×

Market Demand

Top
Download PDF
FAQ

What is Market Demand?

Bookmark added to your notes.
View Notes
×

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.


(image will be uploaded soon)


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:


Price Per Kilo

The Demand of A - Kilo Every Month

The Demand B - Kilo Every Month

The Demand of C - Kilo Every Month

Market Demand (Kilo per Month)

2

40

45

18

103

4

30

35

16

81

6

24

30

13

67

8

18

20

12

50

10

14

15

11

40

12

10

13

8

31


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


(image will be uploaded soon)


Types of Market Demand

The following are the types of demands in marketing.

  • Joint Demand:

Is applicable for complimentary 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.

FAQ (Frequently Asked Questions)

1. Can High Search Volume Indicate Market Demand for a Product?

Ans: It depends on the demand definition in marketing on how the marketers of the product want to estimate market demand. Some marketers are more interested in conversions – that is, if the customers are actually buying the product. Some marketers are only interested in generating as much market demand to increase the brand's visibility and recall in the market.

2. What is Geographic Demand? Can Google Trends be Used for This?

Ans: Geographic demand can be checked via Google Trends, where a trend chart is shown plotting the demand for a product region-wise. Calculating market demand based on search trends region-wise is used in pre-sales and pre-marketing.

3. What are the Tools to Calculate Market Demand?

Ans:

  • Qualitative Tools – Buying intention survey, salesforce opinion, Delphi methodology.

  • Quantitative Techniques – Short term forecasting, long term forecasting.

4. What is a Marketing Program for Market Demand?

Ans: A marketing program for market demand is a program that is designed to increase the awareness of a product or service in the market. This type of marketing program primarily serves to increase the demand for a product in specific markets or all types of markets. A combination of traditional and digital marketing techniques are used to achieve this. Market demand in economics is categorized into types.