What Are the Four Factors That Cause a Shift in Demand?
by Lee Grayson, Demand Media
The introduction of new products might reduce your demand if you fail
to evaluate the competition.
Digital Vision./Digital Vision/Getty Images
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The key to making the most profit for your business means accurately
estimating demand for your products or services. Calculating demand
involves an intricate balance that includes supply and pricing, as well as
correctly reading customer wants and needs. Inaccurately judging any of
the demand factors reduces your profits. Paying salaries for your idle
staff or storing excess inventory cuts your company profits. Demand for
all industries and services shifts based on several factors.
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Income
Demand shifts when your customers don't have income to purchase your
products or services, and businesses making essentials aren't immune
when income dips. People do without necessities during economic
crunches, but adapting your production to offset reduced demand allows
you to continue production and provide services. People forgo luxury
items when income declines, and businesses providing high-end luxury
also feel the pinch, according to the Wharton Business School.
Sales of fine jewelry, exotic foods, high-end kitchen appliances,
expensive clothing, motor homes and high-priced cars feel the economic
pinch first. Creating items of lesser quality, such as substituting silver
for gold in fine jewelry or using inferior goods to make less-expensive
clothing lines, help businesses adjust to the demand shift when income
falls.
Prices
Prices influence the demand for your products and services, but reducing
your prices to rock bottom doesn't always mean sales. Customers love to
find bargains, but buyers must perceive the product has value and is
worth buying. Competitors might undercut your product by introducing
similar, but inferior, products at lower prices and this also shifts the
demand for goods or services for both companies when consumers can't
tell the difference between the original and the cheaper, but inferior,
imitation.
Related Reading: What Factors Impact the Elasticity of Demand for
Products?
Preferences and Expectations
It's hard to judge what your customers will enjoy from the products and
services you provide. Fads and styles change and, unless your company
follows the trends, the demand shift may catch you investing in products
or services that once sold well but customers now find out of date or
unnecessary. Market and insight surveys help you evaluate demand
shifts and adjust your production and services to reach buyers at peak
interest periods. Your competition also influences the demand shift
when firms make similar items and saturate the market. This helps meet
the current fad, but it also cuts your demand.
Population Shifts
Shifts in population create changes in demand. A population shift takes
place when people move away from a geographic region, impacting your
company sales, and when the population you serve ages or outgrows
your product or service. Baby boomers once purchased items related to
their growing families but now buy things for grandchildren. This group
has a new interest in geriatric medical services and single-story home
designs. Many no longer have the energy, or the need, for stairs in twostory houses. A baby boom in the younger generation expands the
demand for baby gear, including infant clothes and car seats, and also
hospitals supplying maternity services.