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Types of Demand
The demand can be classified on the following basis:
1. Individual Demand and Market Demand: The individual demand refers to the demand for goods and
services by the single consumer, whereas the market demand is the demand for a product by all the
consumers who buy that product. Thus, the market demand is the aggregate of the individual demand.
2. Total Market Demand and Market Segment Demand: The total market demand refers to the aggregate
demand for a product by all the consumers in the market who purchase a specific kind of a product. Further,
this aggregate demand can be sub-divided into the segments on the basis of geographical areas, price
sensitivity, customer size, age, sex, etc. are called as the market segment demand.
3. Derived Demand and Direct Demand: When the demand for a product/outcome is associated with the
demand for another product/outcome is called as the derived demand or induced demand. Such as the
demand for cotton yarn is derived from the demand for cotton cloth. Whereas, when the demand for the
products/outcomes is independent of the demand for another product/outcome is called as the direct demand
or autonomous demand. Such as, in the above example the demand for a cotton cloth is autonomous.
4. Industry Demand and Company Demand: The industry demand refers to the total aggregate demand for
the products of a particular industry, such as demand for cement in the construction industry. While the
company demand is a demand for the product which is particular to the company and is a part of that
industry. Such as demand for tyres manufactured by the Goodyear. Thus, the company demand can be
expressed as the percentage of the industry demand.
5. Short-Run Demand and Long-Run Demand: The short term demand is more elastic which means that the
changes in price or income are reflected immediately on the quantity demanded. Whereas, the long run
demand is inelastic, which shows that demand for commodity exists as a result of adjustments following
changes in pricing, promotional strategies, consumption patterns, etc.
6. Price Demand: The demand is often studied in parlance to price, and is therefore called as a price demand.
The price demand means the amount of commodity a person is willing to purchase at a given price. While
studying the demand, we often assume that the other factors such as income of the consumer, their tastes,
and preferences, the prices of other related goods remain unchanged. There is a negative relationship
between the price and demand Viz. As the price increases the demand decreases and as the price decreases
the demand increases.
7. Income Demand: The income demand refers to the willingness of an individual to buy a certain quantity at
a given income level. Here the price of the product, customer’s tastes and preferences and the price of the
related goods are expected to remain unchanged. There is a positive relationship between the income and
demand. As the income increases the demand for the commodity also increases and vice-versa.
8. Cross Demand: It is one of the important types of demand wherein the demand for a commodity depends
not on its own price, but on the price of other related products is called as the cross demand. Such as with
the increase in the price of coffee the consumption of tea increases, since tea and coffee are substitutes to
each other. Also, when the price of cars increases the demand for petrol decreases, as the car and petrol
are complimentary to each other.
These are some of the important types of demand that the firms must cater to before deciding on the price
and other factors related to their products.
LAW of Demand:
Law of demand shows the relation between price and quantity demanded of a commodity in the market. In
the words of Marshall, “the amount demand increases with a fall in price and diminishes with a rise in
price”.
A rise in the price of a commodity is followed by a reduction in demand and a fall in price is followed by an
increase in demand, if a condition of demand remains constant.
The law of demand may be explained with the help of the following demand schedule.
Demand Schedule.
Price of Appel (In. Rs.) Quantity Demanded
10 1
8 2
6 3
4 4
2 5
When the price falls from Rs. 10 to 8 quantity demand increases from 1 to 2. In the same way as price falls,
quantity demand increases on the basis of the demand schedule we can draw the demand curve.
Price
The demand curve DD shows the inverse relation between price and quantity demand of
apple. It is downward sloping.
Assumptions:
Law is demand is based on certain assumptions:
1. This is no change in consumers taste and preferences.
2. Income should remain constant.
3. Prices of other goods should not change.
4. There should be no substitute for the commodity
5. The commodity should not confer at any distinction
6. The demand for the commodity should be continuous
7. People should not expect any change in the price of the commodity
1. Giffen Goods: Giffen goods are the inferior goods whose demand increases with the increase in its prices.
There are several inferior commodities, much cheaper than the superior substitutes often consumed by the
poor households as an essential commodity. Whenever the price of the Giffen goods increases its quantity
demanded also increases because, with an increase in the price, and the income remaining the same, the poor
people cut the consumption of superior substitute and buy more quantities of Giffen goods to meet their
basic needs.
For Example, Suppose the minimum monthly consumption of food grains by a poor household is 20 Kg
Bajra (Inferior good) and 10 Kg Rice (superior good). The selling price of Bajra is Rs 5 per kg, and the rice
is Rs 10 per kg, and the household spends its total income of Rs 200 on the purchase of these items.
