Hockey sticks, inferior goods and growth.

Inflation rises. Interest rates go up. Mortgage repayments increase. Spending falls. Companies cut staff. Spending falls further. Assets sweat and the pursuit of innovation and growth is abandoned.

This is a massive oversimplification of monetary economics, but it sure does paint a bleak picture for next 12 months. Take a look at the total value of home loans CBA says is about to shift from fixed interest rates to variable rates which are several percentage points higher.

However, even the most of challenging environments offer the intelligent and courageous opportunity. Right now, ‘inferior goods’ look growthy.

The story: Talking to a store owner recently while looking for a new hockey stick, he said 2023 has seen stick sales fall significantly, shoe sales stay flat and replacement grips for sticks skyrocket.?

The story here is both simple and equally applicable for multinationals, startups, small businesses, and everything in between. As people’s discretionary income falls, they are no longer looking to upgrade to that cool new stick. Instead, they’re buying grips to prolong the life of their existing stick and keep playing the sport they love.

A new stick can cost as much as $600, while a replacement grip just $15.

The theory: The grip is what is known in economics as an ‘inferior good’. This is not because it is inferior in quality, but instead that its demand usually falls when incomes rise. When disposable incomes fall, inferior goods become an affordable substitute to achieve the same outcome. In this case, continuing to play hockey each weekend.

The obvious: The obvious answer is for the hockey store to approach and sell a new grip to every one of its previous stick purchasing customers. It will generate steady profits, as the grips are high margin and increasing in volume, but it will also keep the store top of mind for when good times and stick purchasing return.

The opportunity: Building on the obvious is the real opportunity, the hockey store should source a higher quality grip they could sell for $20 or $25. Still highly affordable compared to a new stick, the more performant and durable grip would be highly attractive to customers, as it would not just prolong, but invigorate the old stick.

The next step: During this time of uncertainty, most organisations are looking at the line items making up their expenditure and have begun adjusting. The choice is then whether to pause growth ambitions or re-target those new product/service development investment dollars and talented staff towards a set of problems that reflect their customers’ new reality.

Clearly I spend far too much time thinking about hockey, economics, and product development, so send me a message if you’re keen to keep the conversation going.