(Concept of demand analysis - Buyer/customer point of view)

The concept of demand is always explained from the point of view of the customer as the other meaning for demand is nothing but want of goods and services by the customer for a specific price from the producer, which is the basis for existence of any producer of business. There is a direct relationship between the price and demand of the goods and services, which means the prices of goods impacts its demand. Customer always wants goods and services for a reasonable and low price from the producer. If the prices of goods and services are low, customers shows interest to purchase more goods and services, otherwise the customer purchases less goods and services if the prices are high.

Therefore, analysis of demand or law of demand proves that demand of the goods and services and price of the goods and services are inversely related to each other. Demand for the goods and services always fall down if the price of goods and services are high, dissimilar demand for the goods and services always increases if the price of goods and services are low .

The success of any business largely depends on sales, and sales depend on market demand behaviour. Market demand analysis is one of the crucial requirements for the existence of any business enterprise. Analysis of market demand for the product is necessary for the management in order to take decisions regarding production, cost allocation, product pricing, advertising, inventory holdings, etc. How much the firm must endeavour to produce depends mainly upon the demand for its product. If demand falls short of production, the two must be balanced by creating a new demand through more and better advertisements. If there is no demand for the product, its production is unwarranted. If the future demand for the product is likely to be more, the more the inventories that the firm should hold.

If the demand for the product is large, a higher price can be charged, with other things remaining the same. Market demand analysis helps the manager to make decisions regarding: (a) sales forecasting with a sound basis and greater accuracy: (b) guidelines for demand manipulation through advertising and sales promotion programmes; (c) production planning and product improvement: (d) pricing policy; (e) determination of sales quotas and performance appraisal of personnel in the sales department; and (f) size of market for a given product and corresponding market share. For all these purposes, demand analysis is essential for successful production planning and business expansion in managerial decision-making.

Meaning of Demand

By demand we mean the various quantities of a given commodity or service which consumers would buy in one market in a given period of time at various prices, or at various incomes, or at various prices of related goods. —Bober

Therefore, the demand for a good is made up of the following three things:

  1. the desires to acquire it

  2. the willingness to pay for it, and

  3. the ability to pay for it. In other words.

Demand = Desire to acquire + Willingness to pay + Ability to pay

In absence of any of these three characteristics, there is no demand. For example, a teacher may possess both the willingness to pay as well as the ability to pay for a liquor bottle, yet he does not have demand for it. This is because he does not desire to have an alcoholic drink. Similarly, a trader might have the desire to have a TV, he might be rich enough to be able to pay for it, but if he is not willing to pay for the TV, he does not have demand for this product. Also, a worker might possess both the desire for a scooter as well as the willingness to pay for it, but if he does not possess enough money to pay for it, he does not have demand for the scooter. In contrast to these three situations, a lawyer, who has the desire for a car, as well as both the will and ability to pay for it, has demand for the car. Thus, demand in economics means effective demand, i.e., one which meets all its three characteristics—desire, willingness and ability to pay. On the other hand, demand means desire backed by willingness and ability to pay.

Besides, demand also signifies a price and a period of time in which the demand is to be fulfilled. Demand is the quantity of a specific good that people are willing and able to buy during a specific period, given the choices available.

To sum up. we can say that the demand for a product is the desire for that product backed by willingness as well as ability to pay for it. It is always defined with reference to a particular time, place, price and given values of other variables on which it depends.