Thursday, December 16, 2010

Factors Determining the Demand of Product

The period in which a product is perceived, designed, developed, tested and sold is known as product cycle. Modifications in the product may be demanded by the customers, thereby triggering the second rotation of product cycle.

When a new product comes to the market, the demand of the product is directly proportional to the functionality offered by the product. At first, this is the only product providing the required functionality by the market, thus can be sold at high premium. This attracts other vendors too to design such products. Similar functionality offering products enter the market. This is when the products can not ask for high premiums, as the market is saturated in terms of functionality offered by the product.

The customers want reliability of product to be the criteria for paying premium on the products. The product offering better reliability like shake free, water resistant, temperature independent, etc will have higher profit margins. This will again lead to overcrowding of such products from various vendors in the market.

After functionality and reliability have reached the market demand levels, the searching parameter changes to convenience. Demand is driven by the level of convenience the product can provide like ease of use/handling, moving the product.

Finally, when all other criteria are met by almost all the products, the price of the product plays the most important role in determining the demand of the product.

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