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.
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.