A Demand and Supply Graph
Factors Influencing Supply
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.
Supply has many factors that influence a market, such as;-
- The availability of raw materials.
- The time it takes to process a set, batch or quantity of stock, like aged wine or hard sweets.
- Disruptions to the distribution chain of competitors, such that their prices or other aspects change.
- Natural Disasters utility supply issues or storage issues.
- Advertising could increase consumer interest or make the product more noticeable to customers or potential customers and cause a shortage due to unforeseen interest or popularity.
- Branding or PR could be used more prominently or advertised to cause similar consequence.
- New Machinery or Technology could make the production of items much less time consuming or much cheaper such as new methods of batch processing.
- A monopoly may artificially limit the availability or raise the price or perform anti-competitively.
- Automation could speed up production and therefore increase availability.
- Government Subsidy or Tariffs could increase or decrease supply in a domestic market.
- A subsidy devised to increase sales in a companies domestic market could raise consumer interest.
- A company may be forced to maintain a domestic market orientation as shipping externally may not be competitive due to tariffs.
The overall effectiveness of a product is readily available to be supplied by manufacturers depends on consumer interest, the availability of raw materials and the lead time it takes to produce a product.
Agricultural products may be much harder to maintain during droughts or other natural disasters as they take the time to grow naturally and no amount of investment can speed up the process much more than what people are willing to pay for.
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.
Within any business there are multiple factors that a customer can imprint on to recognise a brand and associate with quality. Businesses can use the customers intuition to their advantage, targeting on the key aspects of a quality product in order to maximise return. Here is a list of the common points a business can tailor in order to maximise their revenue;
- Profitability, Businesses must decide how much profit each product or service should undertake, whether it be a large return or a small one. Customers may be willing to buy a product purely on its premium price point.
- Customer Service, Businesses may wish to place the quality of their product on par with the quality of its customer service. Poor customer service could reflect badly on a quality product and vice versa.
- Competitiveness, Businesses may wish to use pricing in order to undercut the cost of its competitors. Businesses may also want to take on new locations and footfall in order to maximise profitability.
- Supply Chain, Business may cut costs and use cheaper suppliers, however unethical or environmental considerations could be overlooked and come back to haunt businesses later.
- Reliability, A product that is unreliable or prone to failure may mean that customers look elsewhere for new products, defined obsolescence could damage the perceived quality of the product as well, If it were to fail after a certain time because of a weak part, customers may feel frustrated having to buy new ones.
- Brand Image, For some customers a brand could be vital to what product they purchase, If a brand is damaged, it could affect the sales of businesses massively. Some businesses may also struggle to maintain a positive reputation if the business specialises in cheap services, such as transport or hotels and may not be too affected by bad publicity as the cheap price point means the demand for the product does not change (it is inelastic).
- Quality Control could also mean that products are of a constant high quality and should in tern allow a business to work effectively on producing high quality products for the consumer, who will hopefully repeat purchase. Kaizen and Total Quality Management can allow a business to excel at creating a quality product that is lean and high quality as it forces the product to be a standard that the business expects and what the customer wants.
- Brand Awareness, A customer who does not know a product exist may not buy it, additionally any customer who recognises a product may choose to buy it over a generic product because of it. Advertising and promotion can artificially create the connection between the customer and the brand of trust and safety in a product, that this is the product they should buy.