In an attempt to minimise the spread of Covid-19, the entertainment, retail and beauty industries were forced to remain closed for a significant length of time. While this decision was made for the benefit of our communities and the health of the UK population – it did present a challenge for a number of UK businesses. These closures resulted in many businesses across the UK being faced with financial and operational concerns, due to the decreased demand for their products or services.
Supply and Demand
The basic principles of supply and demand are centred on the key concept that a good’s value will increase if the supply is low and the demand is high.
Psychologist, Robert Cialdini, noted “a product becomes more attractive when their perceived availability is limited” (1984). Therefore, in the mind of the consumer, this creates a psychological need for that product.
Take Greggs for example: each year they release the infamous Festive Bake for a short period of time, normally, throughout November and December. The low supply ultimately generates a high demand, meaning that Greggs can price the Festive Bake higher than other products, due to its increased value.
As the situation evolved within the UK, there was a lot of uncertainty among consumers regarding the implications of any restrictions that would be put in place by the UK Government. Therefore, they wanted to be prepared for any possible scenario. This meant that everyday–essential items, such as toilet paper, milk, flour and pasta saw a significant increase in demand, to the point at which demand surpassed the level of supply. So, as supply continued to decrease, demand continued to increase – resulting in businesses being able to generate a higher profit.
Unfortunately for non-essential business owners, quite the opposite happened. From the perspective of many consumers who may have encountered an income change – such as a salary reduction or redundancy, non-essential items were now considered a luxury with a high value. With this in mind non-essential items saw a reduction in demand. This meant businesses were unable to make a profit, because of the reduction in sales, causing some businesses to consider administration or permanent closure.
While the UK economy faced a scare, we have seen more and more industries providing a limited service as restrictions have been eased. The Government launched an ‘Eat Out to Help Out’ scheme, offering consumers 50% off restaurant food prices, up to £20, to encourage growth of the food service industry. The Government subsidised this 50% offer, meaning restaurants still generated their standard profit-per-unit.
Thankfully, economic activity continues to grow, as supply and demand levels out.
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