But if you become an expert at product demand analysis, those highs and lows don’t catch you by surprise as often. In this guide, you’ll learn the foundations of product demand analysis for the marketplace of tomorrow.
What is a product demand analysis?
With a product demand analysis, you try to get an accurate estimate of future sales of your product. It’s a way of understanding how competition, seasons and other relevant events affect the sales of a certain product.
Product demand analysis can be done at various times – even for products that aren’t for sale yet. It’s not only based on past sales, demand can also be predicted based on changes in society, technological advancements and environmental changes.
So yes, there are a lot of factors weighing in, and nobody can predict the future down to the last chocolate bar being sold. But gauging product demand is crucial for building a future-proof business. Here’s why.
Why conduct a product demand analysis?
The goals of your product demand analysis depend very much on at what stage your business or product is in.
Validating ideas and financial planning
You could be doing exploratory market research and trying to find out if there’s a big enough market for you to enter with your product. And if there is, could you enter at a price point high enough to make your idea worth pursuing?
Buying materials from suppliers
Product demand analysis is also important for businesses who heavily rely on secondary manufacturers or resources from external sources. Will you be able to get the necessary materials in time?
Save money and work more efficiently
Saving money could also be one of the goals of performing a product demand analysis. Knowing when your product will be popular will help you better allocate your budget and manpower. Knowing when demand will be higher will help you plan the budget and timing for marketing campaigns, but also make sure you have enough employees on the work floor to handle the extra orders.
What are the types of product demand?
Product demand isn’t as straightforward as you’d think. Products and categories are connected to each other, and sometimes demand comes from where you were least expecting it. Here are the most important types of product demand with examples.
Direct demand: the simplest form of product demand is the demand for a final product. For instance, how many people are planning to buy a new smart TV.
Indirect Demand is the demand for a product that is used to produce another product. Are you still following? A simple example is the rising demand for, let’s say, standing desks. The wood of the table would be the product that is in higher indirect demand, due to the popularity of the end product.
Joint demand occurs when two products have a direct and positive correlation in demand. If people start buying more paint, they will start buying more canvases.
Composite demand is the demand for products that can be used in more ways than one. For materials like the wood earlier, it’s important to know that it’s not just in demand for stand-up desks. It could also be used for millions of other products.
Latent demand is the demand for a product that consumers can’t satisfy. There are three scenarios in which this happens:
1. The consumer doesn’t have the means to buy the product. They want it, but they can’t afford it.
2. The product that consumers want isn’t available.
3. The consumer doesn’t know the product exists or doesn’t know a certain product fulfils their needs.
When conducting your product demand analysis, it’s important to distinguish between these types of demand, but also to see the connections where possible. You might be able to benefit from composite or joint demand, while never having looked into that option.
How to conduct a product demand analysis in 5 steps
Product demand analysis shouldn’t be wild guessing: it’s building a solid foundation of knowledge and structuring your research on top of that. Here are the steps:
Define your market
Assess the maturity of the market business cycle
Identify your market niche
Calculate market growth potential
Evaluate the competition
Define your market
Who could you be selling to, how much do those people have to spend, and who are they currently giving their money to? Those are crucial questions to ask when defining your market.
Defining your market shouldn’t just be done in words, by explaining personas or target audiences – the numbers are crucial to this.
Depending on the goal of your product demand analysis, you could also look at secondary markets for this part of your research. There might be some ground you could cover in markets where your product would be used by people who are not in your primary target audience.
Assess the maturity of the market and business cycle
Some products seem to have an endless life cycle. The oldest beer brewery has been around since 1040, and we’re still drinking it – even though many other alternatives have entered the market. But there are also breweries that have gone bankrupt. What’s up with that?
The market and business life cycle are two important things to analyse. First of all, you want to get an idea of how steady the market is. Will you be entering a market that is in the growth phase, is it mature and stable, or is it heading towards decline?
The same should be done for your business: how mature is it? It’s important to make this a part of your product demand analysis. If your market is growing but you can’t keep up, how will you deliver enough products to actually be profitable?
Identify your market niche
Your market niche is the sweet spot of where there’s potential to enter and where you would be able to deliver. Not only in terms of physical products or practical services, it should also be a match when it comes to values and USPs. Consumers aren’t just looking for products, they are looking for brands they connect with.
