What is Market Demand?
Market demand refers to the sum of individual demand for a product available in the market. Consider a product available in the market that is facing more demand from consumers. These consumers have the ability to purchase and so, the price of that product instantly rises.
In simple terms, it is the will and the ability of customers to buy a product at a given price.
What Is The Difference Between Consumer Demand And Consumer Desire?
Demand and desire are two different concepts. Many people mix these two concepts by thinking that market demand means a consumer’s desire to buy a product. However, that is not the case.
Desire is the wish to buy. It is not necessary that a customer who desires to buy a product can always afford it. Demand is when the consumer has the full ability to purchase the product at a certain price. As the price of the product changes, the demand for it changes too.
If the product is priced lower, the demand for it increases whereas if the price is higher, the demand eventually decreases. Hence, market demand is inversely proportional to the price of the product.
The Relation Between Market Demand And Supply
Supply and demand are relative to each other. Supply is the number of products available in a market for consumers to purchase. Consumers are always trying to gain profit by purchasing products at a lower cost.
On the other hand, the supplier is always trying to maximize the total profit. However, if the supplier increases the cost of the product, the demand for the same supply would decrease. But, if they lower the cost of the product, there will be a decrease in supply because of increased consumer demand. The solution is to keep a price that will gain the supplier some profit without losing any customers.
Market Demand Example
Market demand is the summation of the total individual’s demand curves.
Consider a shop that sells 1,000 pens on a daily basis. That means the shop has a daily demand of 1,000 pens. However, on weekends, there is an increase in the number of customers. Hence, the demand grows from 1,000 to 1,200. This is just the calculated demand of one shop.
Market demand will include the total demand for pens regardless of the brand or the shop it is purchased from. This is because a pen is a common necessity used by all. If a brand fails at meeting the market demand, it will face a loss of revenue.
As a manufacturer, you need to evaluate the number of pens you manufactured and out of those numbers, how many were sold. The total would be the market demand for pens. To satisfy your current customers or the market that you have targeted, you will need to meet the calculated market demand every day.
So, if your factory is producing 1,000 pens daily and selling 400 out of those units to customers, then the market demand for your product and brand is 400. The potential demands, however, remain at 1,000 since that’s the maximum number of pens you could sell in a day.
In England, when KFC released its very affordable KFC burgers, there was a huge uproar in the market demand. However, this demand did not act much in favor because KFC ran out of more than 90% of burgers in several outlets located in London.
This turned out to be a huge loss in the opportunity because once KFC exhausted its supply, its potential customers reached out to Burger King, McDonald’s and other such outlets. This is exactly why measuring demand is so important.
Market Demand Analysis
There are 8 different types of market demands that you need to understand:
When a product is disliked collectively by all the customers, it is called a Negative Demand. The product despite being in a good shape, affordable price range and in available supply, faces the dislike of the consumers because they don’t need it.
The sellers need to manipulate the buyers into buying the products. For instance, people choose more traditional alternatives or preventive measures rather than afford services like insurance, dental health, etc.
Unwholesome Demand, in many ways, is a part of Negative Demand. These two demands are almost similar. However, the difference between Negative and Unwholesome Demand is that in Unwholesome Demand, the consumer must not desire to buy the product even when he is desperately willing to do so.
For instance, alcohol, drugs, pirated movies, and firecrackers are a few things that are highly desired by consumers. But the demand is compressed because of restrictions that consumers must put on themselves from buying these.
Latent Demand is meant for those demands of consumers for products that are not yet available in the market. There are many things that technology has made possible. However, there are still many other things needed by people that are yet to be made by manufacturers.
In some cases, there are some products which are invented to fit these demands. However, these products soon run out of stock because of its popularity and high demand. For instance, even though our smartphones have evolved really fast, there are still so many other features we desire our phones to have.
Just like the name suggests, Declining Demand refers to the decrease in the demand for a product in the market. The reason behind the decline might vary for every product.
In some cases, it may be because of new inventions of products that replace the old ones. In other cases, it might be because of an increase in price or a decrease in the quality of the product. For example, people shift from one model of phone to another because of the availability of new features.
