Market Demand

Market demand is similar to industry demand. It is a broader concept and it

involves total demand of a product in an industry. For example, demand of two
wheelers in India implies demand of two wheelers produced and marketed by all
the companies. It reveals the broader picture of demand. Marketer should keep
in mind the wider scenario of industry/market demand to see his position, often
called market share of company in an industry. Market demand plays a vital role
in formulating the broad marketing programme.

Definitions:

Term ‘market demand’ can be defined as:

1. Philip Kotler: “Market demand for the product is the total volume that would be
bought by a defined customer group in a defined geographical area in a defined
time period in a defined marketing environment under a defined marketing
programme.”

2. Thus, market demand indicates total sales of the product to the specific groups
of buyers in a specific period and in defined geographical areas in a given
marketing environment.

Elements of Market Demand:

Systematic analysis of above stated definitions necessarily reveals following

elements:

1. Product:

Market demand indicates the total demand of specific products in an

industry. The place or scope of product must be specified. In which category or
industry the product of company falls. It can be decided on the basis of who are
the users and the purpose of using the product. Thus, we must mention the
market demand in relation to the specific product.

2. Total Volume:

It shows the total volume of sales in form of unit or value. It suggests the total
sales of the product in the industry. For example, total volume means the amount
(or units) of total demand of refrigerator in India.

3. Purchase or Buying:

Only the quantity, that is ordered and purchased is included in market

demand. Market demand includes units, which are ordered, delivered, or
consumed

4. Customer Groups:

Market demand is expressed in term of different users. Total volume

demanded by different groups of customers, such as industrial customers,
institutional customers, and individual customers

5. Geographic Area:

Market demand can be specified in term of different geographical areas or

localities. It may be in term of country, state, region, district, or any geographic
unit.

6. Fixed Time Duration:

Market demand is meaningful only if it is expressed in relation to time. For

example, demand of two-wheeler during the year 2007. Time may be in term of
week, months, quarter, or year.
7. Marketing Environment:

Obviously, market demand is influenced by several factors. These factors

constitute the marketing environment. So, it is necessary to mention assumptions
about marketing environment comprising economic, cultural, social, political, etc.,
forces.

8. Definition of Marketing Programme:

Market demand is affected by marketing programme/strategy. So, it is

clarified with reference to a specific marketing programme including product,
price, promotion, and distribution. Thus, market demand is stated in context with
the definite marketing programme.

While estimating market demand, these all elements should be considered

for meaningful picture of total demand. Here, we must distinguish market
demand from company demand. Market demand is total demand of the product
in an industry, and company demand means demand of the individual business
unit’s products. Market forecast relates with market demand and sales forecast
relates with company demand. However, market demand forecast and sales
forecast are taken loosely (i.e., more or less similar).

Measures of market demand

One major reason for undertaking marketing research is to identify market

opportunities. Once the research is complete, the company must measure and
forecast the size, growth, and profit potential of each market opportunity. Sales
forecasts are used by finance to raise the needed cash for investment and
operation; by the manufacturing department to establish capacity and output
level; by purchasing to acquire the right amount of suppliers; and by human
resources to hire the needed number of workers.

Marketing is responsible for preparing the sales forecasts. If its forecast is

far off the mark, the company will be saddled with excess inventory or have
inadequate inventory. Sales forecasts are based on estimated of demand.
Managers need to define what they mean by market demand. Here is a good
example of the importance of defining the market correctly.

Coca – Cola

When Roberto Goizueta became CEO of Coca-Cola, many people thought

that Cokes sales were maxed out. Goizueta, however, reframed the view of
Cokes market share. He said Coca Cola accounted for less than 2 ounces of the
64 ounces of fluid that each of the worlds 4.4 billion people drank on average
every day. The enemy is coffee, milk, tea, water? he told his people at Coke, and
he ushered in a huge period of growth.

The Measures of Market Demand

Companies can prepare as many as 90 different types of demand

estimates. Demand can be measured for six different product levels, five different
space levels, and three time levels.

Each demand measure serves a specific purpose. A company might

forecast short –run demand for a particular product for the purpose of ordering
raw materials, planning production, and borrowing cash. It might forecast
regional demand for its major product line to decide whether to set up regional
distribution.

Forecasts also depend on which type of market is being considered. The

size of a market hinges on the number of buyers who might exist for a particular
market offer. But there are many productive ways to break down the market.
 The potential market is the set of consumers who profess a sufficient level
of interest in market offer. However, consumer interest is not enough to define a
market. Potential consumers must have enough income and must have access
to the product offer.

The available market is the set of consumers who have interest, income,
and access to a particular offer. For some market offers, the company or
government may restrict sales to certain groups. For example, a particular state
might ban motorcycle sales to anyone less than 21 years of age. The eligible
adults constitute the qualified available market — the set of consumers who have
interest, income, access, and qualifications for the particular market offer.

The target market is the part of the qualified available market the company
decides to pursue. The company might to concentrate its marketing and
distribution effort on the East Coast. The company will end up selling to a certain
number of buyers in its target market.

The penetrated market is the set of consumers who are buying the company€™s
product.

These definitions are a useful tool for market planning. If the company is
not satisfied with its current sales, it can take a number of actions. It can try to
attract larger percentage of buyers from its target market. It can lower the
qualifications for potential buyers. It can expand its available market by opening
distribution elsewhere or lowering its price; or it can reposition itself in the minds
of its customers.

Measuring market demand

Let us assume there are only three consumers in a hypothetical market of product. The following
table shows their individual demand schedules as well as the market demand which is obtained by
horizontally adding the quantities demanded by individuals at a given price.
Unit Individual Demand Market
Price Aaron David Sarah Demand
8 0 0 44 44
7 0 16 51 67
6 4 32 57 93
5 8 51 65 124
4 13 75 74 162
3 20 104 86 210
2 30 147 103 280
1 46 220 134 400

The following chart shows the individual demand curves as well as the
market demand curve. The points on individual and market demand curves have
same vertical coordinate i.e. price per unit of the product. But the horizontal
coordinates of the points on market demand curve are the sums of the horizontal
coordinates of the points on individual demand curves i.e. quantities demanded
by individual customer.
 At any given price different quantities may be demanded by different
consumers and the difference in slopes of the individual curves shows that their
elasticity of demand may also be different. However a single consumer has
insignificant effect on equilibrium in a large market. Therefore we use market
demand and market supply curves to determine equilibrium price and quantity.