subject: An Explanatory Analysis Of The Factors That Determine Demand For Commodities [print this page] An Explanatory Analysis Of The Factors That Determine Demand For Commodities
The demand of a commodity may be defined as the amount or quantity of which consumers are willing and able to buy in a specified period of time. The amount demanded usually is not stable across products and time, and hence there are peak periods. However a continuous decline will not be favourable as it may mean the phasing out of the product in the market due to various reasons such as changing tastes of consumers. Generally, each product has its path from the time it enters the market until it is phased out of the market, and organizations usually engage in product portfolios to cover up declining products. And for each stage, there is a strategy the business has to take so as to maintain the demand level of the product, for example advertising or branding.
Pricing, the way the good is priced determines its demand. Generally a cheaper product is demanded more by consumers, as it saves their income, and they can buy more per unit price. However, the product should not be too cheap, as it raises questions about its quality and durability. Generally the effect of price on the demand of a certain commodity highly depends on the type of a product. For example goods may be inferior goods, veblen goods, complementary goods or substitutes and for all these the price have different impact to the demand of the good.
Branding and packaging, to maintain demand for a certain commodity, a company can develop its own brand to separate itself from other competing enterprises. This involves different packaging, which involve the company's logo. Branding and packaging creates reliability. This is often done to separate the company's goods from those of other competitors, and this is most efficient to organization with good credibility and well established with backward and forward linkages.
Location, business should be strategically located, at a position where most customers can reach. Demand for the product is higher where the business is centrally located. Organization that operate in the Central Business District (CBD), have a higher demand for their commodities, as where they operate, more customers are always available in large volumes.
Availability of substitutes, demand for a commodity is lower when there are plenty of substitute for that good which may be cheaper. So customers tend to be shared across the products. This is when branding and packaging comes into play, to attract more customers. Advertising will also help, to inform the customers.
Target population, a commodity designed specifically for a group of people, should be based on the majority. Generally a product that fits everyone is associated with a higher demand. However, if an area is dominated by the young, the product should be favoured by the young for it to be highly demanded.
Advertising plays a crucial role in the demand of a commodity. Advertising inform the target population the existence of a product, its benefits and where you can find it. Effective advertising increases the demand of the product. Advertising should be done regularly and timely during the product's life cycle. Any improvements to the product are mentioned through advertising.
Lively research and development department also plays a crucial role. Products should be constantly be updated to match changing taste of the population. Hence if the research and development is checking on the tastes of customers, the demand for its products will be maintained and improved. This can be done through listening to consumers and the use of suggestion boxes.
Staff competency through customer care is worth to be noted. Generally, customers need to be treated with respect and also their existence should be recognized. Many businesses have a problem of mistreating customers during peak hours and this has a problem in the long run. Demand for a commodity is higher where there is customer care.
Avoidance of shortages or making continuous supply should not be spared as a factor affecting demand of a commodity. Businesses with high credibility have their products demanded most especially where substitutes are available. Customers needs certainty and hence demand those products of organizations with credibility and with constant supply.
Delivery systems. Companies which undertake door to door delivery are preferred most and hence their commodities are demanded most. This is usually for heavy products such as materials for building, furniture among others.
Product characteristics. Durability and genuinability of company products determines the demand level for its products. Customers needs products that are durable and lasts. Also genuine products are mostly wanted. Guarantee or warrantee should be attached to company products for them to be preferred.
Franchising is also a factor that affects the demand of a commodity. This involves having the right to use the name of another business that is well established on the company's products. This is mostly common in the transport sector and the strategy is suitable for new entrants in the market. The more credible the franchiser, the higher the demand for the franchisee's products as compared to other competitors' products that are less credible in the market. The factor operates strongly in the short run, whereas in the long term additional strategies may be required.
In conclusion, the demand of a commodity is depended on a combination of factors. The depth at which one factor affects may be different. Hence it is the duty of an organization to detect which factor is greatly affecting the demand of its products, and formulate a strategy to solve the demand problem. The factors depend on the type of product as well as the time, for example agricultural commodities are seasonal.
