Understanding Market Demand: The Key to Business Success

What is market demand, and how does it impact your growth and potential as a company?

Market demand is one of the most important factors business leaders and product developers can look at when pursuing new sales opportunities. While companies are constantly looking for ways to expand their product or service portfolio and increase revenue, not every new solution will generate results.

By learning how to calculate market demand, businesses can define which opportunities offer the best potential for growth and profit. Here’s your guide to understanding, calculating, and using market demand when nurturing your business.

What is Market Demand? An Overview

Essentially, market demand refers to how much demand there is for a product in a specific period of time. It shows how much customers are likely to want or need whatever you have to sell.

The “market demand” for products and services can vary depending on a few factors, including the size of your target market, how much consumers are willing to pay, and how easy it is for customers to access a competing solution from other brands.

Demand increases and falls over time in most cases. Sometimes, demand increases based on seasonal factors, sales, and changes in consumer trends. At other times, demand may decrease due to unpredictable issues, like changes in supply chains or macro socio-economic factors.

There are also various different types of market demand, such as:

• • Negative demand: In a market with negative demand, the equilibrium between supply and demand is off-balance. Companies have more products to offer than customers actually want, leading to loss of revenue and profit opportunities.

• • Full demand: In full demand scenarios, the supply of a product is equal to demand. This means consumers are buying products or services at the same rate that they’re being produced. Businesses often achieve this by researching their target audience, and creating production and marketing strategies that engage the right consumers.

• Irregular demand: With irregular demand, supply and demand curves change over time. For instance, a company selling weatherproofing tools for winter might experience higher demand through certain months of the year.

The Difference Between Individual Demand and Market Demand

One point to note is that there are differences between “individual demand” and “market demand”. The term “individual demand” looks at the individual needs of a specific household, person, or buyer segment. Understanding the individual demand curve of different customers is how companies can ensure they’re creating targeted marketing and sales strategies for the right consumer groups.

For instance, individuals passionate about technology are more likely to spend extra on innovative new tech solutions than the average consumer. However, their individual behaviors and preferences might not reflect the demand of the company’s entire target market.

Market demand in general looks at the wider, broader market available to a company, and the level of demand displayed by a wide range of segments. To get a full view of market demand, companies need to look not just at their ideal customers, but at comprehensive market research.

By looking at the full market, business leaders can ensure they’re investing in products and solutions that appeal to the widest possible range of potential customers.

What is the Demand Curve?

One of the most useful tools used to understand market demand, is something called the “demand curve”. This is a visualization of customer demand, based on product pricing. On the Y-axis of a graph, you’ll monitor the different price points for a potential product.

On the X-Axis, you would look at how many times the product or service has been purchased, within a specific time period at that price point. Generally, as prices rise, demand decreases. This is because customers generally buy less of an item when it’s more expensive.

Alternatively, when prices fall, and availability rises, demand generally increases. Understanding the market demand curve is an important part of creating a business strategy with the right price elasticity. Ideally, you’ll want to set a product price that’s high enough to turn a profit, but not so high that it’s damaging market demand.

As market environments evolving and customer preferences and expectations change, the amount a customer is willing to pay for a price can vary. That’s why it’s so important to keep a close eye on buyer behavior when prices increase, and decrease for an item.

How to Calculate Market Demand

Learning how to calculate market demand can be a multi-faceted process. Many companies use a combination of qualitative and quantitative data to determine market demand on a massive scale. For instance, 1:1 conversations with customers and surveys can help to provide insights into why the demand of a good changes over time.

Additionally, statistical data, such as insights into conversion rates, purchasing frequency, and customer churn can also assist with populating supply and demand curves and graphs.

Developing a clear view of market demand often involves the following steps:

1. 1. Using Search Engine Analytics Tools

Search engine optimization tools aren’t just excellent for enhancing content marketing campaigns, they can also be extremely valuable when learning about your target audience.

Tools like Surfer SEO can provide insights into search trends which can help companies to understand when and why market demand increases over time. Tools like Google trends can also highlight when interest in a product or service is increasing, allowing companies to increase supply accordingly.

Tools like Google Keyword Planner also offer an insight into how frequently customers are searching for specific terms. This can help with product ideas and validating market demand. Fewer searches for a specific term generally indicate less demand, while more searches indicate higher demand. There are even tools available for competitor analysis, which can help businesses to determine how many companies they’ll need to compete against to capture audience attention.

2. 2. Gathering Data from Social Listening Tools

While search engine tools can provide insight into customer trends, and competitors, social listening tools can provide more in-depth insights into the factors that are influencing the demand of a good or service. These tools allow companies to aggregate crucial data from social media conversations about industries, brands, products, and services.

Many of these solutions allow you to filter through conversations, target specific geographic locations, and pull summarized reports from data for stakeholders. They offer an insight not just into a market’s interest in your product, but how much value customers assign to your items.

For instance, you can learn how much customers are willing to pay for a specific product, how difficult it is for them to find something which offers the same benefits of your solutions, and how they feel about your current pricing and branding strategy.

3. 3. Calculating Market Demand

Once you’ve done your research into search terms, market trends, and social commentary, you can begin to calculate market demand by bringing all of your information together. For instance, if you were selling custom phone cases, a quick search on Google Shopping would show you prices range from $2 to over $20 for similar products.

Now, if you go over to Google Trends, you’ll see interest in custom phone cases has dropped in recent months, but remains relatively high. This indicates there’s still a market available for your product.

The next step is looking at your customer data to determine how much your customers are willing to pay for your product. If you know your customers like to update their phone cases regularly, there’s a good chance they won’t want to pay much for a new product. However, if you’re serving customers who want to invest in long-lasting assets, you might be able to charge a little more.

Combine these insights with information you have about product purchases and conversions in the past, and you can predict what kind of pricing is likely to generate the most demand for your product. You may also be able to pinpoint times when sales might increase (such as around the holiday season when customers are shopping for gifts).

Understanding the Impact

Learning how to calculate market demand and use the “demand curve” to your advantage can seem complicated. To accurately examine supply and demand in your industry, determine pricing structures, and increase sales, you’ll need to gather and use a lot of data.

However, the more you learn about market demand, the more you can use it to your advantage. You can use your research to determine when market demand increases and why, and how you can price your products to increase profits without reducing sales.

To learn more about supply and demand, market demand, and the equilibrium price of products, join the Hard Skill Exchange today! Our experts will teach you everything you need to know about sales, marketing, and growing your business.