Definition: The Demand Analysis is a process whereby the management makes decisions with respect to the production, cost allocation, advertising, inventory holding, pricing, etc. Although, how much a firm produces depends on its production capacity but how much it must endeavor to produce depends on the potential demand for its product.
Thus, the marketer is required to analyze properly the demand for its product in the market and must hold inventory accordingly. Such as if there is a potential demand in the future, then the firm should hold more inventories and in case there is no demand, then the production remains unwarranted, and hence, lesser inventories are held.
There is a possibility that production might exceed the demand, then the marketer must use alternative ways such as better advertisements to create a new demand.
The demand shows the relationship between two economic variables, the price of the product and the quantity of product that a consumer is willing to buy for a given period of time, other things being equal.
Features/Characteristics of Demand
The following are the main features or characteristics of demand that the marketer must keep in mind while analyzing the demand for its product:
- The demand is the specific quantity that a consumer is willing to purchase. Thus, it is expressed in numbers.
- The demand must mean the demand per unit of time, per month, per week, per day.
- The demand is always at a price, e. any change in the price of a commodity will bring about a certain change in its quantity demanded.
- The demand is always in a market, a place where a set of buyers and sellers meet. The market needs not to be a geographical area.
Thus, demand plays a crucial role in the success of any business enterprise. And it must be remembered that demand is always at a price and a particular time period in which it is created. Such as demand for woolen clothes will be more in winters than in any other season. Hence, demand analysis is always done in terms of the price and the relevant time period.