Hype, Demand & Supply in Marketing

The basic free market economic model is all about the relationship between the Demand and the Supply. The more intricate we get, the more extra layers you get on top of that, and partially because there isn't a an actual free market economy. It's a scale. But we are not going to be talking about economics, we will be talking about Demand and Supply economics in the way they affect your marketing and your offers and prices. Something very topical today which doesn't get talked about often is how HYPE fits into it and this also something I will cover in this article.

My thesis is simple. By exploring Demand and Supply for a product we can gage more into the nature of how we should market our product and understand what will be happening with the consumer response thanks to movement of the demand, supply and, soon we will see, hype.

Demand, Supply and Hype Relationship

Let us understand what we are working with here.

DEMAND - is the effective net result of your marketing up to the latest point in time.

SUPPLY - your production possibility, in economic terms, a PPF curve. Supply deserves its own article, because with the realities of current business we have a whole slew of products which you have an infinite supply of.

• If you are service agency your supply is limited by your time and team, the larger the team the more time you can make for your clients.
• If you a product company your supply is limited production possibilities.
• If you are a digital product your supply is limited by server capacities.
• However, if you are a Media company, or have a heavy content component then your supply is unlimited, and we are talking about video, courses, books, news. This is the type of product which has negligible marginal costs of production and lands very well to artificial exclusivity.

HYPE - ever oscillating variable and can be viewed as FUTURE demand. There is always certain level of hype. In principle you get "hype" every time you have a marketing campaign which stimulates demand through brand awareness, product launch or lead generation campaigns.

Because HYPE is future demand, it inflates the perceived value of the product/service and creates additional expectations. The key here is that it "inflates" and up to the point of launch drags the demand to meet the Hype. This in turn allows generate more sales at launch.

Social Media personalities and content creators often use this exact
method when launching their products to generate more sales and 
pre-sales. 

They do this with:
- announcement posts
- collaborations
- starting to talk about their latest case studies
- brand placements
- and more        

When generating interest for his latest book, Alex Hormozi has been hyping up the book as the lead up to his launch event on 19th of August. And one of the ways this has been was by placing his book in his own videos in order to stimulate awareness and interest.

Effectively, but debatefully, demand supply intersection is product market fit price wise. Whether the product solves the problem is beyond the scope of demand supply analysis, we will assume it does.

On Figure 2 we have the change of demand with respect to time. Now, product quality can change over time, and should change over time, but let's assume its stationary.

What can we see from the graph is that HYPE increases up to the point of the Product launch, this increases Demand, generating more sales, we can also have pre-sales.

But because we are interested in what is happening after the launch pre-sales and sales are effectively the same thing. The moment the product launches, the client comes into contact with the product he can evaluate the product based on its own merits rather than the marketing message. And because HYPE by its own nature is inflation of expectations and value, people loose interest after launch, leading into the trough of disillusionment.

Now Figure 2 is very similar to Gartners Hype Cycle. Gartner uses it for different purposes to predict the state of technology. Seth Godin in his book "This is marketing" uses Gartners Hype cycle to understand marketing cycles as well.

The difference between tech in Gartners Cycle in Figure 3 and the Hype cycle for your product in Figure 2, is that the technology goes through this cycle once (for the most part) and on its own, while in Figure 2 it is the job of the business to stimulate demand through hype or otherwise.

Unpredictable market forces outside of your control CAN create demand for you or can take demand way from your product. But for the sake of understanding your own actions is ultimately in your own hands.

Case Study #1: Cyberpunk 2077

Let's see take a case study. Cyberpunk 2077 video game.

Original teaser trailer for Cyberpunk 2077 has been released in October 2013. Cyberpunk 2077 has been released in 2020. Without going into the fact that the hype between this product has oscillated plenty before the products release, at the moment of the release of the game the Hype was huge, meaning the perceived value was huge and expectations were flying high. CD Projekt Red, the developer of the game, had a proven track record with their previous releases such as Witcher 3.

How did their marketing and hype look like up to their release?