This type of demand can be very threatening for business. The chances of Non-existing Demand increase when there is fairly less marketing research done by the company.
In such cases, the company stays delusional thinking that their product is in a positive demand in the market. But, in actuality, the product has zero market demand. This is one of the major ways for a company to lose its overall market value.
In simpler words, if a company keeps running a product or a service without analyzing the market demand, it will keep suffering losses. For instance, if a coaching center continues its classes without gaining more students, it is bound to fall apart eventually due to loss.
Full Demand is essentially the best demand of all. This means that a product or a brand has fully captured the attention and interest of the consumers who have the ability to buy. This is when supply and demand go hand-in-hand.
There is a balanced relationship between the company and its customers. The customers are loyal towards the brand and the brand ensures that all of the customers are satisfied with the products or services. This is also a full-market-coverage demand. This means that the brand has covered almost all of the market.
For instance, several high-end KKW and Jeffrey Star make-up products seem to be gaining lots of profits and demands from customers.
Irregular Demand can be really exhausting for a brand. The company will need to keep working on its marketing skills repeatedly to create more demands. The sale of a product keeps fluctuating in an Irregular Demand. Sometimes it may reach its top sales, whereas other times it can draw losses.
This happens mostly when the brand is selling seasonal products or products meant for one-time use. For instance, ACs, heaters, seasonal clothes face continuous fluctuations.
As the name suggests, Overfull Demand takes place when the brand has a lower capacity to manufacture items than its high demand in the market. In simpler words, there is more demand and not enough supply to satisfy consumers.
In such cases, companies try to protect brand equity by de-marketing the product. This way, demand lowers, building an equivalent ratio between supply and demand.
For example, cement companies use this technique. This is because companies have lower cement supply or manufacturing strength as compared to the occasional high demands. So, to keep their customers from reaching out to other brands, these companies use de-marketing techniques so that they won’t have to face any losses.
Calculating and forecasting market demand is mandatory for any brand. If a company estimates the market demand for its products, it can derive the marketing techniques it requires to increase profits. For example, for lower supplies, it can manufacture the product and deliver it to the retailers who can thereby increase the sales.
Another important factor is the competition in the market. Despite having the right product, you do not want to lose supplies and thus lose opportunities to increase your sales.
An opportunity loss occurs when market demand is not corrected accurately. This leads to wrong assumptions in the supply needed. As a result, customers start turning towards other brands. On the other hand, overestimating market demand will lead to an excessive supply of products.
This will cause more loss than gain. You need the exact demand calculations to derive the supply. The focus should be not on how to create more products but on how to keep a balance between supply and demand. That way, you will not incur any loss or the wrath of your consumers.
Market Demand Conclusion
Market Demand is the ability and willingness of a customer to buy a product at the available cost in a market.
Consumer desire is the wish to buy a product, irrespective of what they can afford. Consumer demand is the desire to buy the product with the ability to afford it.
Demand and Supply go hand-in-hand. If the demand increases, supply decreases. If the demand decreases, supply increases.
There are 8 different types of demands: Negative, Unwholesome, Latent, Declining, Non-existing, Full, Irregular, and Overfull Demands.
Estimating lower market demand can lead to opportunity loss because there will be less supply of products.
Estimating higher market demand can cause excessive cost production because there will be more than the necessary supply of products.
1. What is market demand?
Market demand is a measure of a consumer's desire and ability to buy a product.
2. How do you determine market demand?
You can determine market demand by conducting a study or research to find out how many people would love to purchase your product.
3. What is market demand function?
The market demand function is a graph that shows how much of a product or service will be purchased at different prices.
4. What are the 4 elements of market demand?
The four elements of market demand are:
Price of related goods
Taste and preferences of consumers
Consumer expectations about future price changes, income
5. How do you calculate market demand?
Market demand is calculated based on the number of people who could buy and how much they are willing and able to spend. If 30,000 people can afford it and all 100% are willing to buy your product, the market demand is 30,000.