In 1994, Sony released a new video game console called the PlayStation. It might have seemed like a strange move at the time. After all, Nintendo and Sega dominated the market with their systems. Surely, a third direct competitor didn’t stand a chance. Was there even a market demand for it?
Selling 102.4 million units during the console’s lifetime, the first Sony PlayStation went on to become a smashing success. Further iterations (PlayStation 2 all the way up to the PlayStation 5) have also been wildly successful, selling hundreds of millions of units themselves. Clearly, the market demand existed, and Sony capitalized on it to the tune of billions of dollars, huge sales, numerous awards, and a massive fan base that continues to stay committed to the brand.
With the PlayStation, Sony experienced the goal of most businesses: to offer a lucrative product with high demand. However, too many business owners offer products and services within a red ocean. On the surface, Sony appeared to be doing the same with the PlayStation. Yet, innovative technology, clever marketing, and partnerships with software companies meant Sony offered something no other competitors had. The company created a new blue ocean.
Businesses seeking the same level of success must steer clear of saturated markets. Failure is often the result when you offer something others are already doing better. One of the best ways to increase your chances of success is by first determining a demand for your product or service, then capitalizing on it.
In this article, discover:
- What market demand is
- How to calculate market demand for your company
- Some of the best strategies for increasing demand when it is initially low
What is Market Demand?
The term market demand often refers to whether an audience is willing to pay for the good or service you offer. It’s a way to measure if consumers are eager to get their hands on a product or if they feel fine letting it pass them by. Market demand can fluctuate thanks to many factors such as price, time of year, availability of products, marketing forces, and more. For example, the demand for patio furniture will rise during the spring and summer, but come fall and winter, demand will likely plummet.
Why Does Calculating Market Demand Matter?
Returning to a video game console example, one of the biggest system flops in history is actually an Apple product. In 1996, when the Sony PlayStation was revolutionizing the industry, Apple launched the Pippin, a new console meant to compete with the heavy hitters. Clearly, Apple miscalculated the market demand because the Pippin was a resounding failure. The system brought nothing new save for a bizarre-looking controller, and it even cost 600 dollars, which was double what Sony charged for the PlayStation. The Pippin ended up selling 42,000 units in total, making it a disaster of historic proportions. Had Apple accurately measured the market demand, the company likely would have steered clear of launching the Pippin in the first place.
Whether you’re just learning how to start an online business or leading a long-running company, determining demand plays a significant role in how successful a company is. Get it wrong, and a business may take months or even years to recover if it recovers at all.
Other reasons market demand matters include that it:
- Sets a good price point: Calculating demand accurately means setting a price point that maximizes the amount sold and the amount of money gained. Generally speaking, a higher price will reduce demand, while a lower price raises it. When you calculate market demand, you set an equilibrium price that benefits you and the consumer.
- Determines how much to supply: Do you need to make a lot of your product or keep it to a low number? Supply and demand indicates that if there’s a lot of demand for something, you need to have a big supply. You don’t want to be stuck with a large warehouse full of items you can’t get rid of.
- Predicts sales and leads to better forecasting: Markets will naturally fluctuate. Calculating demand will help you predict how sales will measure up over time. For example, when you release a new product, you’ll likely have higher sales, but over time those sales will level out.
- Prepares you for hiring staff: When there’s a high demand for something, you need to have the staff on hand to prepare, make, and deliver it. If you anticipate high demand, hiring more people becomes a priority.
- Limits cost inefficiencies: Predicting market demand also helps you to avoid cost inefficiencies, such as having products sitting on shelves for too long. You don’t want your investments to not make money or worse, cost you money the longer nobody buys them.
7 Ways to Ensure There’s a Market for Your Offering
1. Calculate Market Demand
When calculating market demand, you need to become familiar with the demand curve. This curve represents demand when compared to pricing. With the quantity of product purchased on the x-axis and price on the y-axis, the demand curve shows that the higher the price, the fewer items are sold. Likewise, you sell more items as the price goes down. This is a simple way to describe “what is demand” in economics.
The supply curve also provides information. As the price increases, suppliers will provide more of the product. If the price goes down, they’ll provide less of it. Where the demand and supply curves intersect is ideally where you would want to set the price, maximizing the number of products sold and the amount of money earned. Hendrith Vanlon Smith, Jr. summarizes this concept: “People tend to buy more at a lower price and less at a higher price. Also, people who produce goods or supply services tend to produce more at higher prices and less at lower prices. This juxtaposition constitutes equilibrium.” Hitting that market equilibrium should be your goal.
