Factors Leading to a Change in Demand

This section explains the factors leading to a change in demand covering, changes in the prices of substitutes and complementary goods, changes to consumer incomes, changes to fashions, tastes and preferences, advertising and branding, demographics, external shocks and seasonality. 

In the context of marketing, demand refers to the quantity of a product or service that consumers are willing and able to purchase at a given price and within a specific time period. Several factors can lead to a change in demand for a product or service, which can have a significant impact on a business’s marketing strategy and overall performance. Below are the key factors that can cause a change in demand:

Changes in the Prices of Substitutes and Complementary Goods

• Substitutes are products or services that can replace each other, such as tea and coffee. When the price of a substitute rises, demand for the product in question tends to increase, as consumers may switch to the relatively cheaper alternative.
• Complementary goods are products that are typically used together, like printers and ink cartridges. If the price of one complementary good decreases, demand for the other tends to rise, as consumers are more likely to purchase both together.

Changes in Consumer Incomes

• Normal goods see an increase in demand as consumer incomes rise, as individuals have more disposable income to spend on these goods.
• Conversely, for inferior goods (such as budget brands or second-hand goods), demand may decrease as consumer incomes increase because individuals may choose to buy higher-quality alternatives instead.

Fashions, Tastes, and Preferences

• Demand can fluctuate based on changes in consumer preferences, which are influenced by trends, cultural shifts, and societal influences. For instance, a surge in popularity for plant-based diets could increase demand for plant-based products.
• Fashions and tastes are often short-term, so businesses must keep a close eye on trends and adjust their marketing strategies accordingly to meet shifting consumer desires.

Advertising and Branding

• Effective advertising can significantly influence demand by creating awareness and generating interest in a product or service. For instance, if a business runs an impactful advertising campaign, it may stimulate an increase in demand for the product being promoted.
• Similarly, strong branding can also influence consumer demand. A well-established brand may command higher demand due to brand loyalty, perceived quality, and trust built over time.

Demographics

• Demographic changes, such as shifts in age, gender, income, family structure, or ethnicity, can influence demand for certain products. For example, an ageing population may lead to increased demand for healthcare-related products and services.
• Businesses often conduct market research to understand demographic trends and tailor their products and marketing messages to specific consumer segments.

External Shocks

• External shocks, such as economic recessions, natural disasters, or political instability, can drastically alter demand. For instance, during a recession, consumers may reduce spending on luxury goods, while demand for cheaper alternatives or essentials may increase.
• The COVID-19 pandemic is a prime example of an external shock that led to drastic changes in consumer behaviour and demand for certain products, such as sanitiser and home entertainment.

Seasonality

• Many products and services experience seasonal demand fluctuations, influenced by time of year or specific events. For example, demand for winter clothing typically increases as the weather turns colder, and demand for holiday decorations peaks around Christmas.
• Businesses must anticipate and plan for these seasonal shifts by adjusting their marketing strategies, pricing, and product availability to capitalise on peak demand periods.

By understanding these factors, businesses can better anticipate shifts in demand and tailor their marketing efforts to maximise profitability and consumer satisfaction. Monitoring these variables and adjusting strategies accordingly helps businesses remain competitive in a dynamic marketplace.