When doing a product market analysis, it’s important that you are specific and don’t paint a better picture by looking at the entire market, or too large a part of it. Eventually, you will have to choose a targeted message that will not speak to everyone in the market: keep this in mind when defining the real size of your market.
Calculate market growth potential
Now you have the data on the current situation: time to look into the future. To do that, we’ll start by going to the past.
How has the market share been divided among your competitors ever since the market came to exist? What events and products affected these changes in the division? What was happening in related or similar markets in the same time period?
Based on this information you can try to pinpoint patterns and find opportunities for growth in the future. Also keep societal factors in mind, like wages and costs of other possibly related products, and changes in tax.
How to easily calculate potential market size
Learn how to calculate your market size potential without saying goodbye to your marketing budget!
Chances are, your competitors are also performing some kind of product demand analysis while you are too. Maybe they also have a new product in mind that they want to launch, or they’re trying to increase their market share another way.
Look at how they went about their previous product launches and how this was received by your target market. How were the sales numbers? What could you learn from them?
Is it magic? Is it witchcraft? Is it espionage? No, it’s artificial intelligence.
One of the kings in product demand analysis is undoubtedly Amazon. How do they have that tiny screw in the right colour available for next day delivery, when all hardware stores in your area are out of stock?
A lot of it is thanks to artificial intelligence, and an exquisite product demand analysis. Amazon has mastered the craft of balancing human intelligence with human tasks. Product demand analysis on the scale they are doing would simply take too long to do manually, so where possible they let AI do the heavy lifting. In the background, their team is figuring out the details that make their supply chain so impressive.
The team knows not only what products to have in stock, but also where. In 2013, they got a patent for ‘anticipatory shipping’. This technique helped them to get a product to the closest warehouse to you, even before you actually hit ‘buy now’.
Other parts of their product demand analysis are more common sense. Certain local products will only get stocked in relevant regions, and they look beyond the obvious seasonal changes. Sunscreen is important in summer, yes, but also in winter in places where, for example, families go on skiing holidays.
Product demand analysis best practices
How do you actually gather all that information we mentioned above? Let’s look at some tools and best practices that will help you get the most relevant and actionable insights regarding product demand predictions.
Product demand surveys
To accurately estimate the demand for your product through a survey, it’s crucial that you ask the right questions. Think about how precise you would want people to answer, what data you need. Is it just numbers, or also about days or months? Will you ask them about alternative buying reasons for your product?
Set a clear goal for your product demand survey and build the questions based on that, so you won’t miss a single piece of information.
Another crucial element is defining quality respondents. Your product demand analysis survey should only be sent to people who match the criteria of actual buyers. This way you prevent getting data on latent demand, from people who would buy, but don’t actually have the money.
Experiments with price and offer
Some markets are unpredictable, mostly because they are new. If after your initial product demand analysis you find that the numbers are a tiny bit lower than you’d hoped for, try analysing what happens if you tweak your offer.
You can experiment with different price points, package deals or bundles, or other types of promotions. You can also try finding partnerships or products that go well with yours to create more demand, even if it’s just secondary. This could be especially helpful if you are just entering a new market, and you want to ride on the success of another product.
To identify consumer trends, you can use tools such as Google Trends, look into frequent Amazon searches and keep an eye on trending topics on social media.
With social listening tools, you can keep track of what people are saying about a certain product or brand, which will help you get data on what’s trending. Joining online communities or Facebook groups that are relevant to your market is also a great way to stay up to date on what’s happening.
Don’t forget to also look into popular topics in specific regions if that’s relevant for you. When looking at specific keywords, you can get incredibly precise data that will drive your decision-making process forward.
Picking the right market research tools
Still feel like product demand analysis is just a guessing game? With the right tools, you’ll see that getting accurate data is more a science than an art. Here are four of our favourite tools for market research that could help you getting your product demand analysis right:
Attest: we had to! With our quick, easy-to-use market research platform you can find those hyper-relevant consumers and ask them those burning questions about their buying behaviour.
Social Mention: to keep an eye on consumer trends, we highly recommend using social mention. This is a social listening tool that will give you first-hand data on what’s being said about your market across different platforms, without you having to monitor them manually.
Heartbeat.ai: if you know that people are talking about your market, it’s also important to know what they’re saying. Just because a lot of people are talking about Blockbuster, doesn’t mean DVD rental is back in the picture. They’re just making memes. With heartbeat.ai, you can automatically analyse the tone of online conversations.