Demand Function

In today's hypersensitive, highly charged, Internet driven market place, these three words - know thy customer' - have never had greater importance. Companies realize that if they can leverage their relationships with their best customers they can enhance dramatically their competitive position. If they risk those relationships, not just their short-term profitability but also their long-term survival is at risk Custom assembled products are increasingly becoming popular. 'Made for You/ 'Made to Order' seems to be the strategy to satisfy the new millennium consumer. Thus, a basic question faced by the firm is, what factors influence the purchase decision for a good or service, made by a consumer?

There are numerous factors that influence the demand. for a product.

Therefore, it is difficult to build an exhaustive list. Major factors influencing demand are the price of the product (P_x), purchasing power or income of the consumer '(P_y)' preferences and tastes of consumers (P_t), price of related goods (P_r)' promotional activities (P_a), prime population (P_p) and price expectation (P_e), Thus, we can say that in general, there are seven P's that influence the demand for a product. These demand determinants can be presented in form of a demand function.

A demand function is a comprehensive formulation in an equation form, which specifies the major factors that influence the demand for a product. Equation 1 is such a function which shows the factors influencing the demand, say for good x (D_x), per time period.

                    D_x = f (P_X, P_Y, P_t, P_r, P_a, P_p, P_e, U)                            Equation 1

U refers to the specific factors that influence the demand for a good or service. F We will discuss the major factors that influence demand for a good or service. 

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