constantly challenging incumbents and new entrants alike. Choice and supply will increase as digital technology democratizes production – enabling individuals and small teams to compete via apps, 3-D printing, contextualized services and the like. Those developments will drive changes in supply and demand in the coming digital decade.

  • Consolidation will continue, particularly among incumbents as a way to reduce supply in the face of limited demand. U.S. airlines provide an example.

  • Demand generation becomes the core capability. Demand generation is more than digital marketing, but rather the ability to attract attention, shape that attention into action and deliver differentiated experiences and deeper relationships. Achieving a digital demand generation capability requires moving beyond digital marketing’s beachhead and user interaction concerns to putting the customer in greater control of their experience and product performance.

  • Pricing power and pressure will continue as new entrants can afford indirect or ‘freemium’ models while incumbents seek to capture market share via lowering prices and costs. This is a zero sum game for most companies as there is only one successful low cost leader. If going down market is a zero sum game, then it is important to understand how technology supports growth.

  • New value propositions will go beyond price. Raising human ability and connecting with a broader definition of value provide two examples of new digital value propositions. The degree to which products and services enhance an individual’s acquired or natural capacities and talents determines their ability to enhance human ability. Currently technology solutions designed to do this concentrate on performing small information intensive tasks like hailing a cab, getting driving directions and virtual reality. It’s a start but there is so much more.

  • Value propositions will extend beyond feature, function and price. That is a reason why companies are connecting consumption with philanthropy. Tom’s Shoes' one-for-one business model is an example. Look for further extensions to propositions that connect with comprehensive value.

Innovating islands of demand in a sea of supply

The potential of digital technology’s disruption of supply and demand is just beginning. The idea that we live in an unbalanced world seems counter-intuitive. Our traditional focus has been on macro markets. But we all live in the micro and shifting perspective makes it clear that in the digital world the supply of choices far exceeds our demand for solutions. The days of fulfilling demand without shaping it have passed.

Executives need strategies to address fracturing markets beyond turning up marketing volume online. They have to face the reality of increasing customer choice and purchasing power in their business models. They must use technology to create meaningful differences in tribal markets.

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