Market Demand: Meaning and Determinants

In a varied and expanding Economic setting, with various products and services, and ever-increasing manufacturers, service providers, and marketers, market demand serves as the fulcrum of all Economic activity. Simply put, market demand is the demand for a product in the market. In even simpler terms, it is a product or service measured by its consumption, need, and usage rate by the consumer market.

The more the market demand for a product, the more is its supply, and thereby, the more revenue the product may generate, and more is its demand in marketing. Market demand is not directly tied to the pricing of a product. Likewise, there is no direct correlation between market demand and the value of a product. A product's price is determined largely by the elasticity of demand, the cost of production, shortage or excess of the product in the market, import/export duty, etc.

An even granular definition of market demand is that it is the total of individual demand. In a market, if more buyers enter owing to an increase in demand, the market demand for a product increases – this is a way to derive market demand definition. Importantly, suppose the potential buyers can pay for the product. In that case, the market demand for the product is a realistic one and not an estimated one or an optimistic one.

Did you know? The substitution effect and income effect can influence market demand. The former is when another or similar products substitute a product. The latter is a consequence of purchasing power in a demographic.

What is Market Demand in Traditional Marketing?

Marketers have defined the market in various ways, depending on their product strategies, product positioning, portfolio, product vision, and several other factors. To define market demand is not easy because one marketer’s version of market demand may not be similar to another’s. However, here are some of the elements of market demand that all marketers take into consideration.

Product

Market demand meaning in the context of a product is estimating the demand for a product in its specific industry, in its demography, in a region, or specific use-cases. Therefore, a marketing team first defines the scope of a product, its vision, its intended churn, its proposed customer base, and the final output of the marketing efforts concerning the product.

Total Volume

Sales volume may indicate market demand. It could be in the form of the total value or the form of the total number of units sold. Adjudicating the value proposition of a product is a new-age marketing theory and practice. Marketers use this as a benchmark to estimate or sell the market demand for a product in terms of the value it has created. For example, a drug company can quantify market demand for a product based on the number of people who have been cured in the region, the number of active cases of that illness in that region, customer reviews, customer satisfaction, etc. The drug company may not necessarily factor in the number of units sold of the product.

Customer Groups

The demand for a product is sometimes expressed in terms of the different customer groups that have purchased it. Customer groups could be categorized as institutional, individual, or industrial, to name a few. If the demand for a product is far-reaching and cuts across customer categories, it means that the product's demand has breadth. If the demand for a product is used with great detail, interest, assimilation, and is part of the daily culture, the market demand for the product is said to have depth. These are some of the yardsticks that marketers employ to derive the market demand for a product or service.

Time Duration

Market demand is seasonal or cyclical. The demand for a bike model may not be the same several years after. There are some products where the demand is seasonal, such as woollen wear, which are very much in demand during winters. There are some products where the demand is cyclical. Therefore, the time factor is considered when estimating demand for a product. There are, however, a large number of products and services that have constant, perennial, and uninterrupted demand. All of these considerations are taken by marketers to arrive at a market demand estimate.

Solved Examples

The following is an example of a market demand curve diagram.

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As depicted in the figure, the market demand curve is the curve formed from individual demand curves based on a market schedule and summing the individual demands at different price points.

An individual demand curve displays the demand of an individual. But in a market, the total demand of all individuals in the market is required. As per the following table, it displays a schedule:

The demand curves of individuals in the market are summed. The figure below represents the composite curve.

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Types of Market Demand

The following are the types of demands in marketing.

• Joint Demand

Is applicable for complementary products and services. For example, cereal and milk can be purchased together. Jelly and peanut butter are complementary products.

• Composite Demand

A product may have multiple uses; thereby, it can draw demand in multiple customer categories. 

• Short-Run Demand and long-Run Demand

Short-run demand is applicable for products dependent on the manufacturer's production cost. Long-run demand is not immediately dependent on Economic factors because the demand can sustain itself.

• Price Demand

This relates to the price a customer is willing to pay for a product. For example, a real estate property's last recorded demand is its last selling price or the last sold price of a property in that vicinity.

Fun Facts about Market Demand

• More marketers are spending time in generating ‘interest’ more than focusing on conversions. 64% of Internet marketers are engaged in search engine optimization.

• Marketers are approaching mobile users more because more than 60% of market demand is generated by way of mobile phone users who search for products, purchase, and transact all via their smartphones.

• Trade wars create more demand for a product. Two trade-warring countries can generate more demand for particular products that they have dependencies upon.

• Another driver for demand is the fear of shortage. The scarcity of a product or service increases its demand, especially if the product or service is highly useful or rare.

Demand from Customers

The quantity of a commodity or service that consumers are willing and able to acquire at a given price is referred to as 'demand' in Economics. Demand describes what people are actually able to buy, as opposed to what they want to buy. Because commodities are guided by market prices, not all demands can be fulfilled. Consumers would desire to buy less of a good at higher costs, and vice versa at cheaper prices. The famous law of demand is based on this relationship.

Another reason wishes differ from real consumer decisions is that customers are limited by their financial resources. A consumer's ability to acquire a commodity is limited by his cash income. As a result, demand reflects both the willingness and the ability to consume. Consumer preferences represent willingness, whereas constraints such as money income and prices (budget) represent capacity.

The Curve of Market Demand

The knowledge of all individual demand curves is required before creating a market demand curve. The market demand curve can thus be easily drawn from the market demand schedule. We can acquire alternative price-quantity combinations for the market demand curve by summing individual desires at different prices.

The rule of demand also applies to the market demand curve, which slopes downward. If the market is large enough, a small sample of representative consumers can be used to calculate market demand by multiplying their average quantities by the total number of consumers in the market.

Conclusion

Market demand is the demand for a product in the market measured by its consumption, needs, and usage rate. Market demand is not directly tied to the pricing of a product. A product's price is determined largely by the elasticity of demand, the cost of production, shortage or excess of the product.