Suppose, the price of Bajra rose to Rs 6 per kg then the household will be forced to reduce the consumption
of rice by 5 Kg and increase the quantity of Bajra to 25 Kg in order to meet the minimum monthly
requirement of food grains of 30 kg.
2. Veblen Goods: Another exception to the law of demand is given by the economist Thorstein Veblen, who
proposed the concept of “Conspicuous Consumption.” According to Veblen, there are a certain group of
people who measure the utility of the commodity purely by its price, which means, they think that higher
priced goods and services derive more utility than the lesser priced commodities.
For example, goods like a diamond, platinum, ruby, etc. are bought by the upper echelons of the society
(rich class) for whom the higher the price of these goods, the higher is the prestige value and ultimately the
higher is the utility or desirability of them.
3. Expectation of Price Change in Future: When the consumer expects that the price of a commodity is
likely to further increase in the future, then he will buy more of it despite its increased price in order to
escape himself from the pinch of much higher price in the future.
On the other hand, if the consumer expects the price of the commodity to further fall in the future, then he
will likely postpone his purchase despite less price of the commodity in order to avail the benefits of much
lower prices in the future.
4. Ignorance: Often people are misconceived as high-priced commodities are better than the low-priced
commodities and rest their purchase decision on such a notion. They buy those commodities whose price are
relatively higher than the substitutes.
5. Emergencies: During emergencies such as war, natural calamity- flood, drought, earthquake, etc., the law of
demand becomes ineffective. In such situations, people often fear the shortage of the essentials and hence
demand more goods and services even at higher prices.
6. Change in fashion and Tastes & Preferences: The change in fashion trend and tastes and preferences of
the consumers negates the effect of law of demand. The consumer tends to buy those commodities which are
very much ‘in’ in the market even at higher prices.
7. Conspicuous Necessities: There are certain commodities which have become essentials of the modern life.
These are the goods which consumer buys irrespective of an increase in the price. For example TV,
refrigerator, automobiles, washing machines, air conditioners, etc.
8. Bandwagon Effect: This is the most common type of exception to the law of demand wherein the consumer
tries to purchase those commodities which are bought by his friends, relatives or neighbors. Here, the person
tries to emulate the buying behavior and patterns of the group to which he belongs irrespective of the price
of the commodity.
For example, if the majority of group members have smart phones then the consumer will also demand for
the smartphone even if the prices are high.
Thus, these are some of the exceptions to the law of demand where the demand curve is upward sloping, i.e.
the demand increases with an increase in the price and decreases with the decrease in price.
Definition: The Elasticity of Demand measures the percentage change in quantity demanded for a
percentage change in the price. Simply, the relative change in demand for a commodity as a result of a
relative change in its price is called as the elasticity of demand.
Types of Elasticity of Demand
1. Price Elasticity of Demand: The price elasticity of demand, commonly known as the elasticity of demand
refers to the responsiveness and sensitiveness of demand for a product to the changes in its price. In other
words, the price elasticity of demand is equal to
Numerically,
Where,
ΔQ = Q1 –Q0, ΔP = P1 – P0, Q1= New quantity, Q2= Original quantity, P1 = New price, P0 = Original
priceThe following are the main Types of Price Elasticity of Demand:
Perfectly Elastic Demand
Perfectly Inelastic Demand
Relatively Elastic Demand
Relatively Inelastic Demand
Unitary Elastic Demand
Income Elasticity of Demand: The income is the other factor that influences the demand for a product.
Hence, the degree of responsiveness of a change in demand for a product due to the change in the income is
known as income elasticity of demand. The formula to compute the income elasticity of demand is:
Numerically,
Where,
Q1 = Original Demand
Q2= New Demand
A1= Original Advertisement Outlay
A2 = New Advertisement Outlay
These are some of the important types of elasticity of demand that helps in understanding the criteria of
demand for the goods and services and the factors that influence the demand.
Definition: The Price Elasticity of Demand is commonly known as the elasticity of demand, which refers
to the degree of responsiveness of demand to the change in the price of the commodity.
The following are the main types of price elasticity of demand:
1. Perfectly Elastic Demand (Ep = ∞): The demand is said to be perfectly elastic when a slight change in the
price of a commodity causes a major change in its quantity demanded. Such as, even a small rise in the price
of a commodity can result into fall in demand even to zero. Whereas a little fall in the price can result in the
increase in demand to infinity.
