The other day I had a business lunch. Not a deal-making lunch or a productive work session over disregarded entrees…no, my department took another department’s administrative assistant out for lunch since she had helped us with a few projects. The result of this lunch taught me a lot about creating demand for a product, and why you shouldn’t always assume that massive demand means that an item is worth getting (I’m looking at you, iPhone…)

Many people are often of the opinion that you should always look for the busiest restaurant in an area on the theory that people go there because it’s good. A less crowded restaurant must not be as good. If you follow this line of thinking, you may pat yourself on the back for identifying a great restaurant where people are waiting in lines to get in, but you may just be playing right into their hands. The Cheesecake Factory is a brilliant example of this. They do not advertise. They count on word of mouth to bring in new customers. One of the ways they encourage people to come in is by intentionally making the restaurant too small for expected crowds. If you drive by a Cheesecake Factory, it always looks crowded. Once you go in, the menu is crowded, too, making your head spin with the endless possibilities. Chocolate vanilla cheesecake and vanilla chocolate cheesecake? This place is out of control! People feel they need to go there. The evangelism of a Cheesecake Factory fan can be overwhelming.

The place where I had my business lunch had the suckers rolling in. I skipped right on in with everyone else. Seating was non-existent. I would estimate there were places for about 30 people, in total. The menu was sparse: only three things on the menu. The atmosphere was dirty and unpleasant. The prices were phenomenally high. But it was crowded! A line snaked out of the restaurant, into the main part of the hotel where it was located and almost out into the street. What was the secret? Creating demand. In a busy part of Manhattan, in an expensive area where a burger was hard to come by someone had created a busy restaurant using a fresh and never-ending supply of tourists, salesmen and irritable office workers. The owners took a below-average burger joint and made it look desirable.

A huge segment of the American economy is centered around creating demand. I cannot believe, for example, that there is a need for 150 channels on television or designer jeans. There is no need for premium alcohol or chocolates or satellite radio. You do not need an MP3 player. You may want these things, but you do not need them.

When a company becomes an expert at creating demand - creating “needs” where there once were only “wants” - leads to overconsumption. This overconsumption leads to a lot of unhappiness in our society.

• Buying too many things encourages us to go into debt
• Accumulating things we don’t need leads to clutter, or makes us want more space to live in to store our things
• Makes us, as consumers, work even more to afford things we think we “need”

If you develop a business and that business is selling something that nobody really needs, your business will fail. You have to convince people that they need what you are selling. Once your business is an expert in making people believe they need what you sell, you can sell them almost anything. Apple is a master of selling “wants.” Every fashion clothing company sells “wants”. Perfume companies do it, jewelry companies do it. This practice is not evil or deceptive - but it does encourage bad spending behavior, and it is important to fight it.

As a consumer, it is important to avoid confusing your needs and wants. When you set out to buy something that you need, take a minute to think about what you would do if you had to make do without it for a month. If you had to buy it a month later, would you still get it? If so, maybe you really do need it. If not, maybe you don’t. Maybe you just want it.

—

Steve S. is the author of Brip Blap, a blog about personal finance, health, career management, productivity and self-improvement. He lives and works as a contract governance and audit consultant in the New York City area, and has lived in Germany and Russia. He is an active lender at Prosper.