DEMAND ANALYSIS

1. What are the sources of demand

2. What are the determinants of demand

3. How do the buyers decide the quantity of the product to be purchased

4. How do the buyers respond to change in product prices, their income and prices of related products

5. How can the market demand for a product be assessed and forecast

THROUGH ANALYSIS OF DEMAND BUSINESS EXECUTIVES CAN KNOW :

1. FACTORS WHICH DETERMINE THE SIZE OF DEMAND

2. ELASTICITIES OF DEMAND- RESPONSIVENESS OR SENSITIVITY OF DEMAND TO THE CHANGES IN ITS DETERMINANTS 3. POSSIBILITY OF SALES PROMOTION THROUGH MANIPULATION OF PRICES
4. RESPONSIVENESS OF DEMAND TO THE ADVERTISEMENTS 5. OPTIMUM LEVEL OF SALES, INVENTORIES, AND ADVERTISEMENTS

BASIS OF DEMAND

Consumer Behaviour

BASIS OF DEMAND

UTILITY

From the product angle

From the consumer angle

Want satisfying property of a commodity

Satisfaction Pleasure Happiness Well-being SUBJECTIVE

ABSOLUTE

UTILITY

Total Utility Sum of utility derived from various units of over a period of time

Marginal Utility Utility derived from one additional unit consumed OR Addition to the total utility resulting from consumption of one additional unit

Ux = u1 + u2 + u3 + u4

MUx =

TUx Qx

DIMINISHING MARGINAL UTYILIY

Units of commodity Total Utility X (Tux) 1 30 2 50 3 60 4 65 5 60 6 45

Marginal Utility (MUx)

30 20 10 5 -5 -15

MEANING OF DEMAND

MEANING
DESIRE TO BUY A COMMODITY NEED TO POSSESS A COMMODITY WILLINGNESS TO PURCHASE THE COMMODITY ABILITY TO PURCHASE THE COMMODITY

CONSTITUTES

DEMAND

1. Quantity demanded of a commodity DEMAND FOR A COMMODITY SHOULD INDICATE

2. Price at which it is demanded

3. Time period over which it is demanded 4. The market area in which it is demanded

INDIVIDUAL DEMAND AND INDUSTRY DEMAND

INDIVIDUAL DEMAND DEPENDS UPON

1. THE INCOME OF THE INDIVIDUAL 2. THE PRICE OF THE COMMODITY

3. THE PRICE OF THE SUBSTITUTE

4. THE TASTES AND PREFERENCE OF THE CONSUMER 5. SOCIAL CONVENTIONS

INDUSTRY DEMAND

INDUSTRY DEMAND

QUANTITIES DEMANDED BY INDIVIDUAL CONSUMERS AT DIFFERENT PRICES

INDUSTRY DEMAND FOR PRODUCT X PRICE OF NUMBER OF UNITS DEMANDED BY X IN RS. A B C D TOTAL

5 4 3 2 1

0 1 2 4 5

0 1 3 4 6

1 2 4 5 7

1 2 4 5 8

2 6 13 18 26

INDUSTRY DEMAND IS THE AGGREGATE OF INDIVIDUAL DEMAND SCHEDULES

10 9 8 PRICE 7 6 5 4 0 | 1

..

.
.

.
| 7

.
| 8 | 9

.
| 10
x

| 2

| 3

| 4

| 5

| 6

QUANTITY DEMANDED

PRICE-DEMAND RELATIONSHIP

DEMAND SCHEDULE

PRICE OF X (IN RS.) 10 9 8 7 6 5 4

QUANTITY DEMANDED (NO OF UNITS) 2 4 6 7 8 9 10

TYPES OF DEMAND

DERIVED DEMAND

1
2 3 4 5 6 7

AUTONOMOUS DEMAND
DEMAND FOR PRODUCERS GOODS DEMAND FOR CONSUMERS GOODS DEMAND FOR DURABLE GOODS DEMAND FOR NON-DURABLE GOODS NEW AND REPLACEMENT DEMANDS INDUSTRY DEMAND FIRMS DEMAND SHORT RUN DEMAND LONG RUN DEMAND
TOTAL MARKET AND MARKET SEGMENT DEMAND

GOODS Consumers Goods Producers Goods

DURABLE Clothes Houses Furniture TV Refrigerator Cars

NONDURABLE Soaps Salt Milk TV Gas Drinks

DURABLE Building Plant Machinery Office Furniture

NONDURABLE Raw-materials Fuel & power Packing Material

DETERMINANTS OF DEMAND

Factors Determining Demand

1. Price of the commodity

2. Other Factors which include

(a) Income of the consumer (b) Consumer tastes & preferences (c) Prices of related goods (d) Expectation of future price changes (e) Advertising efforts (f) Quality of the product (g) Distribution of wealth (h) Standard of living (i) Age structure and sex ration population (j) Level of taxation (k) Climate or weather condition (l) Population

PRICE EFFECT

INCOME EFFECT

SUBSTITUTION EFFECT

If price falls
Real income increases If income increases Demand increases

Kerosene oil, LPG, Electricity

If price of one falls There is a substitution

DETERMINANTS OF MARKET DEMAND

PRICE OF THE PRODUCT

WHEN PRICE INCREASES CONSUMERS PURCHASE LESS DEMAND FALLS

WNEN PRICE DECREASES CONSUMERS PURCHASE MOREDEMAND RISES

OTHER THINGS REMAINING CONSTANT 1. INCOME OF CONSUMERS 2. PRICES OF SUBSTITUES & COMPLEMENTARY GOODS 3. CONSUMERS TASTES AND PREFERENCES NUMBER OF CONSUMERS

4.

