When large organizations develop demand curves for existing products they turn to a variety of quantitative and qualitative approaches. Historical data plays an important role in developing and constructing demand curves for existing products. The historical data can also be used to forecast future demand using time series analysis and statistical approaches such as regression analysis and moving average approaches. Organizations can also draw on qualitative approaches such as market surveys, focus groups and the Delphi technique to gain additional insight into market demand.
Many entrepreneurs do not have the time, money and interest to engage in these approaches. They are probably on the right track because it is often difficult to determine the demand for new products. This is particularly true for products and services that have been radically redesigned and in so-called Blue Ocean markets. The historical data is either not available or it is not appropriate for the context. Very few economic and marketing textbooks have actual data that can be used to construct a demand curve. Most of the data sets are generated by taking a demand curve (such as p = 80 -.2q or q = -5p + 400) and then generating the prices and quantities.
We have developed a Demand Dashboard to assist with identifying demand curves. The spreadsheet is currently in early Beta development, but it is available for your perusal. You can get the spreadheet from my SkyDrive at https://skydrive.live.com/?cid=a3660eed58d91ed9&id=A3660EED58D91ED9%21107.
Here is what you can do in the demand Dashboard:
- You can just enter the slope and the price where demand is close to zero and just play around with the curve.
- If you want to use a statistical calculation to determine the demand, you will need at least 2 demand points to plot. If you want confidence intervals for the slope estimate you will need 3 points. Each point will represent the price and the demand quantity. One point can be the price level where demand is close to zero. You can also use the statistical estimates to manipulate the slope and the price level where the demand quantity is close to zero.
If you have access to IBISWorld you can obtain some demand and market research information that can be used to assist in developing demand curves (this data is available to University of Buffalo faculty and students). The Economic Research Service for the US Department of agriculture also has some data that might be of interest, but it is of course mostly related to agriculture.
In the next post we will present the Product Differentiation Dashboard. It is part of the same spreadsheet that you can now dowlnoad from my SkyDrive. It will assist in making decisions related to developing different versions of a product.