In order to better understand the mechanism of development and functioning of a market economy, it is necessary to study non-price factors of supply and demand. This article will focus on the reasons for which the sales volume of any product groups may vary.
Law of demand
The essence of this law is as follows: in the case when prices for a particular product are reduced, buyers are more interested in this product, that is, demand is growing. If prices become higher, the product is in less demand.
Moreover, there are price and non-price demand factors affecting the degree of demand for the product. For example, if the cost of a commodity unit has decreased by 2 times, then, accordingly, sales should double. But it is important to consider the fact that there are exceptions. Sometimes, after rising prices, a product is in even greater demand than before. This can happen when customers are waiting for the growth of value and tend to stock up on products until its maximum price increase.
Another exception is as follows: when a decrease in value occurs, the relevance of the product is lost, and sales are reduced. This phenomenon is explained by the fact that a high price forms the prestige of the product and its relevance. This is true for high-end perfumes, precious metals and stones, as well as jewelry.
In some cases, at a constant level, the sale prices of a certain product group may change. In order to understand why this is happening, it is worth considering non-price factors affecting demand.
Credit facility availability
When potential buyers have the opportunity to borrow money, they supplement their own funds with credit if necessary. This serves as an additional motivator of demand.
This factor is able to expand consumer opportunities, since borrowed funds are nothing but the financial resources of those legal entities that do not see a more relevant application for them. Thus, free lending can increase the level of demand at a constant price.
Customer expectations
Non-price demand factors inevitably include this condition of change in consumer activity. If buyers expect changes in their income, lower or higher prices, their motivation to purchase a particular product can increase or decrease. By the way, the government’s actions regarding the availability of a specific product group (customs duties, etc.) also influence the desire to purchase a certain product.
Non-price factors of change in demand in this situation may take the form of inflationary expectations. We are talking about the predicted rise in price of goods and, as a result, increased motivation for their purchase at the current price. Thus, demand is increasing, although in fact prices remain unchanged.
The main directions of consumer expectations
Regarding this factor affecting demand, it is worth highlighting three key forms by which it is able to manifest itself:
- Change in cash income. When potential buyers predict their financial future, they primarily take into account the stability of their income, their growth or decrease. If consumers expect a steady income, then demand will not change significantly. But in the case of negative forecasts, the motivation to purchase those products that will soon become unavailable will increase (technology, etc.).At the same time, expensive foodstuffs may lose their relevance, as buyers will be reoriented toward savings.
- Change the list of available products. If you pay attention to non-price factors of supply and demand, you can see that during certain periods some products may be presented in a wide assortment or may be in short supply. When buyers expect a reduction in the assortment and the lack of the necessary volume of relevant products, they will be motivated to make large purchases. Demand, accordingly, is growing. Given the stability of supply without preconditions towards a deficit, the volume of purchased goods will not change significantly.
- Waiting for a change in the value of the product. Here the situation is similar: when buyers predict an increase in the cost of goods, they try to purchase the maximum possible volumes of the product in order to avoid high costs in the future. As a result, due to expectations of a rise in price, demand is growing.
Tastes and needs of customers
Such a factor as need can be considered in the role of the content of demand that forms it. Moreover, there is a limiting form - the solvency of one who has certain needs, motivating to purchase goods. Considering non-price demand factors, it is worthwhile to understand that when the size and composition of needs change, the level of demand changes.
The dynamic development of some needs and the virtually complete disappearance of others cannot be ruled out. At the same time, the tastes of customers actively influence the degree of relevance of goods, which can also undergo changes under the influence of, say, fashion. If we consider such non-price factors of demand, examples can be given completely different. But the collection of wedding dresses makes it possible to see the influence of fashion well: those models for which there was a demand last season are no longer interesting to consumers today.
Number of customers
When the total population in a certain region grows, the consequence of this process is an increase in the number of able-bodied citizens who can purchase goods. This factor has an inevitable effect on demand. But even the fact of having children already affects the level of sales of certain groups of goods - these are diapers, baby food, etc. Accordingly, a decrease in the population leads to a decrease in demand.
Related Product Price Fluctuations
Non-price demand factors of this format, although they relate to cost, but only indirectly. To better understand the essence of this form of influence on consumer motivation, it is worth considering two relevant options:
- Change in the price of products that complement each other. We are talking about such goods that cannot be used separately, that is, the acquisition of one inevitably entails the purchase of another. An example is the growth in car sales, leading to an increase in demand for motor oil and gasoline. It is worth noting the fact that such groups of goods can have the opposite effect on an interchangeable product. When fuel rises in price, ordinary people reduce the number of trips and, accordingly, buy engine oil and spare parts less often.
- Change in the value of substitute products. In this case, non-price demand factors are manifested through changes in demand for a product that can replace an expensive product. This can be margarine and butter, a jacket and a coat, etc. In this case, a price shift for one product group inevitably leads to a change in the relevance of a potential substitute (a more affordable autumn jacket is preferred to significantly more expensive coats).
But for such a factor to be able to influence the level of demand, a significant change in price is necessary.
Total
As you can see, price and non-price factors of demand play an important role in the formation of market processes that affect both the standard of living of consumers and the dynamics of development of producers.
