Introduction To Demand Analysis

& Forecasting
 Demand analysis
Demand :
the desire or want of something.

Economics meaning:-
“The amount of goods the buyer is willing to purchase at a given price”

CONCEPT OF DEMAND :

Demand for product implies:

•Desires to acquire it, (necessary to buy)

•Ability to pay for it, and

•Necessity to pay for it.

 Introduction to Demand Analysis
• Key Points
• Demand does not only have to do with the need to have a
product or a service, but it also involves the willingness
and ability to buy it at the price charged for it.
• The demand curve for all consumers together follows
from the demand curve of every individual consumer. The
individual demands at each price are added together.
• The negative slope of the demand curve is often referred
to as the “law of demand,” which means people will buy
more of a service, product, or resource as its price falls.
 Demand
• When clients want a product and are willing to pay
for it, we say that there is a demand for the
specific product. There has to be a demand for a
product before a manufacturer can sell it. Demand
does not only have to do with the need to have a
product or a service, but also with the willingness
and ability to buy it at the price charged for it.
• Demand = Desire to acquire + Willingness to pay +
Ability to pay
 LAW OF DEMAND

PD
How the law operates?
P D
5/- 6/- 8/- 10/-

Marshall:-
“The greater the amount to be sold the smaller must be the price”

Benham:-
“Usually a larger quantity of commodity will demanded at lower price that a higher price”
Example of Demand: Andrew’s Grape Jam
• Andrew and his mother, Mrs. Jeffries, decided to earn extra money by
selling grape jam at the local craft market. Mrs. Jeffries would buy the
ingredients and make the jam. Andrew would help his mother seal it
in jars and they planned to sell it at the market on Saturday mornings.
• Before starting to boil the jam, they decided to test the market to see
whether people would be interested in buying their product. Mrs.
Jeffries therefore boiled a few jars of jam and asked their friends and
family if they were interested in buying it and how much they would
be willing to pay for it. Everyone was encouraged to taste some of the
jam before making a decision.
• The results Mrs. Jeffries received is are illustrated in the graph which
indicates the demand at different prices.
Demand Curve: This graph shows the demand curve based on the number of jars and the price.
The line on the graph indicates the way in which the change in price brought about a change in
demand. This is referred to as the demand curve. It specifies the amount of a product according
to the demands for it at a specific price.
 Demand Curve
• In economics, the demand curve is the graph
depicting the relationship between the price of a
certain commodity (in this case Andrew’s jam) and
the amount of it that consumers are willing and able
to purchase at that given price. It is a graphic
representation of a demand schedule.
• The demand curve for all consumers together
follows from the demand curve of every individual
consumer: the individual demands at each price are
added together.
 Law of demand graphical presentation
Quantity
Prices of demanded
Mangoes for Mangoes

5 10
Y
6 8
8 5
10 2
10

8
Price of
mangoes
6

X
2 5 8 10
Quantity demanded
Mangoes
• According to convention, the demand curve is
drawn with price on the vertical axis and
quantity on the horizontal axis. The demand
curve usually slopes downwards from left to
right; that is, it has a negative association (two
theoretical exceptions, Veblen good and Giffen
good). The negative slope is often referred to
as the “law of demand”, which means people
will buy more of a service, product, or
resource as its price falls.
 Key Terms
• Veblen good: A good for which people’s preference for buying
them increases as a direct function of their price, as greater price
confers greater status. As the price gets higher, demand rises.
• straight rebuy: the repurchase of a good with no changes to the
details of the order
• Giffen good: A good which people consume more of as the price
rises; Having a positive price elasticity of demand. As price rises,
more is consumed which increases demand.
• derived demand: when demand for a factor of production or
intermediate good occurs as a result of the demand for another
intermediate or final good
 Linear Demand Curve
• The demand curve is often graphed as a straight line in the form
Q = a – bP where “a” and “b” are parameters. The constant “a”
“embodies” the effects of all factors, other than price, that affect
demand.
• If income were to change, for example, the effect of the change would
be represented by a change in the value of “a” and be reflected
graphically as a shift on the demand curve. The constant “b” is the
slope of the demand curve and shows how the price of the good
affects the quantity demanded.
• The graph of the demand curve uses the inverse demand function in
which price is expressed as a function of quantity. The standard form
of the demand equation can be converted to the inverse equation by
solving for P or P = a/b – Q/b.
 Demand function
The demand for goods is depended up on the various variables. Those variables are…….

Price of Product
px
Advertising Ax
Design/style/quality Dx
Outlets, Distribution Ox
Incomes of consumers Ic
Tastes Tc
Expectations of consumers regarding future prices Ec
Prices related goods Py
Advertising/Promotion of related goods Ay
Design/Styles of related goods
Dy
Outlets of related goods
Oy
Number of People in the Economy
N
Weather Conditions
w

Qx = f ( Px, Ax, Dx, Ox, Ic, Tc, Ec, Py, Ay, Dy, Oy, N, W )
 Shift of a Demand Curve
• The shift of a demand curve takes place when there is a change in any non-price
determinant of demand, resulting in a new demand curve.
• Non-price determinants of demand are those things that cause demand to change
even if prices remain the same—in other words, changes that might cause a consumer
to buy more or less of a good even if the good’s price remained unchanged.
• Some of the more important factors are:
– the prices of related goods (both substitutes and complements)
– income
– population
– expectations
• However, demand is the willingness and ability of a consumer to purchase a good
under the prevailing circumstances. Thus, any circumstance that affects the
consumer’s willingness or ability to buy the good or service in question can be a non-
price determinant of demand. For example, weather could effect the demand for beer
at a baseball game.
 Use of Demand Analysis
• Demand analysis is the process of understanding the
customer demand for a product or service in a target
market.
• Companies use demand analysis techniques to determine
if they can successfully enter a market and generate
expected profits to expand their business operations.
• It also gives a better understanding of the high-demand
markets for the company’s offerings, using which
businesses can determine the viability of investing in each
of these markets
 Steps in market demand analysis
• Market identification
• one of the first steps in market demand is to identify the target market for the
company’s products or services. Surveys or customer feedbacks can be leveraged
to determine the current customer satisfaction levels. Any comments indicating
dissatisfaction can be taken into consideration for planning improvements that
will eventually enhance customer satisfaction.
• Business cycle
• After identifying the potential markets, the next step is to assess the stage of the
business cycle that each market is undergoing. A business cycle ideally comprises
of three stages: emerging, plateau and declining. Markets that are in the
emerging stage show higher consumer demand and low supply of current
products or services. The plateau stage depicts the break-even level of the
market, where the supply of goods meets the current market demand. A
declining stage indicates lagging consumer demand for the company’s goods or
services.
 Steps in market demand analysis
• Product Niche
• Once the market and their respective business cycles have been
reviewed, companies must develop products or tailor their services to
meet a specific niche in the market. Products must be differentiated
from the peers in the market so that they meet the specific needs of
consumers, and thereby create higher demand for the company’s
goods or services.
• Evaluate competition
• A crucial factor of demand analysis is determining the number of
competitors in the market and their current market share. Markets in
the emerging stage of the business cycle tend to have fewer
competitors. This translates to a higher profit margin for your
company.