White Paper: Which Comes first: Demand or Supply?

By Dmitry Shimanov, General Director of MAR Consult Research Agency
Also accessible on SIS International Worldwide Intelligence Library

A famous economic law says: “Demand determines supply”. Is this really true?

Regular consumers take this assumption for granted. In today’s market, however, this law requires further revision and clarification. At first, supply determines demand and only then does demand begin to expand the amount of supply.

Can you image the world without, say, chocolate in it? That would mean, you are absolutely unaware of this product, its taste, smell and color. Essentially, it just would not exist.

Would you be willing to buy it and eat it? You wouldn’t want some “Dalokosh” — you have never heard of it and it does not bother you. The need is not actualized, marketing managers and psychologists would say. And unless somebody offers you this very “Dalokosh”, unless they tell you of all its merits — your need will remain dormant in your mind. This is why supply comes first, and later it is followed by demand. However, it is fair to say that as soon as a product is introduced to the public at large, its future is determined by demand. If people do not like a product the first time they try it, this usually brings this product’s lifecycle to a close.

Usually, but not always. Sometimes it happens that a product is unsuccessfully presented or is too much of a novelty to become part of consumer basket. However, proper promotion might help it gain popularity. This is where marketing is especially important. For instance, facial tissues used to be just a new type of napkins, so naturally US consumers did not care about them and did not buy them. In the meantime, these tissues enjoyed incredible sales in one of the states. It was then that marketing specialists went to this state to learn some details. And as soon as they entered the first store they saw, it dawned upon them. There was a severe virus outbreak in that state, and people used those tissues instead of handkerchiefs. Marketing specialists promptly came up with a new concept under the slogan: “Don’t carry a virus in your pocket!”. Thus, instead of changing the product, they changed its objective, which produced the necessary results — increasing demand for the products.

In such cases, after new products are successfully launched and stable demand is ensured, the entire cycle will continue: once again supply will determine demand — new kinds of these products will appear. For example, plain chocolate was followed by milk chocolate, white chocolate, nut chocolate, and so on, and tissue products acquired all kinds of flavors.

Everlasting search

Marketing professionals strongly adhere to the law of demand. They incessantly launch new products on the market and make people believe that it was their needs (demand) that caused appearance of the new product. Of course, it is true to a certain extent because any product is supposed to satisfy some need, at least in part. But the matter is that all basic needs are already covered by the currently existing products. Thus, the one-hundredth new watch brand will cease to satisfy the need to be informed about time, but begin to fill the need to raise their status, look different from others or become part of a certain social group. This is where the marketing search starts.

Manufacturers of consumer goods are always seeking some product that does not yet exist, so as to become the first to profit from a new unique offer. Marketing managers and manufacturers are supported by marketing agencies and researchers, providing information on consumers to create new products or advertising concepts. This information provides insight into people’s latent needs and desires, which are not yet actualized, and helps to understand, what potential product this or that consumer group needs.

The situation may be contrary, when there is a new product, for which a relevant need should be found. Marketing research is widely applied to this end. For instance, as Japanese cuisine grew enormously popular, there appeared caviar chips helping the middle class to feel part of this culinary trend.

As a matter of fact, we may endlessly find new needs and create new products because peoples’ needs appear and transform as technology evolves. What is most important is to duly understand when there is an opportunity to create a new product able to initiate a “consumer revolution”. This is how Bill Gates made his fortune: as personal computers appeared, computer technologies became available to everyone. This really was a new product, which was popular with the public at large and highly profitable.

How it is done

Every company tries to introduce a new product on the market so as to make it look unique. This will allow the company to stand out from the competitors and become exceptional as well as occupy a certain market niche. But what should you do if there is no “consumer revolution” to be expected, but a new product is still necessary? In this case you might seek help from marketing agencies as well as creative managers, experts and market specialists.

First, a marketing agency is supposed to gather information on a target audience, including their needs, desires, lifestyle, psychological profile, outlook and even cultural peculiarities. Second, the collected marketing data are used as a basis for brain storming sessions, when creative managers should suggest a multitude of product variations based on the features of the target group. All kinds of data, even most seemingly fantastic ones, are explored at first. Then experts are to study all the alternatives and the potential product variants that are relevant, practical and affordable.

Ultimately, before the new product is launched on the market, marketing managers should develop the most efficient advertising concept, based on information on consumers. Provided that the above-described operations are properly implemented, the new product could likely be destined to succeed as high as 95 cases out of 100. This is why numerous similar products exist on the market — they are presented in different ways and designed to satisfy different consumer needs.

Contributing Company:
MAR Consult Research Agency. Moscow, Russia.
Contact: Dmitry Shimanov. [email protected] +7 (495) 660-82-20.

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Copyright (c) 2007. All Rights Reserved.  Topics: Marketing Strategy, Marketing Research, Marketing Agency, consumer research, Marketing Techniques, blog