Importance of Demand Analysis in Business Decision Making

Importance of Demand Analysis in Business Decision Making
Importance of Demand Analysis in Business Decision Making

What are the Importance of Demand Analysis in Business Decision Making in Microeconomics? The demand analysis and the demand theory are of crucial importance to the business enterprise. They are the source of many useful insights for business decision-making.

The success or failure of business depends primarily on their ability to generate of business by satisfying the demand of consumers. The firm ct consumers are soon forced out from the market.

Basically, the demand theory identifies and analyses the basic The knowledge of the determinants of consumer needs and wants. The knowledge of demand provides powerful tool for managers.

It provides background needed to make pricing decisions, forecast sales prov and formulate marketing strategies.

The demand analysis is the basis of many decisions made by the business demand analysis in business decisions can be explained under following headings:

What are the Importance of Demand Analysis in Business Decision Making?


1. Sales Forecasting

2. Pricing Decisions

3. Marketing Decisions

4. Production Decisions

5. Financial Decisions

1. Sales Forecasting

The demand is a basis of the sales of the product of a firm Hence, sales forecasting can be made on the basis of demand.

For example, if demand is high, sales will be high and if demand is low sales will be low. The firms can make different arrangements to increase or reduce production or push up sales on the basis of sale forecast.

2. Pricing Decisions

The analysis of demand is the basis of pricing decisions of a firm. If the demand for the product is high, the firm can charge high price, other things remaining the same. On the contrary, if the demand is low, the firm cannot charge high price.

The demand analysis also helps the firm in profit budgeting. If demand is high price can be charged high and profit will be high. Hence, the profit or sales, in part, depend on the demand for a commodity.

3. Marketing Decisions

The analysis of demand helps a firm to formulate marketing decisions. The demand analysis analyses and measures the forces determine demand.

The demand can be influenced by manipulating the factors on which consumers base their demands, example, consumers may base their demand on attractiveness. So good packaging may lead to an increase in demand.

4. Production Decisions

How much a firm can produce depends on its capacity, but ho could produce depends on demand. Production is not re is no demand.

But continuous production schedule salary if the necessary if the de s than the quantity of production, new y means of promotional activities such as demand is less demand for the product is relatively stable.

If the demand is expected to be high in future, the firm should hold more inventories. Similarly, the personnel manager must set up recruitment and training programs to ensure availability of different work force to produce and sell the products.

5. Financial Decisions

The demand condition in the market for firm’s product affects the financial decisions as well. If the demand for firm’s product is strong and growing, the need for additional finance will be greater.

Hence, the financial manager should make necessary arrangement to finance the growing need of the capital.

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