From heaven to the sale shelf: How Prime fell from €12 to €0.30 per bottle. And how is this related to supply and demand

In the spring of 2023, I was in England and spent £10 or 12 euros for a bottle of Prime. When Prime came to Slovenia a few months later, I went to the store with my younger brothers and we bought a bottle for 6 EUR, but today Prime costs just 0.30 cents.

What happened?

To explain why the price of Prime has changed so drastically, I must first explain one of the basics in economics, the concept of supply and demand.

Supply and demand and how prices are formed in the market

How do consumers react to changes in prices and incomes, and how do they determine their preferences?

Substitution effect

The substitution effect says that when the price of one product falls, people buy more of that product because they use it to replace other products, which are comparatively more expensive as a result. For example, instead of buying the more expensive Ariel capsules, people will turn to Persil because of the price reduction. Conversely, if the price of Persil rises, demand may decrease as people buy other comparable products that will be cheaper.

• Normal goods: When the price of a normal good increases, the consumer will look for cheaper substitutes. For example, if the price of beef rises, the consumer may start buying more pork. The substitution effect always leads to a decrease in demand for a good whose price has increased, as consumers tend to look for comparable, cheaper alternatives.

• Inferior goods: For inferior goods, demand also decreases as the price rises. For example, if the price of margarine rises, consumers will start buying more butter, even though it is more expensive because margarine is an inferior commodity and the consumer will prefer to switch to a substitute that they could not afford before when the price of margarine rises.

  
  

Income effect

The income effect suggests that when the price of a product falls, people can buy more of that product because their purchasing power increases. If the product is on sale and costs 1 EUR per piece, you will probably buy more than before, when it cost, for example, 2 EUR, because with your money you can now buy a larger quantity. On the other hand, if the price rises, people will buy less as their purchasing power will decrease.

The Law of Diminishing Marginal Utility

This law states that as you consume more of something, such as milk, the additional satisfaction (or benefit) you get with each additional unit decreases over time. For example, you drink the first liter, use the second for cereal, and the third sits at home for a reserve. So, the first piece brings a lot of satisfaction, but each next one provides less and less benefit.

Demand

The demand for the product decreases when the price rises, if everything else remains unchanged. A higher price means a lower level of demand, and vice versa. There are several factors that affect demand:

• Tastes and preferences: If the study shows that drinking milk increases growth in children, the demand for milk will increase and the curve will shift to the right, but if the study shows that milk contributes to excess weight, the demand curve will shift to the left, which means that people will buy less milk at any price.

• Number of consumers: If, for example, we have the only Porsche showroom in Styria in Maribor, demand will increase, as people from all over the region will buy Porsches in Maribor.

• Income: This depends on whether the product is normal or inferior. For a normal commodity like butter, an increase in income increases demand. For inferior goods, demand for higher income falls, such as margarine.

• Expectations: If consumers expect the price of a product to fall next week, they will buy less today, which will reduce the current demand. If they expect the price to rise, they will buy more today, which will increase the current demand (most obviously, this effect is visible in the case of a change in fuel prices, because when a rise in petrol prices is announced, Everyone hurries up and fills up the car, but when they predict a price drop next week, for example, they wait for prices to drop).

  
  

Supply

When the price of a product rises, the amount of supply also increases, as higher prices encourage manufacturers to produce more of that product in order to earn more profits.

Also, the supply is influenced by various factors:

• Number of manufacturers: Increasing the number of companies that produce a product will increase the supply of that product.

• Technology: Advances in technology, such as the assembly line for automobile manufacturing, will increase the supply of automobiles by making production cheaper, faster, and more efficient.

• Government involvement: Subsidies will shift the supply curve to the right, and make the product cheaper, while new taxes will shift the curve to the left, and will make the product more expensive.

• Expectations: If manufacturers expect to make more profit from a product in the future, they may hold supply now and produce more later.

Supply and demand and market equilibrium

If we combine supply and demand, we get a graph and the point where the supply curve and the demand curve intersect is called the market equilibrium price. For example, if the price of a certain product is $ 2, and the demand and supply match, this is market equilibrium. However, if the price rises to $ 4, there will be a surplus, because the amount of supply will exceed the demand. Conversely, if the price drops to $ 1, there will be a shortage, because the amount of demand will exceed supply.

In either case, unless there is government intervention or some other unusual factor, the market will naturally correct and move towards equilibrium.

So why has the price for PRIME fallen so drastically?

When I bought Prime in England in 2023, it was already officially sold in stores, but due to too much demand and the inability of the manufacturer to stock the stores, I bought Prime in one of the intermediary stores with rare sweets, drinks, etc... Because these stores owned small quantities of Prime and because demand was extremely high, they were also able to charge extremely high prices for Prime.

When Prime finally arrived in Slovenia, the manufacturer already had higher production capacities that could keep up with demand. However, since the product had not yet been available in Slovenia and only a few consumers had already tried the product, and at the same time they had been bombarded with online marketing for two years, the demand was still exceptional, but the supply was quickly too much. Prime appeared at most retailers on the Slovenian market, first Spar, Mercator, Tuš, Jager, Hofer... By the end, everyone had it.

Then How did Prime reach the price of 0.30 cents?

The problem with Prime is that it is in fact a very bad product, mostly tasteless and simply undrinkable, it tastes like medicine. And when they bought their first Prime and found that there was nothing from the product except a huge amount of marketing, they bought Prime just to try the other flavors, and then didn't buy the product again.

Prime is neither a normal nor an inferior good, I would define Prime as luxury or something like that, so the substitution effect doesn't apply to Prime, as people don't confuse it with a cheaper alternative, as it basically didn't even catch on in the market.

The reason for the drop in demand can be attributed to several factors:

- The Law of Marginal utility – with Prime, this law is quite brutal, as it starts to work very quickly at the very first bottle. People bought the first bottle because of the enormous amount of marketing, and therefore benefited the most from the first bottle, the next bottle was bought for taste, and the third bottle was not bought by the majority because they did not benefit from it anymore.

- Tastes and preferences – as I wrote above, Prime is not a good product, which means that when consumers first tried it and spread the word, what they did was that the demand for Prime was automatically lower at any price. The news that Prime's related product (which is not sold in Slovenia), Prime energy drink, contains excessive amounts of caffeine, was also of no use. People swapped Prim's energy drink for the one that was actually on sale, further reducing demand at any price.

- Number of consumers - Prime started selling at 6 euros per bottle, at this price not everyone tried it, so when the pool of consumers who were willing to pay 6 euros per bottle emptied, prices fell lower. It was the same with the next price, when the pool of consumers who were willing to pay, for example, 4.50 euros emptied, the price dropped again and this was repeated until the price dropped to the level of slightly more expensive water and there were not many people left from consumers, except for a few who actually like Prime. Basically, however, the consumers were only children, young people and young people (I would say under 30), which means that the number of consumers was basically that much smaller.

Supply

However, there is really only one factor in supply. Retailers ordered large quantities of drinks in anticipation of immediate profits, but found themselves overestimating the amount of demand.

In the end, there was little demand left in the market and quite a lot of supply, and this forced traders to set such a price that they would definitely get rid of the remaining stock.

Prime, however, has seen the end of its glory - From the unattainable drink that everyone wanted, to the drink that no one wants.