Terms

Demand

Demand is an economic principle that refers to a consumer's desire to purchase goods and services, coupled with their willingness to pay a specific price for them. Generally, this relationship is inverse; as the price of a product falls, the quantity demanded by consumers rises, and as the price increases, the quantity demanded falls. This concept is fundamental to how businesses set prices and how markets function, as it helps determine the value of goods and the volume that changes hands.

Factors Influencing Demand

While a product's price is a primary driver, several other factors can shift the entire demand curve. These elements cause consumers to buy more or less of a good even when its price remains unchanged, reflecting shifts in circumstances and market conditions.

  • Income: Changes in consumers' disposable income directly affect their purchasing power.
  • Preferences: Shifts in consumer tastes, trends, or the perceived quality of a product.
  • Substitutes: The availability and pricing of alternative products that satisfy the same need.
  • Complements: The price and availability of goods that are often used together with the product.
  • Expectations: Consumer beliefs about future price changes or product availability.

Types of Demand

Demand is often categorized by its relationship to other products. Joint demand occurs when two goods are used together, like printers and ink. Derived demand is when the desire for one product stems from another, such as the need for steel in car manufacturing.

Competitive demand applies to products with close substitutes, like butter and margarine. Composite demand describes a single product with multiple uses, where demand for one use impacts its availability for others. These types help businesses understand market dynamics.

Demand vs. Request

While often used interchangeably, in a business context, 'demand' and 'request' have distinct meanings and applications.

  • Demand: This refers to a consumer's desire for a product backed by the willingness and ability to pay for it. It is a measurable economic concept crucial for enterprises to forecast sales, set prices, and manage inventory. While powerful for market analysis, it can be complex to estimate accurately.
  • Request: This is a simpler expression of want, without the inherent financial commitment. For companies, it's useful for gathering customer feedback, feature ideas, or handling internal service needs. It provides direct qualitative insights but doesn't reflect broader market purchasing power or price sensitivity.

Demand in Different Markets

Demand patterns vary significantly from one market to another, influenced by the nature of the goods and specific economic conditions. While market demand focuses on a single product, aggregate demand considers the total demand across an entire economy. These differences lead to unique consumer behaviors in various sectors.

  • Normal Goods: Demand for these items typically rises as consumer income increases.
  • Luxury Goods: Demand can paradoxically increase with price, driven by status and exclusivity.
  • Necessities: Demand remains relatively stable regardless of price or income fluctuations.
  • Substitutable Goods: Demand is highly sensitive to the price and availability of competing products.

Impact of Demand on Pricing

Demand is a key driver of a product's price in the market. When demand for a good increases while supply remains constant, prices tend to rise as more consumers compete for it. Conversely, if demand falls, prices typically decrease as suppliers try to attract fewer buyers. This dynamic helps markets find an equilibrium price.

Frequently Asked Questions about Demand

How does a shift in the demand curve differ from movement along it?

Movement along the curve is caused solely by a change in the product's price. A shift of the entire curve, however, is caused by non-price factors like changes in consumer income or preferences, indicating a change in overall demand at every price point.

What is demand elasticity?

Demand elasticity measures how much the quantity demanded of a good responds to a change in its price. Inelastic demand means quantity changes little with price, while elastic demand means it changes significantly. This concept is crucial for strategic pricing decisions.

How can businesses practically measure market demand?

Businesses measure demand through methods like consumer surveys, market experiments with different price points, and analyzing historical sales data. Statistical analysis and regression models are also used to forecast future demand based on various economic indicators and market trends.

Other terms

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Sales Territory

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Call Disposition

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Day Sales Outstanding

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Day Sales Outstanding

Customer Segmentation

Customer segmentation is dividing customers into groups based on shared traits. This allows for more targeted and effective marketing efforts.

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Incident Response

Incident response is an organization's systematic approach to managing and mitigating the aftermath of a security breach or cyberattack.

Incident Response

Mobile Compatibility

Mobile compatibility ensures your site or app works flawlessly on mobile devices, like smartphones and tablets, for a seamless user experience.

