Demand is the quantity of goods that the consumer wants and is able to purchase in a given period. It is also called a solvent need. Demand and volume of purchases should be distinguished from each other. The first is determined only by the behavior of buyers, and the second - by the activity of both consumers and sellers.
The law of demand suggests what?
The answers to this question are at the heart of the concept itself. It consists in the presence of an inverse relationship between the cost of production and the need for it. Moreover, all other conditions are accepted as equal. In other words, the law of demand suggests that if the price of a commodity rises, then the need for it decreases.
What is the cause of dependence?
There are several reasons for this relationship. The law of demand assumes that the lower the cost of a product, the greater will be the tendency of consumers to purchase it even if they had already bought it before. That is, they know the quality of this product. Accordingly, its lower cost fuels their desire to possess a well-known product. In addition, the price provides an opportunity to make a purchase to people who previously could not afford it. Low cost encourages buyers to reduce the consumption of expensive substitute products. The first two reasons given above are referred to as the “profit effect”. The law of demand suggests that when the price of a product falls, the solvency of the population increases. The third reason mentioned above is called the “substitution effect”. In practice, all these factors usually act simultaneously.
Features of trade relations
The process of exchanging goods in a competitive market takes place according to certain principles. They are identified in the specifics of the economic response of subjects to the ratio of the volume of production and its value. The law of demand acts as one of the key rules governing the process of commodity exchange and pricing. It was said above about the inverse relationship between the cost of the product and its quantity. The law of demand assumes that the excess of supply over demand acts as a signal for the manufacturer about the saturation of the market. In this case, the sale of products is possible only with a decrease in its value. Even a slight shortage of consumer-friendly goods will lead to higher prices.
Saturation of needs
The law of demand assumes that the excess of supply over demand occurs when a certain limit of the increment of purchases is reached. As a rule, people acquire the same product because of a decrease in its cost. But the beneficial effect of this has a certain limit. With its onset, even with a continuing downward trend in value, the amount of product purchased will decrease. Thus, the law of demand assumes that an excess of output causes a diminishing utility of each additional acquisition of the same product. For the consumer, it is becoming increasingly evident that the beneficial effect of the additional costs is reduced. As a result, the law of demand assumes that excess supply will not increase acquisition, even if the cost of the product decreases.
Exceptions
What the law of demand implies under ordinary conditions will not manifest itself in three cases:
- In the circulation of certain types of expensive and rare products that act as a means of placing funds. For example, they include antiques, gems, gold, etc.
- With antitrust demand triggered by expected price increases.
- When switching consumers to a better and more expensive product.
The specifics of the phenomenon
So, the law of demand assumes that the need of the population manifests itself in the market and is supported by money. In this case, the acquirer may wish to receive a certain product at a specific time and place of his choice. Demand is considered a rather complex phenomenon. It is formed from various elements. The law of demand is based on them. Does the consumer guess why he is purchasing this or that product? As a rule, a person has clear intentions regarding the products he needs. However, in essence, the law of demand involves a combination of elements that have regional, demographic, social, economic features. These elements make it possible to differentiate a solvent need according to various criteria.
The importance of classification
The distribution of all that the law of demand implies regarding solvency allows the seller to have a targeted effect on the consumer. In this case, advertising models or direct impact methods may be used. According to observations, about a quarter of consumers lend themselves to psychological influence. These people actively respond to the demonstration of products in the store. This, in turn, indicates the need to optimally place products on the display window, to ensure accessibility for inspection and testing. The colorfulness and originality of the exposition, its information content will be of no small importance.
Place of acquisition
It is one of the signs of differentiation and is of interest to companies that carry out regional marketing. In a certain part, the mobile solvent need is considered recreational. It is associated with spa trips. What the law of demand implies is of particular importance to firms providing services to tourists. For them, it is important not only the size of the mobile solvent need, but also its geography, routes. At the same time, territorial differentiation is important for municipal and regional authorities. It allows them to establish control over the consumer market and develop their own policies within it.
Other criteria
Analysis of everything that suggests the law of demand in terms of satisfaction, allows the organization to adjust the service and assortment policies, identify additional reserves to ensure sales growth. To control and forecast solvent demand, a temporary indicator of the formation and presentation of it on the market is used. So, the past is called demand, which is realized or not satisfied for the previous period. Its assessment is important in identifying trends and implementing implementation plans. Current is called the current demand. Knowledge of its size makes it possible to promptly adjust the intended marketing work. It is a market element of the market. The future is called demand for the upcoming period. It is extremely important for the company to predict its volume and structure depending on its production capabilities and market needs. The separation of solvent needs according to the above criteria allows you to orient marketing activities to the use of a specific product and price policy, to choose the optimal strategy for conducting competition. In addition, the classification allows you to organize targeted advertising campaigns, conduct multi-parameter market segmentation. All this requires the company to conduct appropriate differentiated actions, measures that regulate demand.
Factors of change in effective demand: general information
Pricing in a market environment is a multidimensional process. In it, the exchange of products is affected not only by cost, but also by other factors that are not related to it. Their influence in some way neutralizes the effect of price. As practice shows, in some cases, changes in the number of purchased products occur at a constant cost, and in some situations - regardless of its movement.
Consumer funds
The law of demand assumes that if the income of customers increases, the number of products purchased will also become large, despite the fact that their value has not changed. In this situation, the constraint is the amount of funds that the consumer controls. Before increasing his income, he might not have the opportunity to purchase a particular product. At the same time, if the financial condition of the consumer worsens, then at a constant cost of products, the number of purchases will become less.
Consumer expectations
This is another factor that can affect the change in the amount of purchased goods at the same price. Consumer expectations, in turn, are influenced by various circumstances. They can be affected by both economic factors (inflation, for example), and non-economic (seasonal, climatic, holiday conditions, and so on). With their influence, the amount of purchased goods can both increase and decrease, regardless of the level at which prices are located.
Availability of interchangeable and complementary products
This is also an important factor influencing the change in the volume of many goods purchased by the population. Complementary products of the consumer market include, for example, sugar and other products purchased for tea or coffee. Almost every product has its own substitutes or complementary products. Their presence in the consumer market can often significantly change the solvent need.
