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What Is Market Demand?

A farmer may choose to let a field go fallow for a season if the market demand for his crops collapses.
If supply exceeds demand, companies may offer lower prices to entice consumers to purchase a particular product.
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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 14 December 2014
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Market demand is defined as the total amount of purchases of a product or family of products within a specified demographic. The demographic may be based on factors such as age or gender, or involve the total amount of sales that are generated in a particular geographic location. Assessing market demand is one of the most important ways that businesses decide what to sell and how to go about selling the products they produce.

Properly assessing the market demand for a given product is very important. Failure to accurately project the desirability of a good or service can lead to production levels that are in excess of the number of units that will actually be sold. As a result, the company is left with a huge inventory of finished goods that generate no profit at all. In some cases, failing to project market demand properly is enough to force a company to go out of business.

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The most common way to evaluate the desirability of goods and services within a given demographic is to implement a structured market demand analysis. Essentially, this process seeks to identify consumers who are attracted to the products enough to actually purchase them. As part of the market analysis, the research helps to identify the size of the market. This makes it possible to determine if the company needs to cultivate consumer interest in a particular demographic in order to generate new business or cultivate several different markets concurrently as a means of remaining profitable.

Because market demand can change over time, companies invest resources in constantly checking the current status of consumer wants and needs. This ongoing process often allows companies to remain competitive with other businesses who also target the same markets, as well as keep the interest of current customers by making improvements to existing products and possibly introducing new products that are also of interest to those same customers. For example, a business that produces lawnmowers may introduce a special line of lawn mower blades, if the marketing survey indicates consumers would be attracted to the new product in sufficient numbers to make the effort profitable.

A solid market demand strategy can also help businesses identify upcoming trends before the competition. For example, a few office equipment manufacturers during the 1970's utilized findings from market surveys to project that typewriters would lose appeal as desktop computers became more user friendly. As a result, those companies were able to create strategies that allowed them to incrementally scale back the production of typewriters while slowly implementing the production of the compact computers. Because they properly assessed market demand, those companies were able to remain profitable during the 1980's and beyond as the desktop computer became a staple in both the home and the office.

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Discuss this Article

Jase
Post 6

To those talking about focus groups, I agree with what's been said already, but just wanted to add a little. When we started our company, getting people to attend our focus group was part of our startup process. We didn't have a lot of money, and obviously didn't have a big enough budget for any kind of decent advertising or marketing. So our goal of the focus group was to demonstrate and get a group of 50 people to use our product and service and to review it, give opinions, thoughts, complaints and suggestions, and what they liked/disliked about it and what they liked better than our competitors and what they didn't. It was a great way to spread the word.

We had 50 people come in, and at the end of it we were lucky to have built a solid product and service that they were all happy with. They were all given our business cards, which had our company name and website address on it and they were also told when our launch date would be. Without any other form of advertising, we had over a thousand unique hits to our site within its first week.

Now while this approach won't work for everyone (in terms of expecting large volumes of traffic coming from a focus group), it is a great way to get to know how people expect to be able to use a service/product, what they like/dislike about yours, and what they like/dislike about competitors. You can learn so much from a focus group meeting.

BrickBack
Post 3

Subway11- Let me answer that question for you.

Yes they do. However, most focus groups are put together when a company wants to seek competitive information or wants to know why their product does not perform in a way a company feels it could.

For example, a retailer might want to consider why they can not sell vacuums as well as their competitors. A focus group would then be formulated with the companies target demographics in mind.

Next, they may ask participants in the group to offer their opinion about vacuums in general and where and why a particular place is their favorite.

This will help the company seeking the study use the information which might change regarding adjusting its product assortment or even its customer service standards. Perhaps, the problem might be the price that the retailer traditionally charges.

subway11
Post 2

Sunshine31-Good point, but don’t market research companies also use focus groups to obtain feedback as well?

I know because I was asked to be in one once. It was for two hours and we were asked about our opinions on various coffeemakers. There was only about eight of us and we were paid for our time. I think it was about $150.

sunshine31
Post 1

Excellent article- I just want to add that many companies consider doing market research studies during a new product implementation.

It is at this point that market research demand is greatest. Companies will hire market research firms to develop market research reports on how the consumer feels about a product or service.

A market research firm will screen consumers in the companies target demographic and have them fill out a survey to determine their opinion of the product or service, as well as determine if this consumer is a likely buyer for this product.

If the market research company agrees that this particular consumer fits the target demographic and might be a likely buyer then the subject might receive a sample of the actual product and asked to offer feedback after the target used the product.

This valuable feedback is then offered to the company that requested the study and the product is formulated and marketed based on the study.

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