Definition of Demand: Services and Concepts

In the face of growing competition, the size of demand, its size and forecasting are important factors that contribute to the success of almost any company that provides services and sells goods. For marketing, demand is the main indicator of market conditions. He is the object of permanent study, formation, observation. Let's talk about the essence of this market phenomenon, about the current definition of demand, how it is formed and what factors affect it.

The concept of demand

In the most general form, the definition of demand is reduced to the quantity of goods or services that the buyer is willing to consume in a certain period of time at a certain price. Purchasing demand is the most important characteristic of the market, it is always based on the needs of people. If there is no need, then there will be no sales or supply, which means there will be no market relations. The purchasing power is always expressed in monetary form. Determination of demand is a function of the buyer, only he decides whether he is ready to purchase a product or service at a given moment at a given price. Due to the wide variety of markets and human needs, there are many factors affecting demand, its volume and formation processes, and a number of types of this phenomenon are highlighted.

Volume of demand

Manufacturers of goods or services, marketers need to understand how many units of their products they can realize in the potential. Therefore, determining the volume of demand is extremely important in the planning of production and sales management. The quantity of demand is the quantity of certain goods at a specific price, which the buyer is really ready to buy in a certain period of time. The volume of sales is influenced by numerous factors, both market and consumer.

Types of demand

There are several criteria by which you can classify the demand for goods or services. First of all, the definition of demand is associated with the intentions of the buyer. In this case, there is a stable, hard, conservative, firmly formulated demand. The buyer in advance ponders the purchase, imposing strict requirements to the brand, quality, price of the goods and not allowing replacement of it for a homogeneous product. Most often, such demand is observed in the usual, everyday products (bread, milk), which are bought at certain intervals in a specific amount. There is also an alternative or unstable, compromise or soft demand. It is formed under the influence of various factors directly at the point of sale. The buyer makes a purchasing decision upon acquaintance with the offer. So, for example, people buy shoes, clothes, cosmetics. And the third type of demand is impulsive. When a person does not plan to make a purchase, but under the influence of any factors decides to purchase the goods. Most often, this demand is observed when buying small items: chewing gum, chocolate.

According to the number of sales objects, the macro and micro-demand are selected. The first applies to the entire population, and the second - only to a narrow target audience.

By the degree of satisfaction, such types of demand are singled out as real, realized and unrealized. The first is related to the real needs of customers in the product. The second is the actual sales of goods and services. The third is the number of units of goods that the consumer received less for various reasons: the discrepancy between the assortment and claims of the buyer, the lack of goods.

According to the development trend, there is a growing, stable and dying demand. It can also be everyday, periodic and episodic. These types are allocated depending on the purchase cycle.

According to the forms of demand formation, such types of demand as its being formed, that is, created as a result of studying the demand and promotion of goods, the potential, i.e., the maximum possible ability to buy goods at a given price, the aggregate is, in essence, the capacity of the market. There are other reasons for the classification of demand.

Factors affecting demand

The volume of purchases is not infinite and depends on many factors. Specialists distinguish their following groups: economic, social, demographic, political and natural-climatic.

In the economy and marketing , demand factors are traditionally divided into price and non-price factors . Let us dwell on this issue in some detail.

Price factors of demand, the definition of which is the simplest, are related to the cost of the service or the goods and the reaction to the price on the part of the buyer. The income of consumers is finite, and it is the price of the goods that is the factor of demand regulation. The buyer reacts to the change in the purchase price, often lowering it leads to an increase in demand. This group includes the actual price of the goods and related products, as well as the expectations of buyers, psychological reactions to the cost. To non-price factors that affect demand, include consumer preferences, fashion, purchasing power, the cost of competitors' products, product substitutability.

The law of supply and demand

This law establishes the relationship between three important economic concepts: price, supply and demand. In its simplest form, it can be formulated as follows: if there is demand, then there will be a proposal. Usually the higher the demand, the greater the supply and, correspondingly, the higher the price. To balance the system, there must be a balance between ideal and real demand, an adequate price and sufficient supply. The definition of supply and demand, finding their balance is an important task of management. The manufacturer must carefully analyze the fluctuations in demand and the consumer's response to price and supply. The ratio of purchasing power and supply is affected by two more laws:

1. The law of demand. It says that the magnitude of demand is inversely related to price. The higher the cost of a service or product, the less demand for them.

2. The law of supply. It says that price growth directly entails an increase in supply. Since the growing price gives the manufacturer the opportunity to make a big profit, it attracts an increasing number of entrepreneurs in this segment of the market.

However, a growing supply always leads to a decrease in demand, since the consumer can only purchase a certain number of goods and services. Thus, the excess supply leads to lower prices, and then the supply and demand mechanism is launched in a new circle. The price in this case is a means of regulating the balance between the named categories.

Elasticity of demand

Depending on the price that affects the consumer activity of buyers, there are two types of demand: elastic and inelastic.

Elastic is called demand, which varies with fluctuations in the prices of goods and services and with fluctuations in the income of the population. The consumer is sensitive to the cost of certain goods and is ready to refuse to buy them if the price is high or his incomes fall. So, we see that during the economic downturn, consumption of luxury goods, cars, etc. decreases.

Inelastic, respectively, is demand, which remains unchanged when the income of the population changes and the price of the goods. This applies primarily to essential goods. People will buy food even if the price rises and their solvency falls. However, it is unlikely that people will consume more bread, even if the price drastically decreases. The elasticity of demand, the definition of which is part of the task of marketers, is a tool for regulating sales. So, at high elasticity the seller can increase a turn, having lowered the prices. The elasticity is strongly influenced by the proposal: the more sellers offer similar goods and services, the more elastic the demand becomes.

Demand study

To understand the potential magnitude of demand, the manufacturer needs to make certain research efforts. Usually distinguish between the study of current demand, which affects the formulation of short-term objectives of the seller and the manufacturer, and its prediction, which is associated with strategic decisions. The definition of demand is important for building plans. This phenomenon is studied by various methods: statistical, marketing, and economic. For the manufacturer it is important to take into account the psychology of the consumer in order to understand his needs and manage to satisfy them.

Demand formation

Determining the demand for a product or service makes it possible to develop, if necessary, a program to regulate it. The most important tool for sales management is price: its reduction and increase can reduce and increase the number of purchases. But price regulation is not always possible and often economically unprofitable. Therefore, marketing tools come to the aid of the manufacturer, they include: advertising, creation and maintenance of the image, various methods of trade facilitation and after-sales support of the buyer.

Demand Forecasting

It is important for each manufacturer to see the prospects of its development and existence on the market. Demand, the definition of which is an important component of planning and management, is the main objective of any seller and manufacturer. Therefore, they need to systematically study the volume of possible sales, consumer behavior and market changes, in order to correct forecasts in time of demand. To produce forecasts, various methods are used that are divided into heuristic, economic-statistical and special ones.