By Thomas

Definition Research into the desire of consumers for a particular product or service. Demand analysis is used to identify who wants to buy a given product, how much they are likely to pay for it, how many units they might purchase, and other factors that can be used to determine product design, selling cost, and advertising strategy for a product.

Study of sales generated by a good or service to determine the reasons for its success or failure, and how its sales performance can be improved.

What Types of Decisions Do Marketers Make?

Example: Factory to be located in

Bangalore (location decision) Here are some marketing decisions we need to make
Facilities Transportation Expansion options

How to advertise?

Firms sell goods/services to buyers

Consumers (individuals) : utility Firms : make profits

Willingness to pay: maximum price buyer will pay for a good

Point of indifference between buying and not buying Lower price always preferred by buyer

Willingness to pay is determined by

Buyers tastes or needs Income and wealth
Normal/inferior goods

Substitutes Complementary goods

Forecasting and Demand Measurement

Market Measurement
Demand Measurement Estimating Current Demand

Estimating Future Demand

Forecasting and Demand Measurement

Essential Aspects
The market Market Potential market

Available market
Target market (served

Market demand
Company demand and

sales forecasts Current demand Future demand

market) Penetrated market

Forecasting and Demand Measurement

What will you do when not satisfied
Try to attract more buyers from its target market Lower the qualification of potential buyers Expand its available market by adding distribution or

lowering price Try to expand the potential market by advertising to prospect

Forecasting and Demand Measurement

Essential Aspects
The market Market demand Market minimum Market forecast Market potential

Measuring demand
Company demand and

sales forecasts Current demand Future demand

Forecasting and Demand Measurement

Essential Aspects
The market Company demand Company sales forecast

Sales quota
Sales budget Company sales potential

Measuring demand
Company demand and

sales forecasts Current demand Future demand

Forecasting and Demand Measurement

Essential Aspects
The market Total market potential

Measuring demand
Company demand and

Area market potential Market-buildup method

sales forecasts Current demand Future demand

Forecasting and Demand Measurement

Essential Aspects
The market Many Forecasting

Methods:table
Buyer intentions survey Composite of sales force

Measuring demand
Company demand and

sales forecasts Current demand Future demand

opinions Expert opinion Past-sales analysis Market-test method

Macroenvironmental Trends And Forces

Demographic
Ethnic Markets

Environment

Population Age Mix Educational Groups

Household Patterns Rise of Micromarkets

Geographic Population Shifts

Worldwide Populations Growth

Macroenvironmental Trends And Forces Economic Environment

Income Distribution

Savings, debt, and credit availability

Macro environmental Trends And Forces

Natural Environment
Changing role of governments

Shortage of raw materials

Anti-pollution pressures
Increased energy costs

Macro environmental Trends And Forces

Accelerating pace of technological change

Unlimited opportunities for innovation

Technological Environment

Varying R&D budgets

Increased regulation of technological change

Macro environmental Trends And Forces Political-Legal Environment

Legislation regulating business

Growth of special interest groups

Macroenvironmental Trends And Forces

Socio-Cultural Environment
World views held by consumers
High persistence of core values Existence of subcultures

 Demand curve for a buyer

Willingness to pay for

different quantities of the good Or, quantity demanded at each price Usually downward sloping: lower willingness to pay for additional units

Lower utility of consumption for consumers Lower productivity of resources for firms

Shifts in demand curve

 Market demand
Sum of individual demand curves Aggregate quantity demanded at each price Arrays individual buyers in order of willingness to pay Identical goods? Product differentiation?

Market segments / Price discrimination

Different segments willing to pay different prices Consumer surplus Can firms exploit this?
Feasible? Fair?

 Price sensitivity of demand

Slope of market demand curve Flat demand curve: very price sensitive: Elastic Goods with good substitutes Luxury items ?

Steep demand curve: less sensitive: Inelastic Necessities

 Time-frame: easier to

find substitutes over long run Demand curves

Accept as given? Seek to modify?

Supply analysis
Supply curve How much the firm will sell at each price Assumption: price-taking firm Time-frame of supply decision Long run: compete in the market at all? Short run: how much to produce & sell?

Short run supply Based on costs

Fixed costs: incurred regardless of volume
headquarter costs, depreciation, rent, labor.

Variable or marginal costs: cost per additional unit produced

Raw materials, electricity, labor.

In the short run, fixed costs are inevitable Should not affect short run supply decisions

 Long run supply: entry & exit

Recover both fixed and variable costs Fixed costs Out-of-pocket costs Opportunity costs: return on capital

 Average costs
Includes both fixed and

variable costs Typical U shape Minimum of the average cost curve: Optimal long run supply point Market price must exceed price at this point Determine entry and exit

 Shifts in supply curve

Input costs Technology

Market supply curve

Sum of individual supply curves
Usually slopes upward Less efficient firms enter market when price is high Arrays firms from most efficient to least

 Supply elasticity Flat supply curve: very sensitive to price: Elastic Steep supply curve: less sensitive: Inelastic Varies over the range of output Elastic when spare capacity is available Inelastic when capacity constrained

Market equilibrium
Interesection of market

demand and supply curves Disequilibrium will cause price to adjust and yield new equilibrium Real world: series of small disequilibriums, series of price adjustments Currency markets: rapid, continuous adjustments

Market adjustment
Shifts in demand and supply curves
Increase: shift to the right
Decrease: shift to the left

Impact on quantity and price