Determining the demand and supply is very important in knowing whether there is still room for your goods or services in the market. In short, is there a place for you in the market and industry? A surplus of the goods or services, would mean less demand or customers for you, besides the very fact that you would be offering your goods or services at a much lower price but higher quality to compete with the established players, being a newcomer or a new entrant.
The demand and supply data may not be a perfect prediction of the company’s financial performance, but managing it helps you meet the objectives of your business plan. A gap between the demand plan and the business plan should be acted upon and narrowed as soon as possible. It literally gives you an idea about what to do when the market demand exceeds the supply capability of the industry, or when the supply over runs the demand of the market, which focuses on the timing of your executive decision and action.
Keep in mind that the demand and supply curve directly impacts your pricing, product launch and market introduction, and your marketing strategy. Price determination is dependent on your demand and supply.
In other words, knowing the product life stage and cycle to its barest truth, can help you decide when to make significant changes on your product features and service offers. You should understand that a new product progresses through a sequence of stages, commonly called as the introduction, growth, maturity, and decline.
The product life cycle impacts product revenue and profits, including your marketing strategy. It is important that you include a definite plan of your product for each of the stages. Product life cycle management is critical to your demand and supply forecasting.
The demand and supply data drive the revenue plan of the business, which gives you one reason to really take this part seriously. One purpose of understanding the industry’s demand and supply relationship to its market is to create a feasible, strong and credible model that can drive real business. Does your industry have a reasonable balance or gap between demand and supply that the features of your product may be able to fill in?
The business plan should be able to identify the major factors that drive the demand and the supply. An in-depth analysis of past trends, that includes the major products + alternative products offered by the industry is highly recommended.
The market analysis and the forecasting should result in a better quantification of the current and the prospective market size. Both the actual consumption and the potential consumption should be dissected. What do you think are the limitations of the industry? What are the relevant dynamics of the industry?
Your plan should match the short term demand and supply requirements of the market. To achieve a competitive advantage, you should strategically direct your business and monitor its trend. Let me tell you that the life of the business is not totally dependent on the cost of goods sold. What does iPhone teach you?
Regardless of your cost of goods sold, but when there is an excess of supply against demand, you have to lower your price to survive. When there is no demand, you create the demand to your special market segment like the iPhone. After you establish the framework of your demand and supply, then you gain the knowledge and the capability and the leverage to predict the exchange rate, the increasing trend, technology advances, and its direction.
Supply. The organization operates in a continually changing environment influenced by the buying behavior and trending preferences of that target market. The supply chain management and supply market intelligence are the tools you need to appropriately determine the supply situation of your market and the different channels of distribution.
At this point of time, you need to determine the supply of your local market or the point of reference or location you plan to sell and distribute your product. To know which location you need to measure your supply, you first need to decide which location you plan to distribute or offer your goods.
With the kind of global environment that we have today, the products are able to reach a larger consumer population, that would be literally across the borders in different market segments. The market supply information should be obtained accurately for your profit maximization strategy. What is your specific target market?
Market analysis helps you learn about the price the consumers are willing for a particular good or service. The supply of related goods and services or availability of the alternative goods and services definitely can impact your offer in a critical way you would not even notice.
Determining the supply of similar and alternative goods and services plays an important role in determining the feasibility of your business. Can your target market survive without your product? Would they be more happy purchasing an unbranded item (alternative product), than buying your brand?
Understanding supply chain issues can avoid getting the wrong insight about the appropriate synergy between the actors in the supply chain. What is the relationship of the actors and their form of interactions across the supply chain? Supply relationships are seen to influence the strategic advances and the integration between parties involved within the chain.
Just to give you a clue of what it’s going to be when you decide to become a player of an industry, I would like to ask you this question. Have you known the economic value of market power? How do the players within the industry coordinate with the price or manipulate the demand?
Other factors that may influence supply, is if your product is seasonal. Other factors, can be temperature and rain, that is if you are into agriculture. Understand that market supply is the aggregate of individual firm supply. The factors affecting the market supply definitely impacts the firm supply.
You need to determine the market potential so as to develop the right channels to reach them. Without the market potential, any business does not have any reason to exist. One way to do this is segmentation based on
- Location (geographic)
- Age (demographic)
- Educational attainment
- Household size
Clearly, the demand and supply of the product need to consider certain geographic and demographic factors, especially if you are offering an ethnic specific product, such as food. The geographic and demographic variables have the capability to influence sales.
Let me tell you that Nestle and some other food giants may not be doing mergers, but they are basically surviving through partnerships. Read more about them so you may understand better how a specific industry works to survive.
Before deciding about your product launch, you should determine if there is a large gap between the supply and demands. A bigger percentage is better, which means they still need your business. If the market is over supplied, it could be saturated and you would not want to lose your investment with that kind of demand and supply situation.
You may not want to continue launching your product, unless you can develop a unique value proposition the present similar products and alternative products do not offer. You do not have much power when the market has the leverage over the demand and price of the product, such as washing machine powder. But, if the market really needs the product regardless of the price, then you can play well as a new entrant.
For the target market analysis, you need to include
- Description of the industry
- Information about the target market
- Distinguishing characteristics/ behavior characteristics
- Size of the primary target market/ market segment
- Potential share of the market/ market pie share
- Pricing structure
- Competitive analysis/ competitor analysis
- Regulatory restrictions
Similar to the macroeconomy, a company’s specific industry, where it belongs, may have its own trends and nuances that can materially affect the financial and operating performance of the company. Each industry operates uniquely within its own economic cycle, growth patterns, supply and demand characteristics, and risks.
Go to the Start Up Business Plan Part 2
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