The total demand for a specific product or service over a defined time period as demanded or likely to be demanded by the total number of customers (existing and potential) in a defined geographical area. Key determinants of market demand are: market size, value, and profitability and growth rate. There are three types of market demand: historical, current, and future. The first is manifestly the easier to determine, the latter the hardest. The determination of market demand is one of the more difficult tasks confronting the marketer charged with launching a new product or service. The history of marketing campaigns is littered with cases of companies that either over- or underestimated market demand. A key variable is the extent to which marketing programmes—elements of the marketing mix—can manifestly alter normal market demand. Although all markets are susceptible to stimulation, the main determinant of market demand is the condition of the economy. Current market demand is measured by taking the total number of buyers in a defined market and multiplying by the average quantity or value of the average amount purchased by each buyer. This is different from total market size, which also measures potential purchase and focuses on the total available or discretionary budget. The most difficult part of the calculation is to determine the number of buyers in any given market segment. Often this is broken down into defined geographical territories or market segments and demand is estimated for each cluster. This will also involve identifying competitors and estimating their sales volumes. This is also a good way of working out the relative market share and relative growth rate for the company in question.
Future market demand is altogether more difficult to estimate, particularly in today's volatile world where very few markets show a level of stability and predictability that permits extrapolation of future demand based upon historical demand. Forecasts are often composed of an aggregate vision of macroeconomic forecasts (such as inflation, GNP, interest rates, employment, investment, saving, spending, and government economic policy), industry-specific forecasts (industry analysts' forecasts of the future or, in some cases, what customer research tells the company about customers' future buying intentions), and company-specific sales forecasts, including those of competitors that are externally reported. Scenarios for future demand are being increasingly used to give a range of potential market demand projections, rather than just one, as history has shown that a completely repeatable, accurate market demand forecast is impossible.
A market demand forecast is a calculation of expected market demand. There are three elements of market demand forecasts: