What are the most effective ways to use demand estimation to identify competitive advantages?

1 Demand function and elasticity

The first step in demand estimation is to specify a demand function, which is a mathematical equation that relates the quantity demanded of a product or service to its price and other variables that affect demand. The demand function can be estimated using various methods, such as surveys, experiments, or statistical analysis of historical data. The demand function can help you determine the optimal price for your product or service, as well as the sensitivity of demand to changes in price and other factors. This sensitivity is measured by the elasticity of demand, which is the percentage change in quantity demanded divided by the percentage change in the relevant factor. The elasticity of demand can help you identify how responsive your customers are to your pricing and marketing decisions, and how you can influence their purchasing behavior.

2 Demand forecasting and simulation

The second step in demand estimation is to forecast the future demand for your product or service, based on the estimated demand function and the expected values of the relevant factors. Demand forecasting can help you plan your production, inventory, and distribution activities, as well as anticipate changes in market conditions and consumer preferences. Demand forecasting can be done using various techniques, such as trend analysis, regression analysis, or time series analysis. However, demand forecasting is not an exact science, and it is subject to uncertainty and error. Therefore, it is useful to conduct demand simulation, which is the process of testing different scenarios and assumptions about the future values of the relevant factors, and observing how they affect the demand for your product or service. Demand simulation can help you evaluate the risks and opportunities of different strategies, and choose the best one for your competitive advantage.

3 Demand segmentation and differentiation

The third step in demand estimation is to segment your market into different groups of customers who have different characteristics, preferences, and behaviors that affect their demand for your product or service. Demand segmentation can help you identify your target markets, tailor your product or service to their needs and wants, and communicate your value proposition to them effectively. Demand segmentation can be done using various criteria, such as demographic, geographic, psychographic, or behavioral variables. The demand function and elasticity may vary across different segments, and you can use this information to differentiate your product or service from your competitors, and charge different prices to different segments, based on their willingness to pay. Demand differentiation can help you increase your market share, customer loyalty, and profitability.

5 Demand innovation and creation

The fifth step in demand estimation is to innovate and create new demand for your product or service, by introducing new features, benefits, or solutions that satisfy the unmet or latent needs and wants of your customers. Demand innovation and creation can help you expand your market, attract new customers, or increase the loyalty and satisfaction of your existing customers. Demand innovation and creation can be done using various methods, such as brainstorming, prototyping, or testing. You can also use demand innovation and creation to anticipate and respond to the emerging trends and opportunities in your industry, and gain a first-mover advantage over your competitors.

6 Demand estimation and competitive advantage

Demand estimation is not a one-time activity, but a continuous process that requires constant learning and improvement. By using demand estimation effectively, you can gain valuable insights into your customers, markets, and competitors, and use them to formulate and implement strategies that give you a competitive advantage. A competitive advantage is a unique strength or capability that enables you to deliver superior value to your customers, and achieve higher performance and profitability than your competitors. A competitive advantage can be based on various factors, such as cost, quality, service, innovation, or reputation. By using demand estimation, you can identify and leverage your competitive advantage, and create a sustainable and profitable business.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?