Factors Influencing Demand in Business | The Factors Which Lead to a Change in Demand Explained

Summary

This video explores the factors that influence changes in demand for products and services in business. It explains that while price is a key factor, others like substitute and complementary goods, consumer income, advertising, trends, demographics, and external shocks also play a crucial role. Real-world examples are provided, such as Black Friday sales and the impact of the COVID-19 pandemic. The video highlights the importance of understanding these factors to predict demand accurately, ensuring businesses avoid excess stock or missed sales opportunities.

Takeaways

• 📊 Demand refers to consumers' desire to purchase products and services at specific pricing points and times.
• 💸 Overestimating demand can lead to excess stock and wastage, while underestimating it can result in missed sales opportunities.
• 🔄 The law of demand states that lower prices usually lead to higher demand, as seen in events like Black Friday.
• 🏷️ Changes in the price of substitute products impact demand; lower prices from competitors can reduce demand for a business's goods.
• 🤝 Changes in the price of complementary goods can have a domino effect, influencing the demand for both related products.
• 💰 Consumer incomes significantly influence demand, with higher incomes boosting demand for premium goods, and lower incomes increasing demand for basic goods.
• 👗 Changes in consumer tastes, preferences, and trends can cause demand to fluctuate, as seen with fad products like fidget spinners.
• 📣 Advertising and strong branding can help maintain or increase demand, as seen with companies like Apple and Nike.
• 👥 Demographics play a crucial role in demand, with businesses targeting specific groups based on factors like age, gender, and income.
• 🌍 External shocks, such as the COVID-19 pandemic or natural disasters, can drastically reduce demand due to economic instability and changing consumer behavior.
• ❄️ Seasonality affects demand, with certain products seeing higher sales during specific seasons, like ice cream in summer and winter coats in winter.

Q & A

What is the definition of demand in a business context?

In business, demand refers to the consumers' desire to purchase products and services at a specific pricing point and time. It's a critical measure that businesses analyze to estimate how much of their products or services consumers are willing to buy.

Why is it important for businesses to accurately estimate demand?

Accurately estimating demand is crucial because overestimating can lead to excess stock and wastage, costing the business money, while underestimating demand can result in missed sales opportunities as customers want more than the business can supply.

What does the law of demand state?

The law of demand states that the lower the price, the higher the demand. For example, sales events like Black Friday attract large crowds because prices are reduced, which increases demand for products.

What impact does the price of substitute products have on demand?

If a competitor offers a substitute product at a lower price, the demand for the original business's product will likely decrease as consumers switch to the cheaper option. Conversely, if competitors raise their prices, demand may increase for the original business's product as customers seek a more affordable option.

How do changes in the price of complementary goods affect demand?

The price of complementary goods, which are often purchased together (like hot dog buns and hot dog sausages), impacts demand. If the price of one good rises, it may decrease demand for both that product and the complementary product.

How do changes in consumer income affect demand for different types of goods?

As consumer incomes increase, demand for premium or luxury products rises due to higher disposable income. Conversely, when incomes decrease, demand for basic, lower-priced goods tends to increase as consumers become more price-conscious.

What role do consumer tastes, fashions, and preferences play in determining demand?

Consumer tastes, fashions, and preferences can quickly shift, impacting demand. For example, fads like fidget spinners may see a spike in demand, followed by a rapid decline when consumer interests change.

How does advertising and branding influence consumer demand?

Effective advertising and strong branding can increase sustained demand by influencing consumer perceptions and trust. Well-executed marketing campaigns help businesses remain relevant in highly competitive markets, as seen with companies like Apple and Nike.

What is the impact of demographic factors on demand?

Demographic factors such as age, gender, and income level influence demand. Businesses that align their products with the demographics of their target market will experience higher demand. Some businesses create product ranges tailored to different demographic segments, such as McDonald's offering Happy Meals for children.

What are external shocks, and how do they affect demand?

External shocks are unpredictable events that impact the economy, such as natural disasters, stock market crashes, or the Covid-19 pandemic. These events can reduce consumer confidence and disposable income, leading to a significant decline in demand for certain products and services.

How does seasonality affect demand for products and services?

Seasonality refers to how demand changes with the seasons. For example, demand for ice cream or camping gear is higher in the summer, while demand for winter coats and slippers increases in the colder months. Businesses need to manage stock and resources accordingly to meet seasonal demand shifts.