Does Selling Fast Equal Selling Well?


The new Harry Potter book broke records when it went on sale, but sometimes products that sell fast also burn out fast

UrbanDictionary.com defines "hotcakes" as the "fastest-selling product in world history." The summer of 2007 may redefine "hotcakes" as the iPhone and Harry Potter and the Deathly Hallows.

This summer has seen several records smashed at the box office and the bookstore—as well as at the cell-phone store. Generating customer lines that formed days preceding the products' releases, both Apple's (AAPL) iPhone and Scholastic's (SCHL) newest Potter title didn't disappoint, respectively breaking records as the fastest-selling mobile phone and fastest-selling book in history. More than 11 million copies of The Deathly Hallows were sold within the book's first 24 hours of release, while 270,000 iPhones were sold in the product's first two days.

While it may seem unusual that two fervor-inducing products shattered industry records within one three-week period, these days record-breakers in the fields of technology and entertainment are hardly a rare breed—nor are they a long-lived breed. Spider-Man 3, released in May, 2007, holds the record for the highest opening weekend box-office sales, a title it stole from Pirates of the Caribbean: Dead Man's Chest, which in turn had trumped the original Spider-Man released only four years earlier.

Fast Start, Slow Finish?

Though the film industry's record-breaking figures tend only to be record-breaking for a short while, having the biggest opening weekend in history pretty much guarantees financial success. As of Aug. 5, Spider-Man 3 had grossed a total of $898.8 million internationally, and Pirates of the Caribbean: Dead Man's Chest and Spider-Man respectively earned $1 billion and $821 million worldwide.

According to Columbia Business School Professor Bernd Schmitt, however, being an industry's "fastest-selling product" isn't always a good thing.

"The benefit is that they get consumer attention and recognition very fast. The drawback is that they could be a fad," writes Schmitt in an e-mail message.

The much-hyped iPhone actually failed to live up to its projected success. While analysts expected Apple to sell between 500,000 and 700,000 phones during the iPhone's opening weekend, only 270,000 units were sold during the product's first two days. During that time period, AT&T (T), the iPhone's exclusive carrier, says it activated service for only 146,000 phones.

Wall Street Hard on Record-Breakers

Though AT&T shares fell 35¢ to $39.68 and Apple shares fell $8.81, to $134.89, following AT&T's sales report, the iPhone still helped Apple report strong earnings for the quarter. The company's net income for the period from April to June was $818 million, up 73% from its 2006 second-quarter earnings. Apple Chief Executive Steve Jobs is also sticking to his prediction that 1 million iPhones will be sold within the product's first three months on the market.

One industry that has not been especially kind to its fastest sellers is the stock market.

Back in December, 1999, VA Linux Systems broke the record for the largest opening-day percentage gain—a feat that has not been trumped. At the end of the first day, VA Linux shares rose 698% above their initial $30 offering price, closing at $250. VA Linux, whose original prospectus set the initial stock offering at $11, took the top spot from another casualty of the Internet bubble, the now-defunct early social-networking site TheGlobe.com, whose shares rose 606% on the site's opening day a year earlier.

"Back in 1998 and 2000, the fervor of IPOs gravitated things to a higher high," says Richard Peterson, chief marketing strategist at Thomson Financial.

A Rebound Is Always Possible

A high that didn't last for long. Within a year of its initial public offering, VA Linux stock was selling at well below the shares' initial offer price. Today the company is known as SourceForge, although it has kept its old Nasdaq ticker, LNUX.

According to Peterson, a fastest-selling product tends to be "a trailblazer, the first on a frontier." Peterson also notes that the product's success depends both on management and on the marketplace.

Furthermore, on the stock market at least, initial failure doesn't necessarily preclude a stock from building muscle later on.

Says Peterson, citing the example of Amazon.com (AMZN), "On the flip side, just because a stock falls in the first day or week of trading doesn't mean it can't rebound."

Established Brands Have an Edge

"Both Harry Potter and the iPhone by Apple are from established brands," says Schmitt. "So, unless some sort of problem occurs in the product or its marketing and distribution early on, being fast-selling from the start is a positive indicator."

Being part of an established brand or franchise is what has helped shoot most recent record-breakers to fame. First-weekend box-office champ Spider-Man 3 was the third film in the Spider-Man franchise, and a brand that's been around since the superhero's comic book debut in 1962. The fastest-selling album of all time, The Beatles 1, rode on the success of a band that had started making headlines four decades earlier.

It has also been four decades since the fastest-selling car of all time debuted. Ford (F) sold 400,000 units of its legendary 1964 Ford Mustang in the car's first 12 months of production and, by 1966, had sold 1 million models of the car. During the Mustang's entire production run from 1964 to 1973, a total of 2.2 million units of the Ford car were sold.

It seems that some record-breakers may just end up staying on the books for a while.

For more on the fastest-selling things, see BusinessWeek's slide show.


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