Wednesday 20 August 2008

Why does it not make sense to design shoes in banana yellow or tomato red colours en masse?

Axiom: It is a lot less costly to hold a single inventory & have a simple delivery process versus a an array of various variations.

Example:
Most shoes and bags are found in the colours brown and black. This is because most consumers more commonly purchase shoes of this colour. Now, there are a small percentage of individuals that could easily wear shoes in banana yellow or tomato red. However these individuals are so few it would not make commercial sense to produce shoes in these colours for the following reasons:

a) Any excess manufactured shoes would not be sold even in a sale unlike the more common colours of brown & black. This is because most users would not be disuaded to chose these because of the price but rather because of the colour. Changing the price would not influence their decision. It would be costly to be forced to make a loss on these excess shoes.

b) We know a smaller amount of these colours would need to be manufactured. Now, because fewer are manufactured using this different process to that of the more commonly sold black and brown shoes these shoes would suffer from diseconomies of scale as each unit would be manufactured at an increased per unit cost.

c) We know the more common colours of black & brown will sell more frequently. This will free up shelf space for other items. On the other hand, the less frequent selling shoes will take up the costly inventory place of shoes with a higher turn over.

Possible Exceptions:
Some stores actually specialise in such unique shoe wear. Inorder to justify the increased per unit cost and the lower turnover they charge a much higher premium for these shoes. Such stores are know as boutique stores.

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