Business Overview to Understanding Consumer Demand Changes Over Time

Seasonal fluctiations in demand can cost your business big. Think of it this way. I have a business of selling clothes that teenagers like. I get an order of over 10,000 pieces in the month of December. I try to up my inventory and have another 10,000 pieces in January. However, I end up selling only 1,000.

This is an example of a seasonal fluctuation. More people ordered stuff in December. Not as many in January once the festive season ends. For any business, understanding how demand changes is important to managing workflow.

In fact, the Law of Demand  states that the price and demand are inversely proportional. When the price increases the demand for that commodity decreases, and vice-versa. In the above example that we discussed, if we have an excess of stock it can lead to us having a lot of it left-over because the demand will decrease due to high availability.

Although, if the product is too less, it might die out very quickly and since the demand will be high customers will move to competitors for the same or similar product. 

However, this is a very simplistic view of demand and does not include any of the external factors that can impact demand. Demand for consumer goods can change even when prices are stable.

This is due to external factors like changing trends, global issues, the local and state economy, and even damaged brand identity.

Although there can be other reasoning for the demand rise and fall which are not just related to these two variables. 

The Icy Whiz team talked to Eric Neuner, President of NuShoe, about strategies to manage inventory and sales amid seasonal demand changes. Here is what he said:

“As the President of NuShoe, the largest shoe repair company in the U.S., I have experience in managing inventory and sales amid seasonal demand changes.

One of the key strategies we employ is proactive inventory management, which involves watching our supply chain KPIs and implementing accurate forecasting processes.

For instance, NuShoe handles a high volume of refurbishing requests during the fall and winter seasons, especially for brands like UGG. To prepare for this surge, we use historical data to forecast the demand and adjust our stock levels accordingly.

We also implement ABC analysis to prioritize our high-value items, ensuring that our key products are always adequately stocked.

Additionally, we manage obsolete stock by liquidating slow-moving inventory through discounts or donations. This strategy not only frees up warehouse space but also mitigates the risk of holding onto unsellable items.

By maintaining a streamlined and responsive inventory system, we can adapt to seasonal fluctuations quickly and efficiently, minimizing delays and maximizing sales opportunities.

To illustrate, in one year, leveraging reviews for better sizing information significantly reduced return rates by 15%, which was crucial during peak seasons.

This proactive approach to inventory management and customer feedback has been instrumental in maintaining a smooth supply chain and high customer satisfaction, even during unpredictable demand changes.”

Change in Demand vs Quantity Demanded 

It is important not to confuse a change in demand with the quantity demanded and depending on the price being charged for the product in the market, the total amount of products demanded at any given time is referred to as the quantity demanded whereas the change in demand, on the other hand, focuses on all determinants of demand other than price changes.

We talked to some subject matter experts on this. Here is what they had to say.

“The dynamic nature of consumer preferences means that companies must stay agile, adapting not only to price sensitivities but also to broader social and economic trends.”

Maria Gonzalez, Market Researcher

“Price sensitivity is a key driver, but so is product accessibility. Ensuring your product is easy to find and purchase can significantly affect demand.”

Michael Brooks, Retail Analyst

In an interview with the Icy Whiz team, Russ Vall, Co-Founder of MioJewelry, talked about the best strategies for businesses to anticipate and adapt to seasonal demand shifts. Here is what he said:

“At MioJewelry, we faced a significant drop in sales volume earlier this year, despite rising prices. This experience taught us the importance of staying vigilant and adjusting our strategies quickly.

Monitoring market trends and clearly understanding inventory levels helped us respond effectively. For instance, during the peak season, we stock up on high-demand models like the Rolex Daytona, which consistently outperforms other asset classes.

One effective strategy we use is diversifying our inventory. We started offering a range of brands and models to cater to different customer preferences and mitigate the impact of any single brand’s downturn.

During slower periods, we focus on marketing efforts to boost sales and maintain customer engagement.

Lastly, it’s essential to build strong relationships with suppliers. This ensures a steady flow of inventory even when demand fluctuates.

At MioJewelry, we prioritize authenticity and quality, sourcing watches directly from trusted dealers. This reliability in our supply chain allows us to adapt quickly to changes in consumer demand.”

Now, let me tell you about the factors that affect the demand 

Usually, the price of a product is a very sensitive factor to determine its demand. If the price of a product is low it creates higher demand, as the price increases the demand decreases because customers feel that they can not afford the product.