• Teaser Trailer released in 2013
• Witcher 3 success instilled a lot of good faith in CD Projekt Red
• Witcher 3 had easter eggs for Cyberpunk 2077 which fed into the hype
• Cyberpunk 2077 signed Keanu Reeves to be the main celebrity star of the project, a practice very popular with video games in recent years.
• Due to cancellation of E3 due to covid in 2020, CD Projekt Red held their own event Night City Wire to showcase additional trailers and interviews.

In 2020, Cyberpunk has generated 13.8 million units sold, with average cost of 50 dollars per unit they have made 690 million dollars in revenue in 2020.

That's more than I have ever generated in revenue, so hard to call it a fail, however the problems arose the moment when Cyberpunk has been released. The game was not in a ready state, it has been rushed to release, it was plagued by internal problems leading to a broken game. It has been unplayable on release on certain consoles.

Following the release it has led to negative critical and quick fall into the trough of disillusionment. This is an often occurrence with media projects such Anthem, No Man's Sky, Batman: Arkham Knight and many more, in other sorts of media such as movies as well. And the problem here is not the fact that the game has been hyped up, but that the product was not ready to be played.

The demand quickly fell and only through post launch patches and content updates has the game gotten of the trough and generated a constant playable audience, it has been helped by the release of the Animated series Edgerunners and now the upcoming release of Cyberpunk 2077: Phantom Liberty.

Case study #2: Fallout 4 - HYPE done... right?

Let's take another case study from video game industry. Fallout 4 announcement and launch event. This is hype done right?

• The game shipped 12 million copies at launch, which was record-breaking.
• Of course, the number of games shipped does not equal the total games sold, so the $750 million was likely speculation on the?potential?revenue.
• Fallout 4 had 470,000 concurrent players on Steam on launch.
• Fallout 4 had a very successful launch compared to The Elder Scrolls V: Skyrim, which sold 7 million copies within 48 hours after launch.

By the end of its shelf life, Fallout 4 has generated over 20 million copies sold. It is still less than The Elder Scrolls V: Skyrim, but there are significant product differences and Skyrim has been released and re-released multiple times for over ten years with over 60 million units sold in total.

What did Bethesda do to create such hype and demand for the game?

Fallout has not been a mainstream franchise at that time, it was a niche game. A lot of demand for popular franchises is driven by a large fan base which through osmosis bleeds into the society, such as Star Wars franchise allowing even The Force Awakens to easily make over 2 billion dollars in total box office. Not the case with Fallout.

• During the announcement they have announced the game and given the showcase of what can be expected, for a game it is gameplay, story, graphics. The components which make the product.
• They have made available Fallout Shelter, a fallout themed mobile game with characters from the upcoming release to captivate the audience leading up to the release of the game.
• For the audience of the Bethesda Presentation on E3, they have made available Fallout 4 themed gifts.
• And lastly, Fallout 4 has been announced 5 months before its release day, which compared to almost 7 years of Cyberpunk 2077 allowed for a very tight marketing cycle keeping the interest of the video game playing audience.

Summary: To use or not to use?

Something I didn't even think when writing up this article, which had some theory and practice, were the comparisons to Alex Hormozi's launch of 100 Million Dollar Leads. I do mention it, as Alex Hormozi is seen by many as this ideal businessman today, but what he is saying is nothing new. The tactics used by Alex Hormozi during his launch are effective at:

• Generating Hype
• Building a following
• Generating sales

But Hype is a time derivative of Demand for your product, and your demand for your product is the net result of your marketing efforts. Hype increased expectations and perceived value, thus allowing to:

• Increase Price
• Increase Sales
• Increase Awareness

The real magic happens once the customer comes into contact with the product. Because HYPE overcompensates demand, demand will begin falling no matter what. However, it is the quality of your product or service which will determine the rate the demand for your product will begin to decline.

To answer the question whether you should use tactic to generate Hype? Personally, I find the answer to be quite simple, yes. We are in the age where attention is the cornerstone of sales. The markets are effectively oversaturated with offers, so far that I would argue your offer doesn't matter as much as the traffic your offer gets (i.e. attention), any sort of attention has a time limit on it and in order ot increase the time limit, hype is one of the instruments which can be used. But you have to have the product or the service live up to the hype as much as possible, otherwise the usage of Hype is detrimental and will backfire in the long run, leading to lower LTV, demand and faith in your product.

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