In perfectly elastic demand the demand curve is a straight horizontal line which shows, the flatter the
demand curve the higher is the elasticity of demand
.
2. Perfectly Inelastic Demand (Ep =0): When there is no change in the demand for a product due to the
change in the price, then the demand is said to be perfectly inelastic. Here, the demand curve is a straight
vertical line which shows that the demand remains unchanged irrespective of change in the price., i.e.
quantity OQ remains unchanged at different prices, P1, P2, and P3.
3. Relatively Elastic Demand (1 to ∞): The demand is relatively elastic when the proportionate change in the
demand for a commodity is greater than the proportionate change in its price. Here, the demand curve
is gradually sloping which shows that a proportionate change in quantity from OQ0 to OQ1 is greater than
5. Unitary Elastic Demand (Ep =1): The demand is unitary elastic when the proportionate change in the price
of a product results in the same change in the quantity demanded. Here the shape of the demand curve is
a rectangular hyperbola, which shows that area under the curve is equal to one.
Thus, these are some of the types of the price elasticity of demand that helps the firms to price their product
in accordance with the demand patterns of an individual which changes with the change in the price of the
commodity.
When income increases from OY to OY1, Quantity demanded also increases from OQ to OQ1.
D. Income elasticity greater than unity:
In this case, an increase in come brings about a more than proportionate increase in quantity demanded.
Symbolically it can be written as Ey > 1.
It shows high-income elasticity of demand. When income increases from OY to OY1, Quantity demanded
increases from OQ to OQ1.
When income increases quantity demanded also increases but less than proportionately. In this case E < 1.
An increase in income from OY to OY, brings what an increase in quantity demanded from OQ to OQ1, But
the increase in quantity demanded is smaller than the increase in income. Hence, income elasticity of
demand is less than one
Definition: The Elasticity of Demand is a measure of sensitiveness of demand to the change in the price of
the commodity.
Determinants of Elasticity of Demand
Apart from the price, there are several other factors that influence the elasticity of demand. These are:
1. Consumer Income: The income of the consumer also affects the elasticity of demand. For high-income
groups, the demand is said to be less elastic as the rise or fall in the price will not have much effect on the
demand for a product. Whereas, in case of the low-income groups, the demand is said to be elastic and rise
and fall in the price have a significant effect on the quantity demanded. Such as when the price falls the
demand increases and vice-versa.
2. Amount of Money Spent: The elasticity of demand for a product is determined by the proportion of income
spent by the individual on that product. In case of certain goods, such as matchbox, salt a consumer spends a
very small amount of his income, let’s say Rs 2, then even if their prices rise the demand for these products
will not be affected to a great extent. Thus, the demand for such products is said to be inelastic.
Whereas foods and clothing are the items where an individual spends a major proportion of his income and
therefore, if there is any change in the price of these items, the demand will get affected.
3. Nature of Commodity: The elasticity of demand also depends on the nature of the commodity. The product
can be categorized as luxury, convenience, necessary goods. The demand for the necessities of life, such as
food and clothing is inelastic as their demand cannot be postponed. The demand for the Comfort Goods is
neither elastic nor inelastic. As with the rise and fall in their prices, the demand decreases or increases
moderately.
Whereas the demand for the luxury goods is said to be highly elastic because even with a slight change in its
price the demand changes significantly. But, however, the demand for the prestige goods is said to be
inelastic, because people are ready to buy these commodities at any price, such as antiques, gems, stones,
etc.
4. Several Uses of Commodity: The elasticity of demand also depends on the number of uses of the
commodity. Such as, if the commodity is used for a single purpose, then the change in the price will affect
the demand for commodity only in that use, and thus the demand for that commodity is said to be inelastic.
Whereas, if the product has several uses, such as raw material coal, iron, steel, etc., then the change in their
price will affect the demand for these commodities in its many uses. Thus, the demand for such products is
said to be elastic.
5. Whether the Demand can be Postponed or not: If the demand for a particular product cannot be
postponed then, the demand is said to be inelastic. Such as, Wheat is required in daily life and hence its
demand cannot be postponed. On the other hand, the items whose demand can be postponed is said to have
elastic demand. Such as the demand for the furniture can be postponed until the time its prices fall.
