Application of Demand Analysis in Managerial Decision Making
There is great importance of demand analysis for any business activity. So, the study of demand analysis is very essential for any rational entrepreneur before starting a business because the objective would be the maximization for profit with efficient allocation of limited resources. The demand analysis helps the entrepreneur in taking decisions for the efficient allocation of limited resources.
The main (role) objective of each and every business firm is to maximize profits. So, every entrepreneur aims in optimizing output with systematic utilization of available resources and selling the output for maximum profits. All these things depend upon the demand analysis. The demand analysis helps in finding out the optimum quantity of goods to be produced, different quantities to be supplied in different markets, places for the establishment of business firms. etc.
It is very essential for an entrepreneur to know about the policies to be undertaken for the maximization of the sales of the goods produced. The demand for different goods in the market and the situation of the substitute goods can be known from the demand analysis. Despite various assumptions for the application entrepreneur the demand analysis will play an important role in running the business successfully. While producing any goods, the entrepreneur has to look upon the cost, price determination, income of consumer, nature of goods, etc. very carefully. These factors fully affect the demand because in capitalistic and mixed economy the consumers are very powerful. Thus, in these economics the consumers are taken as masters of kings. Thus, the success and failure of the business and entrepreneur are in the hands of the consumers.
Forecasting of necessity
Demand analysis makes it easy for the entrepreneur to know about the kinds of goods necessary in the market or society. With this the entrepreneur can easily find out the type of goods to be produced for the maximization of the profit beforehand. For this, the income of consumers, tastes, desire, fashions etc. should be looked upon very carefully. With the help of these things the entrepreneur can easily forecast the necessities.
Any entrepreneur has to produce the goods in respect to the sales estimation. For sales forecasting also the demand analysis is of great importance. Entrepreneur will be successful if goods are produced by estimating the prior to production with the help of demand analysis. Entrepreneur will be successful if production is carried out only after the full study of market demand. So, with the help of demand analysis it will be easier for the entrepreneur to decide the quantity of goods to be produced.
Demand analysis plays an important role in price determination also because price is the main determinant for that effects the demand. So, it is necessary for any entrepreneur to study demand analysis prior to price determination. Goods consumed by the consumers are not of the same types, some are luxurious goods and some are necessities. So, demand analysis plays an important role in the price determination of different types of goods.
Decision relating to profit
Every entrepreneur has to decide very carefully when determining the profit because the products are of various types. Government will interfere if the price level of the essential goods become high. So, with the help of demand analysis essential goods and luxurious goods should be categorized and price accordingly. For the categorization of different goods demand analysis is very essential for the entrepreneurs.
Determination of the size of firm
Size of the firm is very important for the entrepreneur because it affects many things. Large size firms can produce more goods and earn more profits. So, demand analysis is of great importance for the entrepreneurs in selecting the right size of the firms. Large size firms are suitable if there is a possibility of increase in demand for goods in the future, otherwise it would be useless. Since the size of the firm is affected by the demand of the consumers, the demand analysis is of great importance to the entrepreneurs in making decisions.
Success and failures of business
Success and failure of business are very much dependent upon the demand analysis. The entrepreneurs should forecast the quantity and type of goods to be produced for the success of the business on the basis of demand analysis. Any business can be successful by producing the goods according to desires and tastes of the consumers on the basis of demand analysis. Failure is more probable if the goods are produced without any demand analysis.
Every entrepreneur will run the business with the financial provision. So to make a decision of the financial provision required to run a business there is a necessity of demand analysis. A business will be successful if financial provision is fulfilled according to demand analysis.
There is a great importance of demand analysis in carrying out various business activities. Any entrepreneur has to formulate business policies according to demand analysis, otherwise might be a failure.