While we all recognize the importance of supply and demand in the business world, it's important to go further into what it means in terms of reaching your objectives. Basic economics like supply and demand should apply to you whether you run a seasonal business, buy a property for passive income, or run a more traditional business. "Supply and demand" is an economic theory that explains how sellers and buyers of a resource interact. Price and volume of commodities exchanged in markets are influenced by supply and demand.
Even if you're not thinking about supply and demand in those terms, as a small business owner, you're always thinking about it. For example, you're attempting to figure out if people will buy a new product you're producing, or if you have enough units on hand to complete all the orders customers placed after a marketing campaign. Several factors influence the supply and demand for products and services, but the most important is price. In general, when the price declines, demand rises. It's the philosophy that reinforces Black Friday. Customers are attracted to stores that provide exceptional prices on items.
Commodities and effect of supply and demand:
A commodity is a good sold in a highly competitive market where individual buyers and sellers have little impact on the price. Soybeans, wheat, oil, and gold are just a few examples. Economic factors (such as interest rate changes), weather conditions, government regulations, and speculation all influence price changes. When demand falls, businesses reallocate resources such as capital, labor, and land to more profitable uses, resulting in a decrease in supply. As demand rises, supply rises as well, as current businesses speed up output and new enterprises spring up to take advantage of a flourishing market.
As a business owner it is important to make demand and supply work to your advantage. Strategies include positioning yourself as a rare commodity so that you cater to buyers who want to be among the first to receive limited-edition items. Consider how you may differentiate yourself from the competition and become the consumer's preferred supplier. And lastly, build excitement for a product or service in a variety of ways, including social media "teasers," pre-orders, special events, signage (such as "Coming Soon!"), and YouTube video demonstrations.
The capacity of a company to expand is highly reliant on supply and demand. Greater demand for a product or service allows a company to expand its operations by recruiting more employees and expanding capacity to meet the demand. Oversupply and poor demand, on the other hand, force businesses to cut costs by laying off workers and closing shop. For consistent and long-term growth, businesses must strike the right balance. The supply and demand curve has an unavoidable impact on the pricing of your goods and services. A lack of market demand will compel you to decrease prices in order to move things off the shelf, whilst a shortage of supply may cause prices to rise.
Businesses try to find the right spot in the supply/demand intersection to achieve equilibrium quantity and optimal pricing — a difficult undertaking to be sure, and one that is always shifting.
The competitiveness of a business is heavily influenced by supply and demand. For example, if a company looses access to supply, it will be unable to meet client demands and may lose customers to a competitor. A drop in demand for a product creates an opportunity for a competitor to offer them an alternative and gain market share. To boost demand, a competitor may lower prices. The competitiveness of a business is heavily influenced by supply and demand. For example, if a company loses access to supply, it will be unable to meet client demands and may lose customers to a competitor. A drop in demand for a product creates an opportunity for a competitor to offer them an alternative and gain market share. In an attempt to boost demand, a competitor may lower prices.
Marketing can help a business increase demand for a product or service. A good marketing effort can raise awareness of a product or service and build a desire for it, resulting in spontaneous demand. This provides a reason for a business to develop a supply to meet the demand. Marketing and demand form a self-feeding relational cycle.What are the factors that influence demand in my industry? What are the risks of supply disruptions? What contingency measures can I devise to help me weather – and perhaps prosper – any storms? These are some of the questions that entrepreneurs should ask themselves.
Take some time out to map a new course for your company. Conduct a business impact study to understand what threats exist and how to respond to them. Make a gap analysis to figure out where you are now and where you want to go. Knowing that your organization is ready for anything will give you piece of mind.
