Question

The Small Business Administration (SBA) tells us that most sole proprietorships will never get to see their fifth year of business. Becsides financial mismanagement, the SBA tells us that another major reason for failure is that the business owners dodn't know anything about their demand curves and often chose the wrong price strategy.

Please identify at least three major items that any business should study and research in ordee to properly analyze its demand curve. (Example: demographics (i.e. age of their clients base).

Please explain why the items you listed are important for a business to research.

Answer 1

The three major items that any business should study and research in order to properly analyse its demand curve are as follows:

1. Age of their client base- Considering the target population of their product is very important demand factor for any business firm because this determines the level of spending or amount which the consumers are willing to pay for the product. The products meant for elderly and children or the working population needs to be priced low as compared to the products meant for independent working age population.Also, the design of the product needs to be changed depending on the target population.

2. Substitutes of the product available in the market: It is important for any business firm to know the kind of substitutes available in the market and what is the current prices of these substitutes. This helps the firm to determine its rival firms and strategize accordingly. The price movements of the substitutes needs a close attention by the firm.

3. Tastes and Preferences of the consumer: The tastes and preferences of the consumer also play an important role in making an estimate about the demand curve of the firm. The product needs to be matched according to consumer preferences to make more profits.

Thus, above three factors play an important role in determining the demand curve of the firm.