In business, supply and demand is an incredibly important concept and must be understood if you truly want to know how business works. Of course, we didn’t all take Economics 101 in school or college, so it’s important to learn a basic understanding as early as possible not least so that we all understand how the business works and what it is that we are moving towards. The video above is worthwhile if you want a straightforward explanation of how supply and demand work.
One of the most important ideas within the idea of supply and demand is that pricing based on demand is part of how business everywhere operates. This is not price gouging, which is unethical and possibly illegal in some cases but rather centers around determining a fair and reasonable price for our goods and services. Ultimately, this is how a business runs – the higher the demand, the business can increase the price of that good or service to meet the demand and allow customers to get what they want. If supply is higher, or sources of obtaining a particular good or service multiply, then demand is typically lower and businesses will often lower prices to encourage customers to buy from them over their competitors, which in turn can increase demand again. At its core, supply and demand is both the fundamental process behind which all businesses run, as we’ve mentioned and which we as consumers are inclined to spend money.
The principles of supply and demand apply to small businesses as much as they do to larger corporations. While questionable activities such as price gouging are more common with larger corporations, where businesses often massively increase the prices of very in-demand goods, awareness of supply and demand and how the concept affects your business is useful for all business owners to be aware of, no matter the size. Small businesses can often have more of an impact on supply and demand for certain products, as they typically have very niche markets that lend more specificity and personalization to their products than larger companies. Additionally, with smaller businesses often having a more focused reach on a local, rather than a national, level, they can best cater to the needs of the communities around them as they shift and change on a shorter-term basis. While you may have fewer resources to pour into your small business than larger companies do, you have more knowledge of your ideal market and customer, and this can and should be used to your advantage when designing or purchasing your products or services to then sell to consumers. So much of business is about spotting gaps in markets or potential trends before they take off and fulfilling that need. By keeping supply and demand in mind throughout, you will be able to fulfill consumer needs at a quality and specificity that big corporations are not able to do.