Offer
Supply is the quantity of a product that a manufacturer can sell to a buyer for a certain price and in a specific period. This marketing tool is associated with the concept of «demand». When it increases, the manufacturer tries to boost production volumes. If a surplus of goods is created, demand and sales volumes decrease.
Companies engaged in e-commerce software development, offering unique services and products, must conduct marketing research, prevent supply from exceeding demand, and consider the price factor.
Factors that reduce the ability to produce goods and services
Subjective and objective reasons cause a decrease in the supply of a particular product. The first includes the manufacturer’s manufacturer’s desire to create a shortage in the market, thus increasing the status of the product and its price.
There are some objective factors influencing the decrease in supply:
- unavailability of resources;
- season, price forecasts;
- market saturation, surplus;
- lack of production capacity and knowledge of technological processes;
- entry of new manufacturers into the market with analogs;
- increase, change in rates, introduction of new taxes;
- price of labor, availability of qualified specialists for production;
- consumer expectation;
- policy changes, force majeure.
Law of supply and demand
Supply and demand are complementary concepts. The higher the buyer’s interest in the product, the bigger the price the manufacturer sets and the higher the product’s production volume. The maximum profit is limited by buyer demand. They are unwilling to pay the seller’s price at a certain point.
The cost of goods, supply, and demand must be in dynamic equilibrium. A high price forces the buyer to look for cheaper alternatives, creating a surplus of goods. Its cost begins to decline, and demand appears again after reaching a specific value for the product.
Elasticity of supply
Elasticity is the reaction of buyers to changes in the seller’s pricing policy. If sales volumes increase when the cost of a product decreases, then the product has high elasticity. If this does not happen, then the product’s elasticity is low. This indicator depends on the buyer’s income, the product’s need, and the analogs’ availability.
Let’s look at the following factors influencing the elasticity of supply:
- period and costs of storing products;
- The possibility of replacing components in the product with cheaper analogs, the employee agreed to perform the same amount of work but for lower wages in the service sector;
- The ability to quickly change production volumes depending on demand.
An example of an elastic supply is like an ice cream during the hot season. In summer, demand increases, and the manufacturer increases prices and production volumes. However, the consumer buys ice cream as long as they are willing to pay the seller’s price. Once the «critical point» (too expensive) is reached, the buyer abandons a specific product in favor of a more budget-friendly brand.
Demand and supply depend on each other. The task of the manufacturer and the marketing department is to regularly conduct market research, target audiences, improve the quality of the product without changing the price, and monitor new trends in fashion and income levels. Only in this case will their product be in demand on the market.