By David Fuller, Fractional CMO

There is a reason they call it Marketing. It's about understanding and then manipulating your market to your advantage. Most marketers can't even define their market, let alone control it. Your marketing strategy should be created by someone who knows microeconomic theory.

Five Economic Principles Most Marketers Miss

1. Demand Isn't Fixed, and neither is supply.

Basic microeconomic theory says that a market is a balance between supply and demand. But strong branding allows marketers to defy the law that says, if prices go up, demand goes down. Through effective positioning and awareness, we move the entire curve to the right. This means you can sell more product at the same price, or even maintain sales volume while raising your prices. (More on pricing later)

Supply isn't just an operations issue; it's a psychological tool. The theory says that scarcity drives value. If a product is perceived as unlimited and always available, the urgency to buy drops. Marketers should use the concept of limited supply, whether it's a "limited time offer" or an exclusive cohort-based service, to trigger action.

Of course, this is all easier said than done, especially for new players. So other levers might need to be pulled. 

2. Price Is a Signal, Not Just a Number

Most Marketers and sales people are weak when it comes to price. Rather than holding firm to the value that has been established, they quickly capitulate to benchmark against competitors or race to the bottom on price. Marketers with an understanding of microeconomic theory know that price communicates value, filters customers, and positions you against substitutes.

The most obvious example of this is a brand like Apple. Customers know that objectively the iPhone is not the best phone on the market. There are $100 phones with the same feature set as the iPhone. But the Apple brand allows the company to charge a premium. 

Pricing isn't just about covering costs with a profit margin. It's about finding the "willingness to pay" threshold and ensuring the price tag matches the brand story you are telling.

3. Substitutes Define Your Real Competition

Ask marketers who their competitors are, and the bad ones will say they don't have any.  Some may list companies selling similar products. Ask an economist, and they'll map every alternative way customers solve the problem.

Huge brands have disappeared because they failed to understand that they product they sold could be replaced by something else. Famously, Kodak wrote off digital cameras and continued making film. Car makers are beginning to come to terms with the fact that 'mobility' platforms that include ride-sharing and other transport options are a valid substitute for many people who might have bought a car in the past. 

What is your real value proposition? Are you selling drills or helping people make holes? What are the other ways people could solve the problem you are solving?

4. Utility Is Multi-Dimensional and Subjective

Customers don't buy products or service, they buy utility. Utility is a bundle of functional, emotional, and social benefits that vary by customer and context.

Without getting into the 5 types of Utility, it is important for marketers to understand that the feature set is not the only thing being sold. Some modern marketers know this and use tricks like FOMO and the value of virtue signaling to sell. Some have used digital and emerging technologies to provide non-financial value like convenience as part of their offer. 

5. Opportunity Cost Drives Every Decision

Which brings us on to opportunity cost. Every purchase represents a tradeoff. When you ask a customer to buy, you're asking them to forego other uses of that money, time, or attention. Effective marketing addresses this opportunity cost directly. 

Yes, we are more expensive, but you save time. Yes we are more expensive, but the product will last longer. Yes we are more expensive, but there is less risk of an accident or failure. The entire insurance market is predicated on this microeconomic principle. 

How to apply Microeconomic theory to your Marketing Strategy

Understand the demand profile of the market. Is there seasonality or annual events that change the demand curve? Are there long term trends that impact demand e.g. attitudes towards sustainability or digitally native consumers outnumbering those born before the invention of the mobile phone. 

Can you control supply? Can you create a brand so strong that people will wait for it or pay more for it? Is supply of a substitute product increasing in a way that will cause harm to your business model. e.g. people can have their own TV stations on YouTube without the overhead of broadcasting licenses and transmission infrastructure. People can shoot a feature film on a phone or make it with AI. 

Understand the price elasticity equation. How far can you increase your price before demand is reduced? Do you get the same uplift from a 10% discount as a 20% discount? Is it double? Group customers by price elasticity and substitution patterns. Premium buyers see no comparable alternatives. Price-sensitive buyers view you as interchangeable. These groups need fundamentally different approaches. 

Map channels to information economics: Paid search captures existing demand. Content reduces information asymmetry. Social proof solves credibility problems. Match channels to the economic barriers preventing purchase.

Follow revealed preferences: What customers say they want and what they buy are different. Your existing customer behavior reveals which utility dimensions they actually value.

Message to opportunity cost: What is the customer giving up by choosing you? Why is your offering worth that tradeoff?

You Need a (Fractional) CMO

The best fractional CMOs don't just bring good creative ideas for campaigns. They bring strategic frameworks bridging market theory and business reality.

They answer the questions asked by microeconomic theory and see elasticities and substitution effects. They diagnose whether your growth problem stems from demand, competition, or value communication. They understand sustainable growth comes from creating and capturing value, not optimizing tactics.

Most importantly, they translate these insights into strategies your team can execute.

You don't need a PhD economist. But you need to think like one.

Every marketing decision exists within an economic system governed by supply, demand, price signals, substitution effects, and utility functions. Your customers make constant economic choices. Your job is understanding those choices deeply enough to influence them.

In a world where every company has the same marketing tools, competitive advantage comes from how you think, not what you do. The question isn't whether you can afford to bring economic thinking into your marketing. It's whether you can afford not to.