Demand Fluctuations:

Generally, demand for the industrial products does not change very much in response to price changes. However, the demand fluctuations are more than the demand fluctuations in the consumer goods. Why do such wide fluctuations occur?

Individual firms in the industries fear shortages of inventory when the consumer demand is high

Individual firms fear being caught with excess inventory when the consumer demand declines

Because of the above reasons the firms over react to the economy signals by:-

• Building their inventories when they anticipate growth in the economy and
• Reducing their inventories when they see signs of stagnation

When you combine all the actions of the individual firms, there are fluctuating demand effects on their suppliers. This is known as the acceleration principle.

Agricultural products intended for processing functions are exception to the above generalisation.

Examples of widely fluctuating demand are common among the following:-

• In product planning, a firm may decide to diversify into other products in order to solve the production and marketing problems.
• Distribution strategies may be changed when a manufacturer/producer discovers that selling to some re-sellers is unprofitable. He/she may drop them.

Prices may be reduced to stem a decline in sales. This strategy may attract customers away from competitors.

• The buyers and the producers are well informed about the market.
• The industrial goods producers/manufacturers are well informed about the industrial market. They know where to sell their producer goods.
• The industrial goods buyers tend to be better informed about the goods they want to buy than the ultimate consumers. For example, they know the relative merits of sources of supply and competitive products. This essential for the following reasons:-

They are relatively few alternatives for them to consider

• The responsibility of a buyer in a firm is usually limited to a few industrial products. He must have knowledge about a narrow set of products.
• In consumer purchases an error could be a minor inconvenience. This is not so in industrial purchasing. The cost of a mistake can lead to heavy losses of thousands of shillings or even a loss of decision maker's job.
• Sellers of industrial products put greater emphasis on personal selling than firms marketing consumer products. They carefully select business sales people, train them well, and compensate them adequately. They (sales people), are in a position to give effective sales presentations. They must furnish satisfactory services before and after each sale is made. Hence business buyers are dealing with highly professional sales people with a great deal of knowledge about the industrial products.