Answer to Question #276377 in Management for Raheel Faisal

Question

Why does demand for a product or service play a significant role in starting a new business? Give any two reasons.

Answer 1

Basic economics like demand should important to you whether you run a seasonal business, buy a vacation property for passive income, or run a more traditional firm. Here are two considerations in particular that should guide your decisions as you plan the future of your company.

Pricing

The demand curve has an unavoidable impact on the pricing of your products and services. A lack of market demand will compel you to decrease prices to move things off the shelf, whilst a shortage of supply may cause prices to surge. 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. When it first debuted in the early 2000s, McDonald's Dollar Menu transformed the fast-food sector. In recent years, however, escalating expenses caused the chain to switch to the $1 $2 $3 Menu, removing practically all products from the $1 category.

Competitiveness

Demand has a significant impact on a company's competitiveness. 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 customers an alternative and gain market share. In an attempt to boost demand, a competitor may lower prices. Amazon maintains a stronghold on the online retail business by lowering prices as much as possible and frequently selling things at a loss. After accounting for the profitable Amazon Web Services and Amazon Prime segments of the firm, Amazon's retail division loses billions of dollars each year. As a result, Amazon now has the capacity to drive many smaller shops out of business while gaining market share in their place.