I often use the word Demand, but do I understand “Demand”?
Posted 10-16-2009 at 03:05 PM by sidgoyal
This article is, again, based on my experience of interaction with MBA aspirants. A typical MBA aspirant has his head filled with millions of thoughts. When he is thrown with an unexpected question, his preparation breaks down, his language starts becoming colloquial and approach jittery. This typically happens because the candidate doesn’t understand the fundamentals behind jargons but they just know them. The most infamous but repetitive attempt to cover-up the nervousness is throwing up jargons.
People often end up saying loose terms like “there is a lot of demand for this product” or “ I guess there will be a lot of demand” . The following piece is a very interesting insight to the word DEMAND. At least I found it very interesting, valuable and easy to remember.
To understand demand, we need to gamble with three words:
• Need
• Want
• Demand
Need is a most basic requirement of humans like food, Shelter, Clothing etc. For example, People in Madhya Pradesh may have a need for Education. The Female in Major Metropolitan cities may feel the need for safety.
Want are physical products, or services seems upon by people as means to address their needs. Like, if the need is Shelter, Apartments, Hostels, Dormitories, hotels, houses, Mansions all are means which will satisfy a need for Shelter. So these are wants. The Wants may differ based on geographic locations, perception, taste etc. This is how a person sees his need fulfilled. For example, if the need is food, a typical Indian may want a Roti, Vegetables and Daal, where an American can want a Hamburger, French Fries and coke. The need is the same – food, but the want is different.
Demand is nothing but want backed by Purchasing Power. So, if my need is Transport, I may want a Car, Motor Cycle and a Personal jet. But If I have Rs. 5 Lakhs ($10,000) as disposable, then there is a demand for Motor Cycle and a Car, but not the personal jet. So, out of 1 billion people in India, 50 million may want a Mercedes Car, but it doesn’t mean there is a demand for 50 million Mercedes Cars. Only 5,00,000 may have the purchasing power for the car, thus there is demand for 5,00,000 Mercedes cars.
I guess this gives a clear picture behind the word Demand. So, when suddenly asked “If I create a automatic Wall Painting Machine, will there be Demand for that? “ , the least that it will strike you that to comment on demand, you need to check the purchasing power behind the product. Some people would immediately get to think , what need does this product addresses.
To answer the Purchasing power, you immediately need to enquire about the cost of the product. Then, I guess most of us would be able to relate it with simple economics of a Declining Demand curve. As, price increases, the demand for the same decreases. So, whenever, we are talking of a Demand, we are talking of Demand a particular price. At that particular price, there are people who have the capacity to buy, which determines the demand for the product.
Note: when you identify the need, and create the set of wants for the same, you have automatically included the “willingness to buy”. So, when you graduate the same to demand by looking at capacity to pay, the willingness to buy still remains.
People often end up saying loose terms like “there is a lot of demand for this product” or “ I guess there will be a lot of demand” . The following piece is a very interesting insight to the word DEMAND. At least I found it very interesting, valuable and easy to remember.
To understand demand, we need to gamble with three words:
• Need
• Want
• Demand
Need is a most basic requirement of humans like food, Shelter, Clothing etc. For example, People in Madhya Pradesh may have a need for Education. The Female in Major Metropolitan cities may feel the need for safety.
Want are physical products, or services seems upon by people as means to address their needs. Like, if the need is Shelter, Apartments, Hostels, Dormitories, hotels, houses, Mansions all are means which will satisfy a need for Shelter. So these are wants. The Wants may differ based on geographic locations, perception, taste etc. This is how a person sees his need fulfilled. For example, if the need is food, a typical Indian may want a Roti, Vegetables and Daal, where an American can want a Hamburger, French Fries and coke. The need is the same – food, but the want is different.
Demand is nothing but want backed by Purchasing Power. So, if my need is Transport, I may want a Car, Motor Cycle and a Personal jet. But If I have Rs. 5 Lakhs ($10,000) as disposable, then there is a demand for Motor Cycle and a Car, but not the personal jet. So, out of 1 billion people in India, 50 million may want a Mercedes Car, but it doesn’t mean there is a demand for 50 million Mercedes Cars. Only 5,00,000 may have the purchasing power for the car, thus there is demand for 5,00,000 Mercedes cars.
I guess this gives a clear picture behind the word Demand. So, when suddenly asked “If I create a automatic Wall Painting Machine, will there be Demand for that? “ , the least that it will strike you that to comment on demand, you need to check the purchasing power behind the product. Some people would immediately get to think , what need does this product addresses.
To answer the Purchasing power, you immediately need to enquire about the cost of the product. Then, I guess most of us would be able to relate it with simple economics of a Declining Demand curve. As, price increases, the demand for the same decreases. So, whenever, we are talking of a Demand, we are talking of Demand a particular price. At that particular price, there are people who have the capacity to buy, which determines the demand for the product.
Note: when you identify the need, and create the set of wants for the same, you have automatically included the “willingness to buy”. So, when you graduate the same to demand by looking at capacity to pay, the willingness to buy still remains.
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