Demand Analysis for Managers

MEANING OF DEMAND ANALYSIS

Demand analysis implies an analysis of the state of demand for a commodity or service. It determines the factors affecting the demand for a commodity or service and also measures their effects on demand. This analysis is also the basis for forecasting the future demand for a commodity or service. Demand forecasts help in maintaining balance between demand and supply of a product.

Purposes and Importance of Demand Analysis

1. Demand Forecasting: demand forecasting means an estimation of the demand or sales of a commodity or service over a future period. The forecasts and future plans of other activities prove futile in the absence of precision in demand forecasting.
2. Manipulating demand: after analyzing various external conditions he chooses an appropriate sales policy and sales strategy for increasing the sales of his firm’s products.
3. Proper allocation of resources: demand analysis plays an important role in assisting a business manager in taking decision of shifting the scarce resources of the firm from unprofitable or less profitable uses to more profitable uses.
4. Demand analysis is the benchmark for the evaluation of the performance of the sellers and sales representatives and determination of their sale quota.
5. It can be used for studying the competitiveness of the company.
6. Demand analysis is also necessary for production, scheduling, planning of the inventory control and evaluation of the working capital requirements.
   

MEANING OF DEMAND
Demand in economics implies such various quantities of a given commodity which the consumers are willing to purchase in a given period of time at the various prices in the market. It shows the relationship between the quantities bought and the price of a commodity prevailing in the market at a particular moment of time.
Prof. Benham, “The demand for anything, at a given price, is the amount of it which will be bought per unit of time at that price.”

1. An effective desire: A desire is merely a wishful thinking about a good or service. The desire for a thing can be termed as effective only if the following three things are present: a. Desire for a thing
b. Sufficient means to satisfy that desire c. Willingness to use the means

2. A define price: demand is always with reference to a particular price.

3. A point of time: demand is always in reference to a specific time period, such as weekly demand, daily demand, annual demand, etc.

KINDS OF DEMAND

2. Income Demand: those quantities of goods or services, which a consumer is willing to buy at different levels of his income, if other things remaining the same.

– It can be studies under two heads

• Superior Goods: with an increase in the income of consumers, the demand for such goods increases and with a fall in income the demand of such goods decreases. There is direct relationship between the demand of such goods and consumer’s income. That is why the slope of income-demand curve in case of such goods is always positives.
• Inferior Goods: as the level of income of the consumer goes up the consumption of such goods goes on declining. There is inverse relationship between income and the demand of such goods. Increase in his income improves his standard of living, hence, he stops using inferior goods and starts consuming goods of better quality.

3. Cross Demand: it is defined as the relationship between the demand for a commodity and price changes in the related goods. It explains the effect on demand of certain other commodity on change in price of a commodity. Other things being the same, cross demand implies the change in the quantity demanded of a commodity ‘X’ due to change in the price of some other related commodity ‘Y’. When there is no change in the demand for a commodity due to a change in the price of another commodity, then such goods are called as ‘Independent Goods’

Related goods are of two types

a. Complementary Goods: such goods that are used as a complement to another good are called as complementary goods, such as pen and ink, motor car and petrol, bread and butter, etc. There exists an inverse relationship between the price of a commodity and the demand for its complementary good. It means that when the price of a good goes up, then the demand for its complementary goods goes down and when there is a fall in price, then the demand increase.

b. Substitute Goods: the good which can be used in place of each other are called ‘substitute goods’. For example, tea & coffee, Vanaspati& refined oil, etc. There exists a direct relationship between price and demand of such goods. When the price of coffee increases, the demand for tea increase and vice versa.

4. Joint Demand: when two or more things are required simultaneously for the fulfillment of a particular want, then, such a demand is termed as ‘joint demand’. Demand for scooter & Petrol, bread & butter, etc.

5. Composite Demand: when a commodity is demanded for two or more uses, then, the demand for such a commodity is called ‘a composite demand’. E.g. iron & steel are used for bridge, machines, cars, etc.

6. Derived Demand: whenever the demand for a good or service is related with the demand for some other good or service, then it is called ‘derived demand’. E.g. demand for cement is derived demand because it depends upon the construction of building, bridges, etc.

Determination of Demand

1. Income of the consumers
2. Distribution of income
3. Testes of consumers
4. Geographical atmosphere
5. Price of the commodity
6. Trade cycle
7. Government policy

Factors Influencing Individual Demand

1. Price of the commodity
2. Income of the consumers
3. Taste and habit of consumers
4. Price of related goods
5. Consumer expectation
6. Advertising effect

Factors Influencing Market Demand

1. Price of product
2. Distribution of income and wealth in the community
3. Community common habit and scale of preferences
4. Living standard and spending habit of the people
5. Number of buyers in the market
6. Age structure and sex ratio of the population
7. Future expectations
8. Invention and innovation
9. Fashion
10. Climate or weather condition & Customs
    

Conclusion

In conclusion, we can say that demand analysis is essential for businesses to make informed decisions and optimize operations., Demand analysis is also necessary for production, scheduling, planning of the inventory control and evaluation of the working capital requirements, it can be used for studying the competitiveness of the company for empowering businesses to streamline operations and stay competitive.