A Demand and Supply Graph
Factors Influencing Demand
This article serves to supplement the article Influences for Supply and Demand, that I wrote a while ago. For a more general overview of supply and demand, I suggest visiting there first.
Demand has many factors that influence a market, such as;-
- Changes to the prices to substitute products, such as cheaper products available online or at discount stores could reduce the sales of a premium product or product range.
- Changes to the availability of complementary goods or changes in the price of complementary goods, such as two large luxury opposing ice cream companies.
- Disruptions to the supply chain of competitors, such that their prices or other aspects change.
- The incomes of customers could rise, causing customers to choose superior or premium products, similarly, they could fall and choose less or inferior products, Especially prominent for Elastic products or Luxury Items.
- Advertising could increase consumer interest or make the product more noticeable to customers or potential customers.
- Branding or PR could be used more prominently or advertised.
- Recently companies have opted for using social marketing or guerilla marketing, as it can be more successful or noticeable since ad-blockers and the fall of cable TV and TV Advertising have made it harder to reach consumers.
- Advertising or Branding of other competitors products could also potentially boost your own profits, especially if the product is generic or seasonal.
- Changes to consumer incomes.
The demand for a product or service may also depend on the demographics of the product, if it is aimed at older people and the area is a student town, finding customers may be more difficult than other locations.
External Shocks, such as the economy or new technologies that make the product or service obsolete could also negatively affect the products demand if a business fails to innovate or adapt to change.
Businesses work on a complex demand and supply based method of producing products and services.
- Supply is the quantity of a good or service that a producer is offering to supply into the market
- Demand is the quantity that the customers are willing to buy at a given price over a given period of time
- External factors, such as income or environmental or ethical change may mean that a product is no longer viable, smoking for example is no longer as profitable as it was as people no longer smoke as much as they used to. Influences may be out of the businesses control.
You may notice demand is present in the what influences the demand section, while it would not be a good idea to present it in an exam, I thought it worth including at the bottom as it technically does effect demand, as people may buy a product to own one before everyone else. Promotion is also a very broad term, this also encompasses things like fasion events, tastes and Economy also includes factors such as income.
Supply and Demand Competition
Supply of a product can generally be negated, as long as there is demand there will usually be a supply. Some mass markets, such as commodity items are often very unchanging and can have extremely thin margins to drive out competitors, this is known as a price war and can sometimes be more destructive to business profits than good as the product becomes devalued by the low price and people become unwilling to pay for the prices needed to pay for the product, however, this can sometimes improve the rate of the moving average as it forces businesses to increase their prices, usually at the same time to a higher-than-original value.That is one example of a price strategy (price war).
If there is no demand for a product, then there most likely will be no supply, as producers are not interested in creating a product that will not sell.
A Supply and Demand graph shows the relationship between the two, the graph can be altered by shifting either to the left or right, depending on whether you want to increase or decrease either, just remember that,
Left is less…
So by shifting either to the left, you are decreasing them. A handy tool for showing equilibrium.
Just In Time is a lean production technique, It involves ordering a product right as it is about to run out, but before the business has to stop manufacture, this allows a business to work effectively when creating a product that requires a lot of parts and accessories.
|Raw Materials||Work in Progress||Finished Goods|
| Bought from suppliers
Supplier may not be able to meet demand Supplier could not raise prices Used in assembly or as ingredients
Parts for assembly|| Not Sellable
Costs business money to make into product May be a slow process
Wine May cost staff hours if long time delays i.e. building houses|| Needs moving for social events
This table shows the disadvantages of holding stock at different levels of the stock control process.
Why hold stock?
- Fundamentally holding stock allows production to take place
- To satisfy customer demand
- As a precaution against delays from suppliers
- It allows efficient production
- It allows for seasonal changes
- It provides buffer between production process
Main influences on Stock
- The need to satisfy demand such as demand influxes or lower commodity prices.
The a need to manage working capital, stock control for example could mean a product is depleted without being replaced.
Risk of losing value, such as the stock market price. Food and vegetables such as flowers may also decrease in value over time.
Low stock levels
- Lower stock holding posts.
- Lower risk of obsolescence.
- Less capital tied up in stock. So the business is more liquid.
- Consistent with operating on lean production.
High stock levels
- Production is always fully supplied so there are never any delays as the product never runs out.
- Potential for lower costs by ordering in larger quantities.
- The business is better able to handle unexpected changes in demand or the need for higher output as they will have the stocks available.