What Is Market Demand? (With Types and Calculation Methods)
By Indeed Editorial Team
Updated July 13, 2022 | Published May 11, 2021
Updated July 13, 2022
Published May 11, 2021
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
Market demand is a useful tool for companies, as it quantifies the desire for a product at a certain price point. Businesses that account for market demand can stock the appropriate inventory to satisfy customers and maximize profits.
In this article, we explain what market demand is and discuss its benefits, types and calculation methods.
Market demand is the desire of consumers to purchase products or services at a given price.
Market demand types can describe the level of desire for a product based on factors like consumer interest.
Companies can calculate market demand through tools such as demand curve graphs.
What is market demand?
Market demand is the specific quantity of a product that consumers can afford and want to buy at the given price of that product or service. Market demand affects businesses and consumers alike by determining production and helping to guide competition in the marketplace. It is important for businesses to be aware of the market demand to help design, create and advertise products and services to consumers in order to meet demand.
Why is market demand important?
Market demand is important to consider when releasing a new product or service because it allows companies to address consumers' needs. Here are some other benefits of studying market demand:
Customer satisfaction: Calculating the market demand can help a business satisfy its customers because they are able to produce products or services which the customer needs and desires and can provide the right amount of their product or service to meet demand.
Business opportunity: Studying market demand and consumer behavior trends within a market, helps businesses anticipate the needs of their customers. This means listening to customers and designing products to suit them.
Production and customer approach: Analyzing market demand helps businesses strategize and create products with customization for consumers and design ways to interact with consumers. Calculating and understanding the market demand determines how a business approaches its target audience.
Cost-effective methods:By calculating market demand, businesses can estimate how much of a product or service to make available to consumers. Doing this prevents overproduction, which can cost a business and it ensures that the business is able to sell and profit from their product or service.
Related: What Is a Demand Curve?
Types of market demand
When conducting market research, professionals separate market demand into seven different types. Understanding these types can help you better prepare for the launch of a product or service. Here are definitions and examples of these types of market demands:
Economic experts define negative demand as the event in which a product does not perform as the business expects and instead is not a product or service that customers either need or can afford. When this occurs, it may be possible to expand the reach of the business' marketing strategy so that more consumers can discover the product. Businesses can increase demand by improving their advertising techniques to show consumers how the product can be useful to them.
Negative demand can also result from the company's brand image, which marketers can improve through marketing campaigns for establishing a brand and by requesting feedback from customers on how to better serve them. Good customer service and interaction often affect the business' brand positively. An example of a service in negative demand is healthcare. Due to consumers' personal budgets, they may opt out of these services, seeing them as optional. Because of this, businesses find alternative ways to present healthcare or improve public opinion through the use of awareness campaigns.
Unwholesome demand is when consumers desire and can afford the product, but it is a product that may harm consumers. Businesses can help protect customers by educating consumers on how to enjoy their products safely. By adhering to safety laws and federal regulations, businesses can fulfill their responsibility to create products that better serve customers. An example of a product in unwholesome demand is firearms. Because of this, businesses often include safety features and make education on how to buy, use and store firearms safely.
Non-existing demand is a phenomenon where consumers do not purchase any of a certain product. This can result from consumers' limited budgets or fulfillment of other products. Businesses can prevent this by performing thorough market research. Market research can reveal consumer data such as which products they're buying, when they make purchases and geographical information. An example of a product in non-existing demand is early versions of smartphones, which are still in production. Consumers are more likely to buy phones with advanced features now.
Latent demand is a special situation in which consumers need a type of product but it does not yet exist in the marketplace. Advancements in technology and customer tracking tools help to reduce this type of demand from occurring. Marketing teams can predict patterns and consumer needs with tracking tools which can help anticipate other products they may use. An example of latent demand is renewable energy sources for consumer use. Solar panels have become more available but many consumers' budgets and locations prevent solar energy from being a good option for them.
Related: What Is Income Elasticity of Demand?
Declining demand is when consumers' desire or requirement for a product reduces steadily over time. Businesses can manage this type of demand by improving the products and staying current with trends within their market. Using customer feedback is a valuable tool for creating products that meet market demand. An example of declining demand is music CDs. To account for this, the music industry and tech companies adapt to consumer needs by creating streaming services and the ability to listen from devices such as smartphones.
Economic experts define irregular demand as the fluctuation of a consumer's ability to purchase a product or service or their need for a product or service. Predicting the fluctuation of consumer desire sometimes challenges a business, but professionals can remedy this type of demand by changing their market strategy. Market strategy includes methods of advertisement and customer acquisition.
Adjustments to these methods can account for changes in consumer behavior and build their brand and expand their customer base. An example of irregular demand is seasonal products such as holiday decorations. Consumers may not have use for these types of items out of season, so it's helpful for businesses to create strategies to sell enough of their product in peak season to meet goals.
Related: How To Plan a Market Strategy
Full demand is the perfect scenario for businesses where their supply is equal to the demand. This means that consumers are buying products or services at the same rate that the product or service is available. Businesses achieve full demand by researching their target audience and creating a marketing strategy that reaches their audience and engages them. An example of full demand is performances such as plays, movies or concerts, which often sell out when tickets become available. Performers and their management teams create demand by offering a service consumers have a strong interest in.
Methods for calculating market demand
Businesses can determine the market demand by using these methods:
Search engine optimization tools
Search engine optimization (SEO) tools can analyze user searches and estimate traffic on website pages. This data can be useful to determine what consumers have an interest in. Businesses can enter keywords such as their brand name or product into search optimization tools and receive metrics of how often those words appear in searches, which helps estimate the consumer demand.
Related: Definitive Guide to SEO Marketing
Social listening tools
Social listening tools are software that tracks user activity across the internet on social media platforms to discover what consumers are talking about. A business may use a social listening tool to track when their brand, product or competition gets a mention or interaction online. This helps measure which demographic of consumers to market towards and where businesses should market their product or service.
Demand curve graph
The demand curve is a representation of the relationship between the demand and the price of a product. A business can use the demand curve to determine pricing for their product and base it on the response from customers towards similar products. Since the demand curve graphs consumer needs, this makes it a great predictive tool to estimate demand for other products in the same market.
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