In conditions of growing competition, the magnitude of demand, the determination of its size and forecasting are important factors contributing to the success of almost any company providing services and selling goods. For marketing, demand is a key indicator of market conditions. It is an object of permanent study, formation, observation. We will tell you about the essence of this market phenomenon, about the current definition of demand, how it is formed and what factors influence it.
Demand concept
In its most general form, the definition of demand is reduced to the amount of goods or services that the buyer is ready to consume in a certain period of time at a certain price. Consumer demand is the most important characteristic of the market, it is always based on the needs of people. If there are no needs, then there will be no sales or offers, which means there will be no market relations. Purchasing power is always expressed in cash. Determining demand is a buyer's function, only he decides whether he is ready to purchase a product or service at a given moment at a given price. Due to the wide variety of markets and human needs, there are many factors that influence demand, its volume and formation processes, and many types of this phenomenon stand out.
Demand volume
Producers of goods or services, marketers need to understand how many units of their products they can realize in potential. Therefore, determining the volume of demand is extremely important when planning production and sales management. The magnitude of demand is the amount of certain goods at a specific price that the buyer is really ready to buy in a certain period of time. The sales volume is influenced by numerous factors of both market and consumer nature.
Types of demand
There are several criteria by which you can classify the demand for goods or services. First of all, the definition of demand is associated with the intentions of the buyer. In this case, steady, it is tough, conservative, firmly formulated demand. The buyer ponders the purchase in advance, imposing stringent requirements on the brand, quality, price of the goods and preventing its replacement with a homogeneous product. Most often, such demand is observed for habitual, everyday products (bread, milk), which are bought at certain intervals in a specific quantity. There is also an alternative or unsustainable, compromise or soft demand. It is formed under the influence of various factors directly at the point of sale. The buyer makes a purchasing decision when reviewing the offer. So, for example, people buy shoes, clothes, cosmetics. And the third type of demand is impulsive. When a person does not plan to make a purchase at all, but under the influence of some factors, he decides to purchase a product. Most often, this demand is observed when buying small goods: chewing gum, chocolate.
Macro demand and micro demand are distinguished by the number of sales objects. The first applies to the entire population, and the second only to a narrow target audience.
According to the degree of satisfaction, such types of demand are distinguished as real, realized, and unrealized. The first is related to the real needs of customers in the product. The second is the actual sale of goods and services. The third is the number of units of goods that the consumer has not received for various reasons: the mismatch of the assortment and claims of the buyer, the lack of goods.
According to the development trend, there is a growing, stable and dying demand. It can also be everyday, periodic and episodic. These types stand out depending on the purchase cycle.
According to the forms of demand formation, its types are distinguished as emerging, that is, created as a result of studying demand and promoting goods, potential, that is, the maximum possible ability to buy goods at a given price, the aggregate is, in fact, the market capacity. There are other reasons for classifying demand.
Factors Affecting Demand
The volume of purchases is not infinite and depends on many factors. Specialists distinguish their following groups: economic, social, demographic, political and natural-climatic.
In economics and marketing , demand factors are traditionally divided into price and non-price. Let us dwell on this issue in more detail.
Price factors of demand, the determination of which is the simplest, are related to the cost of the service or product and the reaction to the price on the part of the buyer. Consumer incomes are finite, and it is the price of the goods that is a factor in the regulation of demand. The buyer reacts to changes in the value of the purchase, often lowering it leads to increased demand. This group includes the actual price of the product and related products, as well as customer expectations, psychological reactions to value. Non-price factors affecting demand include consumer preferences, fashion, purchasing power, the cost of competitors' products, and product replaceability.
The law of supply and demand
This law establishes the relationship between three important economic concepts: price, demand and supply. In its simplest form, it can be formulated as follows: if there is a demand, then there will be a supply. Usually, the higher the demand, the greater the supply and, accordingly, the higher the price. For the balance of the system, a balance must be established between ideal and real demand, adequate price and sufficient supply. Determining supply and demand, finding their balance is an important management task. The manufacturer must carefully analyze the fluctuations in demand and consumer reaction to price and supply. The correlation of purchasing opportunities and offers is influenced by two more laws:
1. The law of demand. It says that the magnitude of demand is inversely related to price. The higher the cost of a service or product, the less demand for them.
2. The law of supply. It says that price increases directly entail an increase in supply. As the rising price makes it possible for the manufacturer to make big profits, this attracts an increasing number of entrepreneurs in this segment of the market.
However, a growing supply always leads to a decrease in demand, since the consumer can only purchase a certain amount of goods and services. Thus, excess supply leads to lower prices, and then the supply and demand mechanism is launched in a new circle. Price in this case is a means of regulating the balance between these categories.
Demand elasticity
Depending on the price affecting the consumer activity of buyers, there are two types of demand: elastic and inelastic.
Demand is called demand, which changes with fluctuations in the price of goods and services and with fluctuations in household incomes. The consumer is sensitive to the cost of certain goods and is ready to refuse to purchase them if the price is high or his income falls. So, we see that during the period of economic recession, the consumption of luxury goods, automobiles, etc. decreases.
Inelastic, respectively, is demand, which remains unchanged when the income of the population and the price of the goods change. This applies primarily to essential goods. People will buy food even with rising prices and falling solvency. However, it is unlikely that people will consume more bread, even if the price drops significantly. The elasticity of demand, the definition of which is the task of marketers, is a tool for regulating sales. So, with high elasticity, the seller can increase turnover by lowering prices. The supply strongly affects elasticity: the more sellers offer similar goods and services, the more elastic the demand becomes.
Demand study
To understand the potential magnitude of demand, the manufacturer needs to make certain research efforts. Usually distinguish between the study of current demand, which affects the formulation of short-term goals of the seller and the manufacturer, and its forecasting, which is associated with strategic decisions. Determining demand is important for making plans. This phenomenon is studied by various methods: statistical, marketing, economic. It is important for the manufacturer to consider the psychology of the consumer in order to understand his needs and have time to satisfy them.
Demand formation
Determining the demand for a product or service allows you to develop, if necessary, a program for its regulation. The most important sales management tool is price: its reduction and increase can reduce and increase the number of purchases. But price regulation is not always possible and often not economically viable. Therefore, marketing tools come to the aid of the manufacturer, these include: advertising, creating and maintaining an image, various methods of promoting trade and after-sales support for the buyer.
Demand forecasting
It is important for each manufacturer to see the prospects of their development and existence in the market. Demand, the definition of which is an important component of planning and management, is the main goal of any seller and manufacturer. Therefore, they need to systematically study the volumes of possible sales, consumer behavior and market changes in order to timely adjust forecasts on the magnitude of demand. To make forecasts, various methods are used, which are divided into heuristic, economic-statistical and special.