How Supply and Demand in the Economy Can Affect Your Small Business
Saturday, December 2, 2017, 6:00 PM | Leave Comment
Supply and demand is the basic concept of all economies, both local and global. It determines market prices and so company profits.
It’s essential that every business leader understands this, from corporate CEOs to small businesses.
Your product or service is one half of the equation and your customers, whether private consumers or companies, are the rest. What they’re willing to pay determines your profit. Despite familiarity with this concept, many small businesses seem to get it wrong in practice.
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Demand
This basically boils down to who wants what you’re selling.
First, people must be interested in purchasing your product or service.
Second, they have to be willing to part with hard-earned money to get it.
In down economies, there is simply not as much money to spend. Money is harder to come by and so, in a sense, much more precious.
Even for essentials like food and fuel, people will be trying to spend less. The value proposition in your sales and marketing must have greater appeal in lean economic times to stimulate demand.
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Market Influencing
Demand is often seen as a curve following the available supply of money from such economic factors as taxes, interest rates, inflation, and so on.
However, supply and demand can also depend on secondary business activity, such as insider deals and honorariums which are frowned upon.
In the medical industry, for instance, spending by medical suppliers is known as aggregate spend and is strictly monitored by companies like Porzio AggregateSpendID® to avoid unfair market influences.
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Supply
Value is also affected by the availability of the product or service. If you have a limited market but high supplies, such as numerous business rivals, prices tend to fall as competition gets tight.
Lower prices offer consumers greater value. No matter how good your product or company reputation, fewer people will be willing to pay top price if they can get more affordable alternatives.
Conversely, when people have money to spend it means high demand. Then low supply drives prices up as people see greater importance in acquiring your product or service.
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Real Market Value
Economic booms and busts aren’t necessarily the dominant factor. Some products or services may still be in demand even when times are slow, thanks to good marketing and branding or a spike in demand, such as the need for umbrellas in the rainy season.
Some businesses never provide significant appreciation of profits even in markets with little competition, such as a local utility company.
In any economy, your value to your customers is also dependent on prevailing market perceptions.
It’s critical to track changes in supply and demand for your market segment. This will help you to adjust pricing and marketing to sustain operations even in the midst of economic troubles.
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