Derived demand is likened to the ‘LeBron effect’. A term coined by Time magazine , the LeBron effect refers to how basketball player, LeBron James, affected the entire economy of Cleveland, Ohio by his joining the city’s basketball team. He is said to have attracted as much as $500 million in consumer spending in the city. Ticket prices games where he would play have increased. Business establishments around the stadium have enjoyed a tremendous increase in patronage every there is a game. The entire economy of Cleveland had buoyed up. People’s optimism and positive attitude as a result of LeBron’s presence has led to higher consumer spending.
Derived demand has a similar effect. It could be some kind of ripple effect affecting third party product suppliers or the entire supply chain backward.
Smart phones, including Apple’s iPhone, are an example of a product that has a large amount of derived demand. Smart phones have reportedly driven up electronic sales to about $1 trillion . For sure, smart phones have had impact on both new and old technology.
Consider the Kindle and the iBook apps. These two apps would encourage more purchases of e-books. The more e-books are sold, the more publishers and authors benefit. As authors benefit, the more they would write books. Popular authors would have followers waiting and ready to purchase their next release. The Kindle app had an industry changing effect. It provided people with a new way of acquiring and even reading books.
Smart phones, the iPhone in particular, have also had a similar impact in the music industry. They provide a new way of purchasing, storing and listening to music. Apple’s iTunes practically killed the music retailing industry. At the same time, smart phones created demand for a host of new products produced by third party product developers.
The music-playing apps have in turned increase demand for a variety of products like earphones and speakers. Smart phones can be “docked” and connected to new kinds of amplifiers and speakers. Old speaker brands like Bose, JBL and JVC have enjoyed a revival and increased demand.
Aside from Kindle and iTunes, there are a host of other apps like games, navigation, periodicals, and other that are available on smart phones. Like the two apps, these apps link to a variety of services and allied products that are sold as result of the apps usually given away free.
Third party product makers of cases, screen protectors, touch screen pens, bags, and a host of other accessories have also benefited from smart phones. While there are some controversies about outsourcing, the huge demand for smart phones has created a lot of employment in their manufacturing activities in third world countries.
Smart phones are among of those products that have created numerous derived demands for third party suppliers.
References
Boudway, I. (2014, Oct 27). The LeBron James Effect: Cleveland Cavaliers Tickets Are Really Expensive Now. Bloomberg. Retrieved Feb 28, 2016, from http://www.bloomberg.com/bw/articles/2014-10-27/lebron-james-made-cleveland-the-most-expensive-nba-tic
Graser, M. (2015). Electronics Biz Posts Record $1 Trillion in Sales Driven by New Smartphones, Tablets. Variety. Retrieved Feb 28, 2016, from http://variety.com/2015/digital/news/electronics-biz-posts-record-1-trillion-in-sales-driven-by-new-smartphones-tablets-1201392613/
Guglielmo, C. (2013, Dec 12). Apple's Supplier Labor Practices in China Scrutinized after Foxconn, Pegatron Reviews. Forbes. Retrieved Oct 17, 2015, from http://www.forbes.com/sites/connieguglielmo/2013/12/12/apples-labor-practices-in-china-scrutinized-after-foxconn-pegatron-reviewed/
Isaacson, W. (2011). Steve Jobs. New York, NY, USA: Simon and Schuster.
Lohrey, J. (2016). An Example of Derived Demand. Retrieved Fen 28, 2016, from Chron: http://smallbusiness.chron.com/example-derived-demand-80611.html
Solman, P. (2015). Cleveland's Basketball Boon Brings Economic Vigor. Retrieved Feb 28, 2016, from econedlink: http://www.econedlink.org/interactives/index.php?iid=87
Stone, B. (2013). The Everything Store: Jeff Bezos and the Age of Amazon. New York, NY, USA: Little, Brown and Company.
