Derived Demand

Definition

Derived demand refers to the demand for a product or service that is not directly consumed by the end-user, but rather is a result of the demand for another product or service. It arises when the demand for one good or service is dependent on the demand for another good or service.

5 Must Know Facts For Your Next Test

1. Derived demand is a fundamental concept in the business-to-business (B2B) market, where the demand for products and services is often driven by the demand for other goods and services.
2. The demand for raw materials, components, and industrial equipment is often derived from the demand for the final products that incorporate these inputs.
3. Factors that influence derived demand include the price and availability of the primary product, the cost and efficiency of the production process, and the overall economic conditions.
4. Understanding derived demand is crucial for B2B marketers, as it allows them to anticipate changes in demand and adjust their strategies accordingly.
5. Derived demand can also be affected by technological advancements, changes in consumer preferences, and government regulations that impact the primary market.

Review Questions

• Explain how the concept of derived demand applies to the business-to-business (B2B) market.
  • In the B2B market, the demand for many products and services is derived from the demand for other goods and services. For example, the demand for industrial machinery is derived from the demand for the products that the machinery is used to produce. Similarly, the demand for raw materials and components is derived from the demand for the final products that incorporate these inputs. Understanding derived demand is crucial for B2B marketers, as it allows them to anticipate changes in demand and adjust their strategies accordingly.
• Describe how factors such as price, production efficiency, and economic conditions can influence derived demand.
  • Derived demand is influenced by a variety of factors, including the price and availability of the primary product, the cost and efficiency of the production process, and the overall economic conditions. If the price of the primary product increases, the derived demand for the inputs used to produce that product may decrease, as the cost of production rises. Similarly, if technological advancements improve the efficiency of the production process, the derived demand for the inputs may decrease. Economic conditions, such as recessions or periods of growth, can also significantly impact derived demand, as changes in consumer spending and business investment affect the demand for the primary product.
• Analyze how the concept of derived demand can be used by B2B marketers to develop effective marketing strategies.
  • By understanding the concept of derived demand, B2B marketers can develop more effective marketing strategies. They can anticipate changes in demand for their products and services by monitoring the demand for the primary products that their customers produce. This allows them to adjust their production, pricing, and promotional strategies accordingly. B2B marketers can also identify complementary goods and services that are in high demand, and develop new products or services that cater to these needs. Additionally, they can use their understanding of derived demand to identify emerging trends and opportunities in the market, and position their offerings to capitalize on these changes.

Related terms

Complementary Goods: Complementary goods are two or more products that are used together, where the demand for one good is dependent on the demand for the other.

Intermediate Demand: Intermediate demand refers to the demand for goods and services that are used as inputs in the production of other goods and services, rather than being consumed directly by the end-user.

Demand Elasticity: Demand elasticity is a measure of how responsive the demand for a good or service is to changes in its price or other factors, such as the price of related goods.