Market demand showcases the inclination of customers towards purchasing a product or service at a given price in any marketplace. It is important to understand the market demand and the desires of people before introducing a product or service to consumers.

While it is essentially the amount of a specific product or service that consumers are collectively willing to buy at a particular price range, it is also the number of consumers willing and ‘able’ to buy that product or service. This is when we learn that consumer desire is not the same as consumer demand.

The price of a product or service is directly proportional to its demand. So, for instance, the higher the demand for a product, the higher its price. Similarly, the lower the demand, the lesser the price. However, this directly proportional rule has an exception when we add supply into the mix, but that is another topic on its own.

For example, the price of the iPhone 11 in the market is always high as the demand for it is also high. The consumers’ desire and ability to pay for the iPhone determines the prices of these phones. The market demand, however, is not always equal to the value of the product or service.

Young or aspiring entrepreneurs can conduct extensive research on market demand to determine which product or service will be profitable and make a good investment.

Suggested read: What is Marketing Plan 

Factors that affect market demand

Although the market demand is essentially the collective ability of the consumers to purchase a product or service, various factors impact the said demand. A few important ones are as follows:

  1. The substitution effect: Most products in the market have a similar substitute or a complementary product. The prices of these products and services also have an impact on the market demand.

For example, if your product is tea, and the price of coffee goes down, then the demand for your product, i.e., tea, will go down as many people will switch to the more economical substitute — coffee.

  1. Consumers’ tastes and preferences: In an objective market, the demand is usually only dependent on the consumers’ ability and desire to buy a good. In a realistic marketplace, however, the taste and preferences of customers play an essential role.

Let’s take the example of seeds such as pumpkin seeds and flax seeds etc. These are not new in the market per se. During the 70s and 80s, the price of seeds was at a standard price range because people didn’t pay much attention to it. Today, the prices of seeds have sky-rocketed because of consumers’ renewed preferences for them. 

  1. Advertisement and trends: These play a significant role in market demand. Just as when the seeds became trendy, their prices went up.

Let’s understand through the example of tea. Chai has been an integral part of Indian culture, and tea has had a steady demand for decades. Recently, in the last decade or so, green tea has been advertised as a superfood. Suddenly, the demand for green tea shot up. This is not because of the steady market demand but by virtue of advertisements, which has made green tea a trending item, causing higher demand, leading to a rise in its price.

  1. Income and number of consumers: The sum of individual demands creates market demand as a whole. Therefore, the population of a place plays a vital role in market demand. When an item becomes scarcely demanded, it becomes a luxury item. Thus, for example, the prices of something as simple as fast fashion are lower in India than in Iceland.

Another clearly understood factor affecting the market demand is the income of the population. The purchasing power of all the consumers will have a directly proportional impact on the market demand for a product or service.

  1. Future price expectations: The expectations of a rise or fall in the price of a particular product or service can significantly impact the market demand.

For example, if people believe for some reason that the price of gold is going to increase in the future, then the present market demand for gold will go up. Similarly, the expectation that vacationing in Goa will be expensive in December may cause an increase in demand for hotels and flights in June or July.

  1. Weather conditions & credit facilities and awareness: In a cold place such as some parts of Canada, the demand for warm clothes will always be high instead of swimsuits. 

Interestingly, the availability and awareness of credit services also play a role in the market demand as good credit services increase consumers’ purchasing capability and, therefore, their demand. 

How does market demand help a future entrepreneur?

The consumer is king, and market demand is the voice of the consumer as a whole. Therefore, market and consumer research is an essential tool for an aspiring entrepreneur. In addition, extensive research on market demand helps you understand which industry is doing well, is about to boom, or has a bright future.

The answer to all of this lies in market demand.

Types of Research 

Research may sound like an expensive affair. Yes, big companies carry out extensive market research that costs the big bucks. However, these days some tools help you research at a minimal cost. Here are a few ways:

  1. Surveys: Surveys are a great tool, and social media is a great place to do your initial research through various survey tools. You can reach a wide range of audiences on different platforms.
  2. Observation and data: You can also observe different products and how well they are doing. The trends, figure out long-lasting trends that have been around and are likely to continue. Observing trends will give you valuable data and help you understand market demand. 
  3. Experimentation: Finally, if you have already dipped your toe in the market, then carry out experiments with your pricing through discounts and offers. Or even content experimentation as content marketing is a great tool to have in your pocket. 

Now that you know all about market demand get ready to conduct research and get into action!


An avid football fan and a Fintech enthusiast.

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