Trade The Journey

Trade The Journey

Demand Analysis part 1

Here are some other ways to assess demand of a product or service:

  • Importance of a product? Availability of substitutes. How easy is it for you to buy something else from a competitor without having to think about it?
  • Disposable Income required to purchase product or service? Does someone have to break the bank to purchase the product or service? If their income dropped would they still purchase it?
  •  Length of time allowed for adjustment of demand to price changes influences? If the prices are stable after an announcement in the changes of prices has been made, will demand change? Can a consumer make adjustments to their situations, that would allow them to purchase the product at either a cheaper cost, from another company or do without it completely?

Some other aspects of demand to think of are the quantity demanded at a certain price and how companies have to adjust their product price offerings to reflect the demand. One company I think of is the dollar tree, which sells products at very low prices. It is a competitor to stores like 99 cent store and small dollar stores you see around town. You probably won’t hear much about the dollar tree in the news but they have continued to expand and their stock price has continued to increase as has the dollar general. What kind of demand do you think a store like a dollar general or dollar tree has?

Well, they are a number substitutes available and I highly doubt your disposable income would be affected shopping at a dollar store.  I would say their demand is elastic because at the end of the day, does it really matter where you purchase a case of pencils for $1.00. However as the gap between the rich and poor continues to widen, how elastic would you say the industry is?

I’d like to think the demand is the hardest part to understand. Almost anyone can supply a product or service when first beginning.  Supply chain logistics is another subject for another day. Demand is the hardest to create and the hardest to sustain. It takes a special mix of advertising, marketing, and management to handle the sharp curves that arise in creating/sustaining demand. Management must be agile in understanding the changing industry/market they operate within and the demand that will follow the change in the market.

If you can identify a product or service before the masses, you might have gold on your hands. And while you may have to brush the dirt initially found on the piece of gold its still gold, and that’s if you have the eye to identify gold and the faith to believe it is before you are rewarded. Although most would lead you to believe that picking a stock just involves the financial statements, movement of the market, and ratios, it is much more. As I learn more about economics, management, resources, supply & demand, politics, bank economics, and interest rates, the more I begin to realize that you must be fluid in regards to financial investments. It seems that you must have enough knowledge and experience to make intuitive selections opposed to selections based on the general knowledge of the masses.

Interesting to note: “Products that represent minor portions of our total expenses tend to have inelastic demand”

In case you’d like to read more about demand, I gathered the information from “Economics for Bankers“. Don’t worry about the title or the date the book was published. The principles will stand the test time.

Thoughts

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