It can be easily understood that when the prices do not fall in their customer reachable bracket they are not satisfied with that product. 

Also, the taste and preferences of customers keep changing all the time, which leads to an increase in demand for one product and a decrease in another.

The preferences can change for various reasons like age, marital status, economic status, and geography.

Since there is a significant difference in shopping for beaches or mountains or; children and adults the effect multiplies and creates a change in the demand.

Expectations of the customer are another variable that is perpetually changing and can not be predicted.

Habits develop a person’s expectations, so we can probably focus on learning and understanding the habit.

For example, if somebody is using a certain brand of mouthwash, and you want to increase the demand for your competitive product you will have to find a way to decrease the other product’s demand.

So, when your product is coming out not only should it have everything that the other product has but also an additional allure which makes the customers shift from their primary choice. 

Also, there is consumer income in play. The amount of money a customer will spend on a commodity usually falls in a small bracket and drastic changes in the same are unlikely to happen. We talked to a financial advisor on how income levels can come into play.

“Income levels play a critical role in demand. A product might be perfect, but if it’s priced outside of what a significant segment of the market can afford, it will struggle.”

Alex Johnson, Financial Advisor

The people who fall in the higher income segments always tend to buy more and buy better products.

Although, these people do not fall at the bottom of the pyramid and govern the major part of creating or abolishing a demand for any product in the market.

It is the middle-income groups and the low-income segments which make that difference. 

Dhari Alabdulhadi, CTO and Founder of Ubuy Netherlands discussed the strategies for businesses to anticipate and adapt to seasonal demand shifts. Here is an excerpt from the interview:

“Businesses can predict and respond to seasonal swings using past sales data and forecasting methodologies. Collaborative planning with partners ensures inventory levels are in alignment.

Flexible manufacturing and sourcing strategies provide a quick response to demand. Inventory optimization prioritizes high-demand products to reduce carrying costs. Targeted promotions increase sales during busy seasons. 

Agile supply chain management increases resilience to interruptions. Continuous monitoring enables prompt adjustments to projections and inventory levels, optimizing performance year-round.

Businesses that use these tactics can efficiently traverse seasonal fluctuations in consumer demand, resulting in optimal inventory management and sales outcomes.”

Additionally, you can perpetually work on getting more features in your product although it will not stop the competition from rising and hence providing the scope of substitutes.

As the players will increase your share of the market that you can capture will decrease as the demand will decrease or spread out. Important points to consider include the following – 

• Is your price point the selling criterion, if yes then always make sure that the competition product’s price should not slash very low as it will directly affect your demand 
• Is your product a stand-alone breadwinner or is it your product line, if there is a range of products you have to manage the correct distribution and make sure that they are reachable and accessible to all consumers to maintain a steady demand for the same 
• Are the substitutes an alternative or just similar products – The substitutes which fall in the category of exact alternatives will be a bigger challenge because as soon as there is a small variation in the primary product the alternative will quickly generate high demand. On the contrary for similar products, the habit-building process will take time but if the similarity is high and the prices also close then the time might reduce. 

Rongzhong Li., the CEO/Founder of Peto, talked to the Icy Whiz team about managing inventory and sales amid seasonal demand changes. Here is an excerpt from the interview:

“To effectively anticipate and adapt to changes in consumer demand, businesses should regularly conduct market research, prioritize flexibility in operations, and invest in technology for deeper consumer insights.

These strategies enable businesses to respond quickly and effectively to evolving market trends and customer preferences.”

How to Keep Getting a Steady Demand

Consumer demands should be anticipated beforehand and this should be done by using trends of sales of their retail stores. The product line and the advertising should shift in a manner that can accommodate the change in prices, tastes, and income of the consumers.

Decisions of production and distribution should be made in a manner that the target customer is completely satisfied across all spheres like accessibility, quality, and price.

This should be done on a loop process so you can always be prepared for the next launch and create full potential demand for your product. 

When you are launching, introducing, or re-branding any product to increase its demand in the marketplace, you have to keep in mind all the factors that affect the demand and make informed decisions based on those.

Get a complete understanding of your competitors and introduce offers or products which would allure more consumers towards your brand.

Try working in a manner that you can gain high customer loyalty as that will eventually lead you to evergreen demand generation in your sector. 

Guest Author: Saket Kumar

Last Updated on June 4, 2024 by soubhik