Demand, supply and price relationships
Demand is the quantity of a product that consumers are willing and able to buy at a given price in a time
period. Supply is the quantity of a product that firms are prepared to supply at a given price in a time
period. Here marketing manager will need to know how free markets work to determine prices. If the
business can produce goods at this price it should be profitable. In free markets the equilibrium price is
demand is equal to supply.
1. It varies with price – normally the when quantity of goods bought rise is due to a fall in price.
Shown by the demand curve.
2. Apart from price changes – which change the demand curve – the demand level can change due
- Changes in consumers incomes
- Changes in the prices of substitute goods and complementary goods
- Changes in population size and structure
- Fashion and taste changes
- Advertising and promotion spending
1. This varies with price – businesses willing to supply a product if the price is high.
2. Apart from changes in price, the level of supply can vary due to a change in these factors:
- Costs of production: changes in labour or raw material costs
- Taxes imposed on the suppliers by governments, which raise their costs
- Subsidies paid by government to suppliers, which reduce their costs
- Weather conditions and other natural factors
- Advances in technology to make cost of production lower
Determining the equilibrium price
The equilibrium price is the market price that equates supply and demand for a product. when prices are
high there will be unsold stock. To avoid this suppliers reduce prices so stock runs out.
Some businesses operate locally, in their own community, where the business is located. Then come the
regional businesses which are larger. And finally the hardest to achieve, national business.
However international businesses have a much large range of products to offer and different places
where selling them.
Size This is the total level of sales of all producers within a market. This can be measured in volume of sales
(units sold) or value of goods (revenue).size is important because:
-a marketing manager can assess whether a market is worth entering
- Firms can calculate their own market share
- growth or decline of the market can be identified
This is the percentage change in the total size of a market (volume of value) over a period of time. The
pace of growth will depend on several factors, such as general economic growth, changes in consumer
incomes and development of new markets and products. However factors like technological advances
can increase the growth.
This is the percentage of sales in the total market sold by one business. This is the most effective way of
measuring the success of a business in the market towards its competitors. If a business is successful it
means their marketing strategies have been successful. The benefits of a higher market share are:
- Sales are higher than most competitors which lead to higher process.
- Retailers will be keen to stock and promote the best selling business.
- As shops are keen to stock the product, it might be sold to them with a lower discount rate –
10% instead of 15%, which has to be offered by the smaller, competing brands