Interdependence of Demand and Supply

A mousetrap, irrespective of how good it is, will not sell if consumers cannot find it. And irrespective of how widely it is distributed, consumers would not buy it if they do not want it. It takes both supply and demand to achieve sales.

As per the principles of market economics, the relationship between supply and demand determines the prices and quantities of most goods and services in a given market. Supply, the push factor, is largely driven by sales efforts, including the management of distribution channels and trade marketing. Yet it is also strongly influenced by the demand for the product.

Demand for a brand generates a pull in sales. It yields a return on inventory for the retailer. As a brand’s turnover and profitability (turn × earn)  improve, more retailers want to list it, and they allocate more shelf space to it On the other hand, if demand is in decline, the brand’s stock turnover deteriorates, retailers reduce its shelf space, trim its range and eventually de-list it.

While demand is predominantly created through marketing efforts, it is also influenced by availability and retailer support, including in-stores activities. The consolidation of retail makes the store an attractive place to market products, especially when coupled with the fragmentation of media, which diminishes the attractiveness of conventional marketing channels. Manufacturers are increasingly using in-store displays and in-store media to engage with their consumers.

In-store activities including displays, price-offs, sampling and in-store launches heighten brand awareness, shape perceptions and evoke the desire to purchase the brand. In-store media can be found on shelves (such as shelf talkers or stoppers), floors, shopping carts, chillers, as well as walls and ceilings. The presence of digital displays, including signage and touch screen kiosks, has grown. We are also witnessing growth in the use of mobile devices as a means to engage with shoppers.

In the practice of marketing analytics, while separate sets of metrics are employed to measure supply and demand, it is important to recognize that these two fundamental forces driving sales are fundamentally interdependent. Demand is influenced by supply, and supply is affected by demand.