6. Existence of Substitutes: The substitutes are the goods which can be used in place of one another. The
goods which have close substitutes are said to have elastic demand. Such as, tea and coffee are close
substitutes and if the price of tea increases, then people will switch to the coffee and demand for the tea will
decrease significantly. Whereas, if there are no close substitutes for a product, then its demand is said to be
inelastic. Such as salt and sugar do not have their close substitutes and hence lower is their price elasticity.
7. Joint Demand: The elasticity of demand also depends on the complementary goods, the goods which are
used jointly. Such as car and petrol, pen and ink, etc. Here the elasticity of demand of secondary
(supporting) commodity depends on the elasticity of demand of the major commodity. Such as, if the
demand for pen is inelastic, then the demand for the ink will also be less elastic.
8. Range of Prices: The price range in which the commodities lie also affects the elasticity of demand. Such as
the higher range products are usually bought by the rich people, and they do not care much about the change
in the price and hence the demand for such higher range commodities is said to be inelastic.
Also, the lower range commodities have inelastic demand because these are already low priced and can be
bought by any sections of the society. But the commodities in middle range prices are said to have an elastic
demand because with the fall in the prices the middle class and the lower middle class are induced to buy
that commodity and therefore the demand increases. But however, if the prices are increased the
consumption reduces and as a result demand falls.
Thus, these are some of the important determinants of elasticity of demand that every firm should
understand properly before deciding on the price of their offerings.
Factors influencing the elasticity of demand Elasticity of demand depends on many factors.
Nature of commodity:
Elasticity or in-elasticity of demand depends on the nature of the commodity i.e. whether a commodity is a
necessity, comfort or luxury, normally; the demand for Necessaries like salt, rice etc is inelastic. On the
other band, the demand for comforts and luxuries is elastic.
Availability of substitutes:
Elasticity of demand depends on availability or non-availability of substitutes. In case of commodities,
which have substitutes, demand is elastic, but in case of commodities, which have no substitutes, demand is
in elastic.
Variety of uses:
If a commodity can be used for several purposes, than it will have elastic demand. i.e. electricity. On the
other hand, demanded is inelastic for commodities, which can be put to only one use.
Postponement of demand:
If the consumption of a commodity can be postponed, than it will have elastic demand. On the contrary, if
the demand for a commodity cannot be postpones, than demand is in elastic. The demand for rice or
medicine cannot be postponed, while the demand for Cycle or umbrella can be postponed.
Amount of money spent:
Elasticity of demand depends on the amount of money spent on the commodity. If the consumer spends a
smaller for example a consumer spends a little amount on salt and matchboxes. Even when price of salt or
matchbox goes up, demanded will not fall. Therefore, demand is in case of clothing a consumer spends a
large proportion of his income and an increase in price will reduce his demand for clothing. So the demand
is elastic.
Time:
Elasticity of demand varies with time. Generally, demand is inelastic during short period and elastic during
the long period. Demand is inelastic during short period because the consumers do not have enough time to
know about the change is price. Even if they are aware of the price change, they may not immediately
switch over to a new commodity, as they are accustomed to the old commodity.
Range of Prices:
Range of prices exerts an important influence on elasticity of demand. At a very high price, demand is
inelastic because a slight fall in price will not induce the people buy more. Similarly at a low price also
demand is inelastic. This is because at a low price all those who want to buy the commodity would have
bought it and a further fall in price will not increase the demand. Therefore, elasticity is low at very him and
very low prices.
Importance of Elasticity of Demand:
The concept of elasticity of demand is of much practical importance.
Price fixation:
Each seller under monopoly and imperfect competition has to take into account elasticity of demand while
fixing the price for his product. If the demand for the product is inelastic, he can fix a higher price.
Production:
Producers generally decide their production level on the basis of demand for the product. Hence elasticity of
demand helps the producers to take correct decision regarding the level of cut put to be produced.
Distribution:
Elasticity of demand also helps in the determination of rewards for factors of production. For example, if the
demand for labour is inelastic, trade unions will be successful in raising wages. It is applicable to other
factors of production.
International Trade:
Elasticity of demand helps in finding out the terms of trade between two countries. Terms of trade refers to
the rate at which domestic commodity is exchanged for foreign commodities. Terms of trade depends upon
the elasticity of demand of the two countries for each other goods.
Public Finance:
Elasticity of demand helps the government in formulating tax policies. For example, for imposing tax on a
commodity, the Finance Minister has to take into account the elasticity of demand.
Nationalization:
The concept of elasticity of demand enables the government to decide about nationalization of industries.
Demand Forecasting
Today business enterprises are working under the conditions of uncertainties. Uncertainties can be
minimized through planning and forecasting. The success of a business firm depends upon its ability to
forecast future events.
