The non-price determinants of demand

The following list enumerates the non-price determinants of demand. These factors are important, because they can change the number of units sold of products and services, irrespective of their prices. The determinants are:

  • Branding. Sellers can use advertising, product differentiation, product quality, customer service, and so forth to create such strong brand images that buyers have a strong preference for their goods.

  • Market size. If the market is expanding rapidly, customers may be compelled to purchase based on other factors than price, simply because the supply of goods is not keeping up with demand.

  • Demographics. A change in the proportions of the population in different age ranges can alter demand in favor of those groups increasing in size (and vice versa). Thus, an aging population will increase the demand for arthritis drugs, while a younger population will increase the demand for sporting goods.

  • Seasonality. The need for goods varies by time of year; thus, there is a strong demand for lawn mowers in the Spring, but not in the Fall.

  • Available income. If the amount of available buyer income changes, it alters their propensity to purchase. Thus, if there is an economic boom, someone is more likely to buy, irrespective of price.

  • Complementary goods. If there is a price change in a complementary item, it can impact the demand for a product. Thus, a change in the price of popcorn in a movie theater could impact the demand for movies, as could the price of nearby parking.

  • Future expectations. If buyers believe that the market will change in the future, such as may happen with an anticipated constriction of supplies, this may alter their purchasing behavior now. Thus, an expected constriction in the supply of rubber might increase the demand for tires now.

These determinants will alter the demand for goods and services, but only within certain acceptable price ranges. For example, if non-price determinants are driving increased demand, but prices are very high, it is likely that buyers will be driven to look at substitute products.

Related Courses

Revenue Management 
Revenue Recognition