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User Testing

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Platform as a Service

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Platform as a Service

Cold Call

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Quality Assurance

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Application Programming Interface Security

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Application Programming Interface Security

Bounce Rate

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Solution Selling

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Buyer’s Remorse

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Data-Driven Marketing

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Firewall

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Payment Gateways

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Payment Gateways

Kanban

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LPI

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Return on Investment (ROI)

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Application Programming Interface

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Application Programming Interface

Time on Site

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Needs Assessment

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Territory Management

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Brand Loyalty

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Amortization

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Sales Enablement Content

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Channel Partners

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User Experience

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Target Account List

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Version Control Systems

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Conversion Path

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CRM Integration

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CRM Integration

Buying Criteria

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C-Level or C-Suite

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C-Level or C-Suite

Channel Marketing

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Consultative Sales

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Decision Maker

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Site Retargeting

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Expansion Revenue

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Firmographic Data

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Annual Recurring Revenue (ARR)

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Lead List

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Lead Scoring Models

Lead scoring models rank prospects by assigning points for their behaviors and demographics, helping sales teams prioritize their outreach.

Lead Scoring Models

Unique Value Proposition (UVP)

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Unique Value Proposition (UVP)

Business Continuity

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Ballpark

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Ballpark

Single Page Applications

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Data Privacy

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Email Verification

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Email Verification

Rapport Building

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Average Order Value

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A/B Testing

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A/B Testing

Social Selling

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Trusted Advisor

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Pipeline Coverage

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B2B Data Erosion

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Lead Response Time

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AI Data Enrichment

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AI Data Enrichment

Product-Led Growth

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Product-Led Growth

Outbound Sales

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Lightning Components

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Lightning Components

Drip Campaign

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Objection Handling

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Regression Testing

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Data Encryption

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Data Encryption

Average Revenue per Account

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Branded Keywords

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Branded Keywords

Inside Sales Rep

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Omnichannel Marketing

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Data Cleansing

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Data Cleansing

Request for Proposal

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Request for Proposal

Closed Question

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Closed Question

Fulfillment Logistics

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Fulfillment Logistics

Adobe Analytics

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Sales Plan Template

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Sales Plan Template

Behavioral Analytics

Learn about behavioral analytics, including implementing behavioral analytics successfully, & key metrics in behavioral analytics.

Behavioral Analytics

Return on Marketing Investment

Return on Marketing Investment (ROMI) measures the revenue generated by a marketing campaign relative to the cost of that campaign.

Return on Marketing Investment

B2B Contact Base

Learn about B2B contact base, including building an effective B2B contact base, & strategies for expanding your contact base.

B2B Contact Base

Account Match Rate

Account match rate is the percentage of target accounts successfully identified and matched against a specific database or data provider.

Account Match Rate

Lead Conversion

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Lead Conversion

Business-to-Business (B2B)

Learn about B2B, including what is it, its key elements, the benefits of B2B partnerships, the differences between B2B and B2C, and strategies for effective marketing.

Business-to-Business (B2B)

Functional Testing

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Marketing Play

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Nurture Campaign

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Retargeting Marketing

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Retargeting Marketing

InMail Messages

LinkedIn InMail messages are a premium feature that lets you directly message any LinkedIn member, even if you're not connected to them.

InMail Messages

Economic Order Quantity

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Economic Order Quantity

Account

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Warm Calling

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Warm Calling

80/20 Rule

The 80/20 rule, or Pareto Principle, posits that 80% of results come from just 20% of the effort. It's a key concept for prioritization.

80/20 Rule

Target Buying Stage

The Target Buying Stage identifies a prospect's position in the buying journey, from initial awareness to the final decision to purchase.

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Dynamic Pricing

Dynamic pricing is a strategy where businesses set flexible prices for products or services based on current market demands and other factors.

Dynamic Pricing

Smarketing

Smarketing is the process of aligning your sales and marketing teams. This integration focuses on shared goals to improve lead quality and drive revenue.

Smarketing

Accounts Payable

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Accounts Payable

Generic Keywords

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Generic Keywords

Ad-hoc Reporting

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Ad-hoc Reporting

Inside Sales

Inside sales is a remote sales process where reps sell products or services via phone, email, and other digital tools instead of in person.

Inside Sales

Total Audience Measurement

Total Audience Measurement (TAM) provides a holistic view of content consumption, tracking viewership across all platforms and devices.

Total Audience Measurement