1. Survey Methods: Under the survey method, the consumers are contacted directly and are asked about their
intentions for a product and their future purchase plans. This method is often used when the forecasting of a
demand is to be done for a short period of time. The survey method includes:
Consumer Survey Method
Opinion Poll Methods
2. Statistical Methods: The statistical methods are often used when the forecasting of demand is to be done
for a longer period. The statistical methods utilize the time-series (historical) and cross-sectional data to
estimate the long-term demand for a product. The statistical methods are used more often and are considered
superior than the other techniques of demand forecasting due to the following reasons:
There is a minimum element of subjectivity in the statistical methods.
The estimation method is scientific and depends on the relationship between the dependent and independent
variables.
The estimates are more reliable
Also, the cost involved in the estimation of demand is the minimum.
The statistical methods include:
Trend Projection Methods
Barometric Methods
Econometric Methods
These are the different kinds of methods available for demand forecasting. A forecaster must select the
method which best satisfies the purpose of demand forecasting.
M E T H O D S OF DEMAND FORECASTING (FOR ESTABLISHED PRODUCTS)
There are several methods to predict the future demand. All methods can be broadly classified
into two. (A) Survey methods, (B) Statistical methods
(A) Survey methods
Under this method surveys are conducted to collect information about the future purchase plans of potential
consumers. Survey methods help in obtaining information about the desires, likes and dislikes of consumers
through collecting the opinion of experts or by interviewing the consumers. Survey methods are used for
short term forecasting. Important survey methods are (a) consumers interview method, (b) collective
opinion or sales force opinion methodic) experts opinion method, (d) consumers clinic and (f) end use
method.
(a) Consumers' interview method (Consumers survey): Under this method, consumers are
interviewed directly and asked the quantity they would like to buy. After collecting the data, the total
demand for the product is calculated. This is done by adding up all individual demands. Under the
consumer interview method, either all consumers or selected few are interviewed. When all the consumers
are interviewed, the method is known as complete enumeration method. When only a selected group of
consumers are interviewed, it is known as sample survey method
Advantages
1. It is a simple method because it is not based on past record.
2. It suitable for industrial products.
3. The results are likely to be more accurate.
4. This method can be used for forecasting the demand of a new product.
Disadvantages
1. It is expensive and time consuming.
2. Consumers may not give their secrets or buying plans.
3. This method is not suitable for long term forecasting.
4. It is not suitable when the number of consumer is large.
(b) Collective opinion method: Under this method the salesmen estimate the expected sales in their
respective territories on the basis of previous experience. Then demand is estimated after combining the
individual forecasts (sales estimates) of the salesmen.
This method is also known as sales force opinion method.
Advantages
This method is simple.
1. It is based on the first hand knowledge of Salesmen.
2. This method is particularly useful for estimating demand of new products.
3. It utilises the specialised knowledge of salesmen who are in close touch with the prevailing market
conditions.
Disadvantages
1. The forecasts may not be reliable if the salespeople are not trained.
2. It is not suitable for long period estimation.
3. It is not flexible.
4. Salesmen may give lower estimates that make possible easy achievement of sales quotas fixed for each
salesman.
(c) Experts' opinion method: This method was originally developed at Rand Corporation in 1950 by
Olaf Helmer, Dalkey and Gordon. Under this method, demand is estimated on the basis of opinions of
experts and distributors other than salesmen and ordinary consumers. This method is also known as Delphi
method. Delphi is the ancient Greek temple where people come and prey for information about their future.
Advantages
1. Forecast can be made quickly and economically
2. This is a reliable method because estimates are made on the basis of knowledge and experience of sales
experts.
3. The firm need not spare its time on preparing estimates of demand.
4. This method is suitable for new products.
Disadvantages
1. This method is expensive.
2. This method sometimes lacks reliability
(d) Consumer clinics: In this method some selected buyers are given certain amounts of money and
asked to buy the products. Then the prices are changed and the consumers are asked to make fresh purchases
with the given money. In this way the consumers" responses to price changes are observed. Thus the
behaviour of the consumers is studied. On this basis demand is estimated. This method is an improvement
over consumer’s interview method.
Merits
1. It provides an opportunity to study the behaviour of consumers directly.
2. It provides reliable and realistic picture about future demand.
3. It gives useful information to aid in the decision making process.
Demerits
1. It is a time consuming method.
2. Selecting the participants is very difficult.
3. It is expensive.
4. Consumers may take it as a game. They may not reveal their preferences.
(e) End use method: This method is based on the fact that a product generally has different uses. In the
end use method, first a list of end users (final consumers, individual industries, exporters etc.) is prepared.
