How does a digital product sell out? I saw a game that was sold out. I’m confused.
The concept of “selling out” of a product, when that product is nothing more than digital data, is artificial. But sometimes, there’s more to the product than digital data.
In this audio segment from an Ask Leo! webinar, I’ll discuss what it might mean to have a digital product sell out.
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Transcript
How does a digital product sell out? I saw a game that was sold out. And I’m confused.
Most of the time … the Amazon scenario is actually a pretty interesting one to dovetail into this because obviously, bits are bits. One thing computers are great at is copying files. They can copy like nobody’s business. That’s, I’m convinced, that’s like 80% of what computers do is to copy bits from one place to another. So, when that’s digital media, like music or books or product, there’s really no physical limit on the number of copies you can make.
When somebody imposes a limit, like selling out of a product, that typically means that it’s either a marketing issue (in other words, they are trying to provide a sense or create a sense of scarcity for this product to hopefully encourage people to buy it when they might be undecided), or as in the case of Kindle, they may be under contractual obligation for how many people can actually purchase that product that they are allowed to sell or in the case of Kindle, how often you are allowed to share it.
There’s another scenario that’s typically less likely is that the product consists of more than just bits; there’s additional parts to the product – be they physical parts like boxes or manuals or God only knows what – then they could have a limit on those. They have an unlimited number of bits to give you, but they don’t have all of the support materials.
Another scenario is when the product comes with bonus materials. One of the things I plan to do with the Maintaining 7 book is when you purchase the book, you will be granted access to a website that contains a bunch of bonus material. I don’t plan to, but I could certainly understand where people will have a limited number of accounts to be able to give away for that kind of thing.
Even here today, GoToWebinar is a good example of that. Really, all we’re dealing with here is bits. My voice is being converted to bits here at my computer. The screen image that you’re looking at is being converted to bits, and those bits are just sort of streaming out from my computer out to GoToWebinar where it’s being distributed. They have a limit of one hundred attendees at a time.
That’s the only reason for that limit, besides potentially the hardware required to stream data to one hundred simultaneously is that I’d have to pay more to get more, so it falls back to kind of a marketing limitation. So those are the kinds of things that can factor into it.
Ultimately, you’re absolutely right: bits are bits. You can make as many copies of them as you like. Typically, when there’s a limit of some sort, you end up having to look at other things that are included with those bits or potentially some of the legal or other restrictions that may be placed on the product.
Not always just a marketing reason – sometimes it could be a business reason (but still tied to marketing in a sense). You sell through distributors. One you give an added 10% discount, so you make less on their sales, the other you don’t give any discount, so you make a bigger margin. You limit the first distributor to the number they can sell, because they would put your second distributor out of the business of selling your product because everybody would buy through the first. Another scenario is you want to get your product out – so you allow them to sell a fixed number of your product, to get it out in the public, so they tell their friends how great the product is. It is like advertising – so even though you don’t make much money on the first X amount of product you sell, you create a market for it by word of mouth, and make it up on all you sell after the first X products you sold. Probably many more reasons too.
It is a lot more complicated as always. When a large company decides to market a product to a world market. The marketing department comes up with an estimate of projected sales. No company wants to spend more than they have to. Why lose your profit on a product that will just have to be thrown out? So lets say you make 10000. Now we have development, marketing, transport, retail and procurement and packaging. Not to mention the usual company overheads like staff, equipment, premises, electricity, phones, subsidised tea room, blah blah blah . This is all going to cost so it gets worked out with suppliers at that quantity what the best price is. Profit margin is then added and that becomes the final sale price. This is usually planned for a one year program so next years model can be released. Should the product be more popular than the estimate and say another 1000 be needed everything costs 10 times as much then it is just not worth it for the company to sell them at the same price. So it really does boil down to wait till next years one.
Sorry Leo but I have worked in this field for quite a few years and I have never seen or heard of any company that would do this for such an unscrupulous reason. They protect their reputations at all costs as it all about the bucks and they are making plenty because their customers trust them.
The other urban myth is the product that was designed to break down 2 weeks after the warranty ran out. Anybody who suggested that word be marched to the door and booted out. We work on a 7.2% acceptable rate of failure and that was one out of a million. We always make a few extra and if that one had failed just two weeks earlier just send it back and we give you another. Given two weeks we would probably still give you a new one for the sake of good PR unless it is obvious that it failed because you dropped it out of a 3 story window or ran over it with the car. Using the disk for a coaster is also out but some people will still try and our generosity can only go so far. However it is always our fault.
@David,
This article is talking about digital products distributed via downloads, not hard products such as even a cd which you can hold in your hand. Therefore, the factor of how many items produced doesn’t fit into this equation.