2. Use Search Engines as a Resource
When it comes to demand economics, Google is your friend. Doing some research on a search engine like Google can reveal if there are people out there who want the product or service you offer. For example, you can use the Google Keyword Tool to discover some of the keywords related to your product. From there, you can see how many searches there are for those keywords. If you see a lot of searches, chances are the quantity demanded is going to be high.
Similarly, you can use a tool like Google Trends to gauge the interest in certain keywords and products over time. Through Google Trends, you can see if search volume for the keyword is on the rise or fading. If the trend is going in a positive direction, now might be a good time to launch your product. If interest is waning, then it might indicate you need to rethink your idea.
Search engines provide a variety of tools that help you see what demand is like before putting your offering out there. Take advantage of this resource as it’s usually an inexpensive way to do research for demand economics.
3. Test the Pre-Order Market
A more direct way to test the demand for your product is by offering pre-orders. Doing this gives you a solid number to work with before you even start manufacturing anything. All it takes is setting up a website and taking pre-orders online. From there, you’ll have real data that tells you people want your product.
Advantages to offering pre-orders:
- Provides you with cash you can use for the manufacturing and shipping of the product
- Can be used as part of a marketing push
- Gives you a concrete idea of the amount of inventory you need
You should be careful about taking this approach, however. When taking pre-orders, you need to deliver the product, even if it turns out the demand is low. The only recourse you have if you discover a low demand is to fully refund the money. Failure to deliver the product might end up hurting your company’s reputation. So proceed with caution.
4. Conduct a Survey
A survey is another excellent way to determine how much demand exists for your product. Surveys allow you to go into more detail as you seek the thoughts and opinions of potential consumers. You can get a sense of why a consumer would love to buy your product and how much they’re willing to pay. If a person doesn’t have much interest, you can discover why.
The results from your surveys can help inform how much you should supply and what price points to set. Find out what needs your products can satisfy and see how they act as a solution to problems. If you send surveys out to your target audience, you’re bound to receive some valuable feedback you can use in the future.
With social media and email platforms, surveys are a cost-effective way to find out more about your consumers. Every business should discover as much as they can before launching a product.
5. Experiment with Different Prices
Sometimes, research can only go so far in helping you determine what price to sell your product at. When possible, you can also try some experimentation with different prices. If you own multiple stores, try a different price for the same product at each store and record how well it sells.
If you don’t have the luxury of owning multiple locations, you can try a different approach. For a product that isn’t selling as well as you think it should, try offering a discount. A lower price may make the market demand explode, which indicates that the price you were offering before was too high.
This strategy requires more patience and careful record-keeping than others. There are times when the differences can seem slight, but allowing things to play out can reveal even more information. If you tackle this with a business coach, you’ll gain a better understanding of your customers and the demand they have for your product.
6. Try Local-Level Tests First
When a major fast food franchise like McDonald’s or Wendy’s wants to launch a new menu item, they first test it on a smaller scale in a local market. If it tests well, they know there’s a high market demand for it and proceed to spread the release nationwide. The same can apply to your business when applicable.
Try selling your product on a much smaller scale to start out. Keep it locally based. Based on the sales data you get, you can reasonably calculate how the product will perform on a larger scale. It also decreases the risk of having a disastrous launch. If the product fails, then it’s only a minor mark against you rather than a company-wide catastrophe.
7. Study the Competition
As you think about what to offer your customers, don’t forget about your competitors. Take note of what they’re providing and how well they sell. Look at how they reach out to their audience. Pay attention to where they excel and where they fall short. You may even be able to spot trends that are otherwise hidden.
The point of this strategy isn’t to imitate your competition. That would be taking part in a red ocean. Instead, looking at your competitors can help you identify opportunities they aren’t taking advantage of. Perhaps they aren’t providing a product or feature that consumers crave. Maybe their failures represent an opportunity where you can thrive. Noting where competitors are can indicate where they are not, which would be prime territory for you to seize upon.
Also, think about indirect competitors outside your immediate industry. There may be opportunities there that you can apply to your field. Much like Elon Musk has done with his Tesla Gigafactory idea, you can use concepts from all over to boost your company and take advantage of a blue ocean.
Ways to Increase Your Market Demand
If your business is struggling, you need to find ways to increase market demand for your products. Here are a few quick ideas you might try out:
- Run promotions that showcase how your products are better than your competitors
- Enhance your product with a new, unique feature
- Create in-store displays and even demonstrations to catch the consumer’s eye
- Offer special discounts on items for a limited time
Even with these strategies, market demand might not increase. That’s why you shouldn’t be afraid to pivot. You can’t just manufacture demand out of nowhere, so don’t waste your time, energy, and money on a product that can’t get traction. Have enough confidence to rework your business plan or core offering. If you do your research first, you’ll land on something that connects with consumers.
If you need further help with new strategies, check out this article on writing a business plan.