DEMAND ANALYSIS

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DEMAND ANALYSIS

 

Demand for goods and service constitutes one side of the product market which is essential for the creation, survival and the profitability of a firm. If there is no demand for a good, there is no need to produce that good. The demand for the product plays a major role to achieve the objective of a firm (Maximize the revenues and profits).Since production takes time; the business manager needs to know the likely demand at a future date to plan the production level properly. To know the likely demand for the goods or services, the manager has to analyze the factor that influences the demand. 

 

Importance of Demand Analysis

Businesses often spend a considerable amount of money in order to determine the amount of demand that the public has for its products and services. Incorrect estimations will either result in money left on the table if it’s underestimated or losses if it’s overestimated. Demand analysis is necessary for a decision maker to determine his production schedule. Information on the magnitude of demand helps management in planning for its requirements of raw materials, the size of the plant to be installed, man power and financial resources etc. It also helps to forecast sales of a product and formulate appropriate marketing strategies In fact Demand analysis is an area in economics that has been used most extensively by business mangers.

 

Meaning of Demand Analysis

Demand analysis is the Study of sales generated by a good or service to determine the reasons for its success or failure, and how its sales performance can be improved on the basis of factors affecting the demand. It seeks to identify and analyze the factors that influences the demand

 

In simple term, demand analysis is a study of the reasons underlying the demand for a product with the intent of forecasting and anticipating sales.

 

Meaning of Demand

Demand in economics means ‘Effective demand’, which can be defines as a desire backed by willingness and ability to pay for a particular product. Thus for a demand to be effective three important factors are important.

  • Desire to Buy
  • Willingness to buy
  • Ability to buy

In other terms, demand is a consumer’s desire and willingness to pay a price for a specific good or service.

In the words of Prof. J. Harvey, “Demand in economics is the desire to possess something and the willingness and the ability to pay a certain price in order to possess it”.

 

Characteristics of Demand   

Demand has the following four characteristics

  1. Price

Demand is always related to price.

  1. Time

Demand always means the amount to be purchased at a particular time like per unit of time, per day, per week, per month or per year.

  1. Quantity

Demand is always specific quantity, expressed numerically, which a consumer is willing to purchase.

  1. Market

Demand is always related to the market. Market here simply refers to the contact between buyers and sellers.

 

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