You conduct demand analysis to understand the customer demand for a specific product, or service.
Why Demand Analysis?
Businesses assess whether they have a successful chance of entering a market and getting the expected profit.
It is based on the demand analysis that the management takes decisions about cost allocation, pricing, advertising, production, etc.
How does Demand Analysis work?
A new business can easily determine:
- If there is demand for their product [For eg searching for keywords in Google Trends shows you whether the demand has been rising over a period of time, or dropping, or seasonal, etc]
- Learn about competition [how many are there, how fast is the industry growing, with what success, etc
- Understand which areas of your business have a high, or low demand.
There are many reasons for low demand:
- Incompatibility of the products with the market, or what is known as poor product-market fit.
- Ineffective promotions for a product, or service
- Better alternatives being offered by competitors.
This article talks about
- What is the significance of demand analysis?
- Demand Analysis: Goals and Objectives
- Demand Analysis: A Step-by-Step Guide
#1. What Is The Significance Of Demand Analysis?
The ability of a company to identify and satisfy the needs of its customers determines whether it will succeed or fail.
Every business in today’s market must understand consumer behaviour and hold inventory with that understanding.
Demand analysis provides a wealth of information that is critical to the decision-making process.
Following the demand research, businesses gain knowledge that is critical for:
- Financial investment and ROI
- Sales forecasting
- Product pricing
- Marketing and advertising
Consider the decision to invest in a business, for example.
Before you do, you need to understand the demand for a product and its financial implications.
Let’s take a look at the following scenario:
- There is a high demand for a company’s product
- The demand keeps increasing over time
In this case, you would need to spend more to:
- Produce more products
- Improve the quality
- Advertise more to reach a larger number of customers
- Strengthen the marketing team’s capabilities
The pricing policy of a company is also influenced by the demand of its customers.
Understanding the trend in customer demand can assist businesses in determining whether to raise or lower the price of their product or services.
A small illustration of demand analysis in action
The price of substitute and complementary products has an impact on the demand for a commodity.
For example, a change in the price of gasoline can have an impact on the demand for gasoline-powered automobiles.
Demand analysis should be an integral part of your company’s operations, if you want to better understand your leads and customers and be successful in your industry.
Now that we have already established the significance of this technique, it is time to examine its objectives.
#2. Demand Analysis: Goals And Objectives
When a company fails to meet consumer demand, it is considered a failure.
As a result, some of the decisions that a company makes may be jeopardised.
If your company wants to eliminate this possibility, you can conduct a demand analysis to determine how much demand there is for a particular product from customers.
There are several goals for this method.
Evaluate the response of customers for a product
Customer feedback is essential if you want to see how customers react to your new product.
Collecting and tracking customer feedback are two important steps.
Specifically, at this stage you determine if:
- Your customers are satisfied with your products and how satisfied thy are
- There is something you can do to make the products even better.
Create a pricing policy
After conducting a thorough analysis of the demand, you can set your price range.
Understanding the general trend in consumer demand allows you to make quick decisions. Do you raise or lower the price of a particular product or service?
Remember that companies cannot set prices unless they have a thorough understanding of their target audience’s preferences.
Predict future sales
Demand analysis empowers you to make well-informed business decisions and accurately forecast the performance of your company.
You can forecast your future sales with the help of a thorough analysis. Sales forecasting can provide you with valuable insights and pointers on how to manage your company’s cash flow, resources, and workforce.
It assists you in predicting sales revenue, in addition to ensuring that resources are properly allocated.
Develop a strategy for manufacturing
This provides you with the ability to determine the gap between demand and supply.
You can estimate the raw materials that will be required to maintain a consistent supply.
Apart from that, if your operations are based on forecasts, your company will be able to maximise resource utilisation.
Demand analysis provides a wealth of valuable information for your company’s success.
Let’s now take a look at how to conduct demand analysis.
#3. The 5-Step Guide to Demand Analysis
Demand analysis is used by businesses to determine how a product or service will be received by customers.
It also tells you whether a company will be able to successfully enter the market and earn the expected profits.
There are five steps to take into consideration.
Determine the target market
As a first step, you should identify the market segment that you intend to target with your new products.
For this, you can conduct market surveys to collect feedback from customers about products they use in your segment.
Plus, determine their level of satisfaction with current products.
If customers express dissatisfaction with a product, then you have the opportunity to optimise your product to better meet their needs.
Evaluate the business cycle
The stage of the business cycle can be estimated once a market has been defined, and there are 3 stages in the business cycle. They are:
Stage 1: Also known as the emerging stage. In this stage there is a high demand for goods and a limited supply of goods available.
Stage 2: Additionally, known as plateau stage. Here, the supply of products meets the demand of the market
Stage 3: Known also as a declining stage witnesses that the demand for the products lags behind the supply of products.
- Create a product that caters to a specific market segment
You must develop a product that caters to a specific market segment.Improve the design of your products so that they can meet the requirements of your customers.Customers should also be able to differentiate between your products and those of your competitors.
Define your competitive advantage
It is possible to increase demand and create a sense of usefulness by developing products that can solve customers’ problems.
Consider the case of iPods or iPhones, for instance.
Because these products were perceived as valuable by customers when they entered the personal electronics market, their introduction increased demand.
Find out who your competitors are
Identify the number of your competitors as well as their share of the market.
Where you are in the business cycle at any given time will determine your answer.
For example, in the emerging stage, you’ll have fewer competitors, which will allow you to earn a higher profit margin than you would otherwise.
You’ll have fewer competitors in the developing stage, allowing you to generate a bigger profit margin than you would normally.
To summarise, demand analysis is a critical step in the process of making a market entry for products, or services, regardless of the industry you cater to.
You should be well-versed with the consumer behaviour that determines the demand for a particular product in a specific market segment.
You need to evaluate the competition, assess the level of customer satisfaction with products and services in your category/ segment, determine the need gaps, so that you are fully prepared before you enter the market.
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