Basketball player Stephon Marbury likes to tell people that his mom could not afford to buy him a pair of Air Jordans when he was a kid. Selling for $65 in 1985 (the equivalent of $150 today) they were expensive. So 21 years later, he made sure that teenagers could buy a cheap signature sneaker.
Selling it though was not so easy.
The Starbury Sneaker
To produce an inexpensive signature sneaker, Stephon Marbury partnered with the owners of Steve & Barry’s University Sportswear. Together they produced a $14.98 sneaker called the Starbury. The retailers who made it had no middlemen. They manufactured the sneakers in China, sold them in their stores here, and had a minimal markup.
While the Starbury was a surprisingly good shoe for its price, no one believed them until Marbury wore the shoes during his NY Knicks games. Sales spiked and he made millions. However, when Steve & Barry’s filed for Chapter 11 bankruptcy protection in 2008, it all ended.
But only temporarily. The Starbury just returned with a $14.98 sneaker.
The Model T Ford
A cheap pair of sneakers started me thinking about the Model T Ford.
When Henry Ford experimented with conveyor belts that streamed parts to the worker, the results were stupendous. Because chassis production time dropped from 12 hours to 2.3, output soared and per car cost plunged. By the mid-1920s, the lowest priced Model-T was $260. Suddenly affordable, the car attracted millions of buyers.
Our Bottom Line: Price Signals
In a market economy, price conveys a message. On the supply side, it can tell a producer whether her land, labor and capital will generate a profit. On the demand side, when low, it can create an incentive to buy more. But, as the Starbury demonstrated, not always.
Although the Model T and the Starbury both were cheap, their price messages differed. When the Model T’s price sunk, people probably thought, “Now I can afford this vehicle.” With the Starbury sneaker, price just said low quality. Only after Marbury wore his sneakers during those Knicks games did the message change.