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Demand Management: Definition & Examples

Instructor: Brianna Whiting
Companies want to make money. They do this by selling things that consumers want. In this lesson we will learn how companies and even the government manages demand.

Looking at Demand

Have you ever watched a commercial for a product and afterward you had to have it? Now imagine if every person that saw that same ad wanted the product as well. To make all of the customers happy, the manufacturer would need enough in stock so that everyone that wanted one, got one. The concept of consumers wanting a product is called demand. And, the goods in stock is known as the supply. While the idea seems pretty basic, what happens when a company can't meet the demand? What happens when the demand is so weak that products just sit on the shelf? This is where demand management, the process of predicting and planning the demand for products, becomes critical. In this lesson, we will learn how demand management is used and discuss some examples to clarify further.

Demand Management Defined

Determining what the demand might be in the future and planning how to manage it is demand management. To properly manage demand, companies need to look at many factors. First, they need to try and understand their customers. What do their customers want? They also need to consider marketing. If you want to sell more products, you might increase your commercialization of the product. Companies might even influence demand by their prices and promotions.

For example, we all love sales! Think about that product from earlier from the commercial. Let's say that while you desperately want the product but it is just too expensive and out of your budget. That means that you will have to pass and not purchase the product. If, however, the company that makes the product decides to run a sale on it and promote it through another commercial, you might realize that it is now within your budget. You can now go and purchase the product at the reduced price. This is an example of how a company might influence demand.

Macroeconomics

Demand management falls into two broad categories, macroeconomic and microeconomic. Let's focus on macroeconomics first. A great example is the government's use of demand management. Not too long ago, the economy was in a poor state, and many people were unemployed. The high unemployment lowered demand, and ultimately fewer products were being purchased. When consumers do not buy or demand products, businesses start to get hurt because they lose money. This is where the government often intervenes. To get the economy going again, they try to increase demand by seeking to create more jobs. More jobs mean more capital, which means more money to purchase products. This increases demand and is the macroeconomic method of managing demand.

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