Putting both graphs of the supply and demand curves together along the same axis shows the effectiveness of pricing if more or less inventory is needed and the optimal or market equilibrium price that encourages consumers to buy without rapidly drawing down inventory. The graph also shows if the market price rises or is too low.
How can supply and demand guide business owners?
Business owners can use supply and demand to help them with product development, launch a business, and engage in customer care to make a customer feel heard and satisfied.
It can also be used to set a price for a product after the basic costs are factored in. Here's a look at some of the ways you can make this law serve your business needs and purpose.
Maintain a steady inventory
You have a product to sell, and you have customers who want to buy that product. The consumer demand curve can help you determine how much inventory you're going to need during peak seasons and throughout the rest of the year.
Customers figure out that you're a reliable seller and return to you for sales because they know you're going to have a product in stock.
Keep up with the competition
Customers are fickle at the best of times. They want their goods, and they're not going to wait if there's a competitor that has the goods in stock.
Forecasting the demand for your product helps you maintain an adequate inventory while minimizing lost sales.
Avoid having too much or not enough inventory
One of the risks of selling physical goods is not having enough or too much inventory. Too much inventory results in lower prices and reduced sales, while not enough inventory on hand leads to higher prices and lower sales.
Using a supply and demand curve chart along with determining the price elasticity of a good helps you keep the right amount of stock available for sale.
Helps you set your pricing
Setting your ideal price for your product is a balancing act, especially if you have a seasonal good or something that experiences steady demand throughout the year.
For example, you sell a component for a certain type of craft on a crafting site. Your customers buy steadily from you throughout the year, but there's always a spike in sales for the holiday season.
The law of supply and demand gives you the opportunity to set the price a little higher during spikes to increase profits, keep the sales at a steady pace so you can reduce the strain on your inventory levels, or keep the same price and order more inventory to meet the demand. The same goes for services, but instead of inventory, it helps you figure out if you need to hire more employees to provide the service.
Find out how well a product is going to sell
Part of product development is putting it through a market assessment to determine its sales potential.
You can sample the market by releasing a few of the products to the market, using advertising or marketing to attract attention, and sending out a survey questionnaire to get customer feedback.
The information that is collected from these efforts can be extrapolated to the market at large to determine customer satisfaction with pricing, the product, and how desirable it is to consumers.
Knowing when to put a product or service on sale or discontinue it
Sometimes a product hits big because everyone wants it, but the market eventually becomes saturated and sales decline. When the demand for a particular item falls off, it can be put on sale to spur people to buy more of it.
A decision can be made to discount the item further and eventually stop restocking inventory as it's more costly to carry the item than it is to sell it.
Drive sales with Mailchimp
Understanding and applying the law of supply and demand helps you launch a business or make your existing business more successful.
It shows you how data tracking enables you to set the best price for your product or service, maintain your inventory levels to meet demand, and anticipate your customer's needs. You'll find that your business runs better and customer care improves because you have the information you need to run your business in an optimal fashion.
At Mailchimp, we provide you with business tools that help you determine your next business move and which of your online business ideas are most likely to succeed.
Mailchimp offers an ecommerce platform that enables you to build the e-commerce business of your dreams and easily track your metrics. We can help you collect customer feedback, create marketing campaigns, find new customers, and help you find out how popular your business is through the use of social listening tools.
In the meantime, you can build your brand and business from anywhere you have an internet connection, improve your sales, and enjoy the freedom that comes with being an entrepreneur.