It all begins with a person who travels to Los Angeles with dreams of an aspiring career in acting. Yet all hopes smashed, he sadly turns back and instead becomes a salesman n Chicago for a plush toy maker — Dakin — the very company where his father originally worked.
He was quite good at having uncanny skills of a Salesperson who knew his way around customers and closing deals. Thus, began the start of a simple idea that would later spark one off the biggest manias around the globe.
The person, whose name was Ty Warner, began to experiment with a new form of plastic bean toys which he named as Beanies to be more realistic and playful. Unfortunately, when Dakin found out about his idea, he was promptly fired. But he didn’t lose hope and started investing more time on his little pet project.
In 1986, he set up his own toy company named Ty Inc. and started selling toys at a cheap rate that created demand. But what he did was something interesting. He sold these toys to only small specialty stores and limited the number of purchases they could make. By controlling the supply and demand and creating hype via “Total Information Secrecy” regarding the manufacturing and sales, he was able to make his toys a center of attraction.
But it just didn’t stop there!
In 1995, he thought on “retiring” (stop selling) some of the Beanie Toy Characters that would create an artificial scarcity. This was just a simple genius masterstroke that Warner had played. In fact, he was shipping hundreds and thousands of those “retired” Beanies in the overseas market. This ultimately led to a surge in prices that made a mere 5 USD beanie to be sold at more than 10000 USD on the Internet!
The resulting drama and the uproar that ensued were just beyond his wildest of dreams. Reports of hordes thronging to the streets and queuing up beside toy stores, vandalism and shooting occurred as more and more people jumped to take advantage of the Beanie Toys as just not as prized souvenir but also as an investment vehicle that could fetch thousands of dollars in the market. People invested hundreds of thousands of dollars in collecting some of the most “exclusive” Beanie Characters cheaply, hoping to sell it off at a very high margin.
This mania continued well till the late 1990s by which Ty Inc. was raking up more than a billion dollars in profits and sales.
But as with all the mania and bubbles, this was coming to the point of bursting out…
In 1999, when Warner again announced the “retirement” of certain toys as part of his old tactic, the market remained unresponsive. No swelling or uproar but only silence. This was something that he hadn’t thought of before. No sooner had this happened, Collectors frantically started selling off their toys. This ultimately led to a massive drop in prices. Within a short span of just a year, there was complete meltdown with prices plummeting by more than 90%. The mood now shifted from being bought to being sold in stores at less than 5 USD!
Simply crazy, right?
And more importantly — Why do we fall for such traps time and again?
Looking from the perspective of the Economists, they say that such products are a class of hot and new financial opportunity that are exciting and transformational, that go against the usual sentiments of the markets and create a burning desire to have them. Due to the controlled scarcity, we all tend to adopt a herd mentality and a hallucination — where the group gets involved in a fever pitch of buying by ignoring normal reality. The self-belief that it is protected from market fluctuations add to the later woes.
It is only after a sense of self-correction and realization that we tend to understand the true worth and the accumulated “garbage” we hoarded. This is what ignites the bubble to burst and brings the complete hype down.
Yet, despite the drama that took place, Warner became a billionaire and amassed a fortune of more than 3 Billion USD.
The fact that he took advantage of a simple toy to turn it into a full circus just teaches us how swiftly our minds sway and leads us to an overwhelming rush for prizes — something which we finally repent for….
