Drivers of Demand The demand for a certain product or service varies according to a various condition which affects it

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1. Drivers of Demand

The demand for a certain product or service varies according to a various condition which affects it. Drivers of demand can increase or decrease in the sales of a product or service depending on how they have changed (Archer, 1987). Price is one of the major drivers of demand that have a higher impact depending on how the management of a business has changed it (Agenor & Montiel, 2015). On the other hand, a change in the prices of a product's related goods and services can also affect to lower or increase its demand depending on whether the other has reduced or increased on price. The are other drivers of demand that are highly dependent on the state of the buyers, such as the taste and preference, price expectations and income of the consumers. Other effects of demand can be external influences of purchasing a product, such as marketing, political or climatic changes. It is important to note that drivers of demand play a major role in determining the success of a business; thus, the management should be keen on how they are managing their product and service to ensure they maintain the demand for their product at a higher level.

1. Macroeconomic Factors

The price of a particular product or service may have a high impact on how many customers will be willing to buy it. In most instances, when the prices are higher than the normal prices, the demand tends to reduce for that particular product (Agenor & Montiel, 2015). The decrease in the demand means that most of the customers were only consuming the product or service because of its price. The demand for a product or service may also increase when the price reduces since customers can buy more. Therefore, a product's price becomes a determinant of the rate at which people will consume a product, given that other factors remain constant (Archer, 1987).

In a case where the income of the consumers of a particular product increases, it will lead to higher demand. The rise in demand with the rise in income results from the increase in the purchasing power of the customers. On the other hand, when the customers' income reduces, the demand for a product or service may reduce since they can afford less of the products. Their preferences may change when their income rises or falls, thus increasing the demand for other products or services related to their use before their income change (Agenor & Montiel, 2015). The taste and preference of a product or service can also change when the income is constant due to the boredom of using one product or external influences. A change in income of a buyer can determine whether a demand for a product or service rise or fall.

Most of the customers are always looking for ways to save their money; therefore, when the prices of related goods or services change, they would directly impact the demand of the current product that the buyers are using (Agenor & Montiel, 2015). When the prices of the related goods and services rise, it may increase the demand for the product that the buyers are using. Other buyers who were also using the product whose price has risen will start using other related products whose prices are still low. In another case where the price of the related product reduces, it will lead to a higher demand for the related product since the buyers will opt for the option to save money (Archer, 1987). The prices of the related product directly impact each other since one can be used in place of the others, and most of the customers can shift between them.

In few instances, the demand for a product can change due to climatic or political effects. This is because buyers can predict and expect the prices of products to change hence affecting their demand (Archer, 1987). When climate change can reduce the production of a particular product, it can lead to a higher demand for that product since they expect the product's price may rise due to scarcity. On the other hand, they may buy more of the product since they expect the product to be scarce shortly. Politics also play a major role in determining the demand for a particular product; for example, when they restrict the production of a certain product, it may lead to the demand for that particular product since buyers expect that the product will be scared soon. Buyers expectations of the state of the price or scarcity of a product shortly impact the demand of that particular product (Agenor & Montiel, 2015).

Marketing of a product can also affect the demand of a product negatively. A product or service of low value may have a higher demand than a more quality product or service. In most instances, buyers will have a higher demand for a product they know about or have heard about when the prices are relatively the same. Another reason is that they do not know about the other product or service; hence they will only demand the product they know about. Marketing of a product might have the ability to maintain the demand of a product or service when the prices of the related goods and services have dropped. Buyers will be more willing to buy a product that has been well marketed to them since they obtain loyalty to it. Therefore marketing has a large effect on increasing or maintaining the demand for a product or service.

 

1. Sensitivity Analysis

What must assumptions about your industry be true for an accurate demand forecast? 

The rise in prices of the goods and services will decrease demand since most buyers will consider the cheaper options available (Agenor & Montiel, 2015). Changes in the prices of the related goods and services will affect the demand for the products of my industry. The demand for our products and service may be maintained when the prices change at the same rate as the related goods and services. To increase the buyers' demand, the prices should be maintained at the lower levels by also ensuring that the company is still making profits.

What items or events could cause your forecasts to change?

There are instances when the customers will opt for the product of a higher price because it is of higher quality than the others, which are offered at a lower price (Archer, 1987). In such a case, the price rise can lead to higher demand, or the demand will be maintained, making more profits. Buyers can also have loyalty to a product or service because it is of higher quality, and therefore they will still buy it even if the prices rise. Customer loyalty can lead to a maintained demand since they are not opting to use the related goods and services.         

There are other instances where the customers are required to have due to medical issues or become addicted to them. Buyers would not have any other choice but to purchase such products and services even if the prices have risen since they need them for survival. Climatical changes can also affect the demand for a product or service (Agenor & Montiel, 2015). For example, during winter, the demand for a product or service can change without being determined by the taste and preference of the customers. The demand for a product such as ice cream can go down during the cold season. Therefore the buyers will only consider that the climate is not favourable for the consumption of that product. On the other hand, a product such as coffee can increase during the cold season since customers will demand more of what can solve its problem at that particular time.

           Some buyers have an emotional connection with a certain product. If the product reminds them of someone, they have used it with or a person who they are related to also uses the product. Therefore the customer will demand more of the product if the emotional effect is positive and what the product reminds them about. If it is a positive reminder, the buyer will demand more of it, whereas if it were negative, there would be a decrease in the demand for the product. A product or service can also be associated with something or someone good or bad, which will also affect the demand. This maintains the demand for the product and leads to customer loyalty since they believe that the product is better than the other.