5 Factors that Affect Demand
So we are in a pandemic, the economy has been hit pretty bad. People just aren’t buying as much! The pandemic created a domino effect, to understand that domino effect we have to understand demand.
What is Demand?
We cannot understand the factors that affect demand, if we do not know what demand is. So, we will begin to by defining demand. According to Investopedia, “demand refers to consumers’ desire to purchase goods and services at given prices.”
When you talk about desire, this includes things that we eat need to buy and things that we want to buy. For example, If you work for construction then you would need to buy construction shoes. That is something you desire to buy for particular price because you need it; however, you may not need to buy the book you’ve been wanting to read from Barnes & Nobles, but you want to.
If that book is too pricey, then you could probably live without it. So, how much you are willing to pay for that book affect the demand on that book.
With that said, we can establish that one of the first and most important factors that affect demand is price.
So, what does that mean for you as a business owner? you may find that if you lower your prices there will be more demand on the products that you’re looking to sell. You may even want to monitor how the market is shifting, and if necessary then you can shift the way you deliver your products and the placement of your product as well. For example during this pandemic, it was a lot harder for people to go shopping inside physical stores, so a lot of stores decided to have an online alternative and some even closed down their physical locations all together.
What Affects Demand?
Price is one of the things that affects demand; However, as you’ve probably guessed it is not the only thing.
So what are the other things that may affect demand?
Income greatly affects demand.
When you’re working and your business is doing great, you feel like you can buy more things that you want, or even take vacations, or even do something that you normally wouldn’t do if your business was not doing as well.
This is because you feel like you have more money to spare. So apart from the essential foods that you have to buy, your income level will either increase or decrease the demand for certain goods and services.
Other things that may affect demand are things like population size, competition, taste or preference, and expectations.
2. Population size.
You may be thinking that population size would mean that more people equals more demand; however, this is not what we are referring to when we talk about population size. In the case of demand, Population size would determine what kind of products and services would be sold. For example, if the population has a lot more children than any other age group, there will be a higher demand for manufacturing baby bottles. If the population has a lot more elderly people, then there might be a higher demand for vans that are designed to facilitate elderly transportation.
What this means for you as a business owner is that based on the population size you can shift your target audience and tailor your product to fit the needs of the current population size and the demand within that population.
As always in business you have to keep watch over your competitors, so needless to say competition has a big influence on demand. In the case of demand, if you change your prices then your competition may be a good substitute for your product or service. For example, if your competitor drops their prices then their demand might increase while your demand decreases. Therefore it is important to keep in mind that competition may also affect the demand on your product as a business owner.
4. Taste or Preference
If there is a change in taste or preference and it might change the demands on a particular product or a particular service. For example the demand on dairy product has significantly decreased as the demand for non-dairy substitute increased. There are more non-dairy milks today like almond or soy oat or coconut that can act as a substitute for dairy milk, so we can see in this case that the demand for milk has shifted because there was a shift in taste or preferences that the consumers had before.
The last Factory that we want to discuss today is expectations. This is something we saw very clearly at the beginning of the covid-19 pandemic. At the beginning of the pandemic, people assumed that there would be a shortage and toilet paper and cleaning supplies, so they went out and bought as many of these products as they could. As a result demand for such supplies skyrocketed.
What people assume will happen whether it is a drop in price or a significant event that is going to take place can drive up demand for certain products.
So, to recap the five factors that affect demand are income, population size, competition, taste or preference, expectations. Of course there are other factors that could affect demand; however, for our purposes today we chose the most prominent of these factors. If you like this article, please don’t forget to share it with your friends and colleagues on your social circles.