Then the future demand for the product is found either directly from the end users or indirectly by estimating
their future growth. Then the demand of all end users of the product is added to get the total demand for the
product.
Statistical Methods
Statistical methods use the past data as a guide for knowing the level of future demand.
Statistical methods are generally used for long run forecasting. These methods are used for established
products. Statistical methods include: (i) Trend projection method, (ii) Regression and Correlation,
(iii) Extrapolation method, (iv) Simultaneous equation method, and (v) Barometric method.
(i) Trend projection method: Future sales are based on the past sales, because future is the grand-child
of the past and child of the present. Under the trend projection method demand is estimated on the basis of
analysis of past data. This method makes use of time series (data over a period of time). We try to ascertain
the trend in the time series. The trend in the time series can be estimated by using any one of the following
four methods:
(a) Least-square method, (b) Free- hand method, (c) Moving average method and (d) semi-average
method.
(ii) Regression and Correlation: These methods combine economic theory and statistical technique of
estimation. Under these methods the relationship between the sales (dependent variable) and other variables
(independent variables such as price of related goods, income, advertisement etc.) is ascertained. Such
relationship established on the basis of past data may be used to analyse the future trend. The regression and
correlation analysis is also called the econometric model building.
(iii) Extrapolation: Under this statistical method, the future demand can be extrapolated by applying
Binomial expansion method. This method is used on the assumption that the rate of charge in demand in the
past has been uniform.
(iv) Simultaneous equation method.-This involves the development of a complete econometric model
which can explain the behaviour of all the variables which the company can control. This method is not very
popular.
(v) Barometric technique: This is an improvement over the trend projection method. According to this
technique the events of the present can be used to predict the directions of change m the future. Here certain
economic and statistical indicators from the selected time series are used to predict variables. Personal
income, non-agricultural placements, gross national income, prices of industrial materials, wholesale
commodity prices, industrial production, bank deposits etc. are some of the most commonly used indicators.
Advantages of Statistical Methods
The method of estimation is scientific
Estimation is based on the theoretical relationship between sales (dependent variable) and price,
advertising, income etc. (independent variables)
These are less expensive.
Results are relatively more reliable.
Disadvantages of Statistical Methods
These methods involve complicated calculations.
These do not rely much on personal skill and experience.
These methods require considerable technical skill and experience in order to be
effective.
Methods of Demand Forecasting for New Products
Demand forecasting of new product is more difficult than forecasting for existing product. The
reason is that the product is not available. Hence, no historical data are available. In these conditions the
forecasting is to be done by taking into consideration the inclination and wishes of the customers to
purchase. For this a research is to be conducted. But there is one problem that it is difficult for a
customer to say anything without seeing and using the product before. Thus it is very difficult to
forecast the demand for new products. Any way Prof. Joel Dean has suggested the following methods for
forecasting demand of new products:
1. Evolutionary approach: This method is based on the assumption that the new product is the
improvement and evolution of the old product. The demand is forecasted on the basis of the demand of the
old product. For example, the demand for black and white TV should be taken in to consideration while
forecasting the demand for colour TV sets because the latter is an improvement of the former.
2. Substitute approach: Here the new product is treated as a substitute of an existing product, e.g.
polythene bags for cloth bags. Thus the demand for a new product is analysed as a substitute for some
existing goods or service.
3. Growth curve approach: Under this method the growth rate of demand of a new product is estimated
on the basis of the growth rate of demand of an existing product. Suppose Pears soap is in use and a new
cosmetic is to be introduced in the market. In this case the average sale of Pears soap will give an idea as to
how the new cosmetic will be accepted by the consumers.
4. Opinion poll approach: Under this method the demand for a new product is estimated on the basis
of information collected from the direct interviews (survey) with consumers.
5. Sales Experience approach: Under this method, the new product is offered for sale in a sample
market, i.e. by direct mail or through multiple shop or departmental shop. From this the total demand is
estimated for the whole market.
6. Vicarious approach: This method consists of surveying consumers' reactions through the specialised
dealers who are in touch with consumers. The dealers are able to know as to how the customers will accept
the new product. On the basis of their reports demand can be estimated.The above methods are not mutually
exclusive. It is de desirable to use a combination of two or more methods in order to get better results.