PRICE OF RELATED GOODS

SUBSTITUTES

COMPLEMENTS

RISE IN PRICE OF X INCREASES DEMAND FOR SUBSTITUTE Y TEA AND COFFEE

THEIR DEMAND CHANGES SIMULTANEOUSLY WHEN PRICE CHANGES PETROL AND CARS

CONSUMERS INCOME
ESSENTIAL GOODS
QUANTITY DEMANDED OF THIS CATEGORY OF GOODS INCREASES WITH INCREASE IN CONSUMERS INCOME ONLY UP TO A CERTAIN LIMIT, EVEN THOUGH TOTAL EXPENDITURE MAY INCREASE IN ACCORDANCE A COMMODITY IS DEEMED TO BE INFERIOR IF ITS DEMAND DECREASES WITH INCREASE IN CONSUMERS INCOME ARE THOSE WHICH ARE DEMANDED IN INCREASING QUANTITIES AS CONSUMERS INCOME RISES--- RAPIDLY , THEN SLOWS DOWN DEMAND FOR SUCH GOODS ARISES BEYOND CERTAIN LEVELS OF CONSUMERS INCOME

INFERIOR GOODS NORMAL GOODS PRESTIGE OR LUXURY GOODS

CONSUMERS TASTES AND PREFERENCES

PLAY AN IMPORTANT ROLE IN DETERMINING THE DEMAND FOR A PRODUCT

WHICH DEPEND UPON 1. CHANGING FASHION 2. SOCIAL CUSTOMS 3. RELIGIOUS VALUES 4. HABBITS 5. LIFE-STYLE 6. AGE 7. SEX

ADVERTISING

Creates awareness

Arouses curiosity

Initiates action Creates demand

DEMAND SCHEDULE, DEMAND CURVE AND DEMAND FUNCTION

PRICE-DEMAND RELATIONSHIP

DEMAND SCHEDULE

PRICE OF X (IN RS.) 10 9 8 7 6 5 4

QUANTITY DEMANDED (NO OF UNITS) 2 4 6 7 8 9 10

INDUSTRY DEMAND FOR PRODUCT X PRICE OF NUMBER OF UNITS DEMANDED BY X IN RS. A B C D TOTAL

5 4 3 2 1

0 1 2 4 5

0 1 3 4 6

1 2 4 5 7

1 2 4 5 8

2 6 13 18 26

INDUSTRY DEMAND IS THE AGGREGATE OF INDIVIDUAL DEMAND SCHEDULES

10 9 8 PRICE 7 6 5 4 0 | 1

..

.
.

.
| 7

.
| 8 | 9

.
| 10
x

| 2

| 3

| 4

| 5

| 6

QUANTITY DEMANDED

CHARACTERISTICS OF DEMAND QUANTITY DEMANDED IS A FUNCTION OF PRICE

PRICE IS AN INDEPENDENT VARIABLE
DEMAND IS A DEPENDENT VARIABLE

DEMAND FUNCTION =

QD = f(P)

OTHER FACTORS AFFECTING DEMAND

QD = f((P) OTHER FACTORS AFFECTING DEMAND ARE: PRICE ------P TASTES & PREFERENCES ----------- T INCOME--------- I SO THE FORMULA CAN BE RESTATED AS :

QD = f(P,T,I)

DEMAND ANALYSIS---

APPLICATIONS

DEMAND ANALYSIS
OVERVIEW

Demand Relationships Demand Elasticities Income Elasticities Cross Elasticities of Demand

1999 South-Western College Publishing

MANAGERIAL USES
DEMAND ANALYSIS Serves Two Major Purposes FORECASTING DEMAND MANIPULATING DEMAND

DEMAND ELASTICITY Ancillary Functions 1. Appraisal of performance of a salesman 2. Fixing sales quota 3. Companys

DEMAND MANIPULATION Private Airlines Potential WILLINGNESS

Marketing Strategy

Created

DESIRE ABILITY

Effective Demand

Loyalty Programmes On Line Bookings Other Frills

Growth in Demand

FEASIBILITY STUDIES

Business Prospects Sales/Expansion/ Diversification Sales volume Demand

Payback Period Revenue Generation Sales volume

Demand

DEMAND ANALYSIS

SALES MANAGEMENT

Fixation of sales targets

Assigning sales territories

Salesmans compensation

Deciding on distribution channel

DEMAND ANALYSIS

WAREHOUSE ANAGEMENT

Location of warehouse

Size of warehouse

Warehouse economics

DEMAND ANALYSIS

INVENTORY MANAGEMENT

DEMAND ANALYSIS

SUPPLY & DEMAND CONSUMPTION PATTERN

LOCATION INVENTORIES
SIZE OF INVENTORIES

INDIVIDUAL DEMAND AND INDUSTRY DEMAND

INDIVIDUAL DEMAND DEPENDS UPON

1. THE INCOME OF THE INDIVIDUAL 2. THE PRICE OF THE COMMODITY

3. THE PRICE OF THE SUBSTITUTE

4. THE TASTES AND PREFERENCE OF THE CONSUMER 5. SOCIAL CONVENTIONS

PROMOTION STRATEGY

PRICE EFFECT ON DEMAND INCOME EFFECT ON DEMAND

Value for money. High prices Discounts, Add-ons, Better service

Positioning products as high end products. Maruti esteem as the Big car Companys focus on explaining the advantages of the product more persuasively than the competitors Advertising creates an image of the Brand which will sell

SUBSTITUTION EFFECT ON DEMAND