What Happens When a Business Does Not Meet the Demand of Consumers?
Consumer demand is a driving force for sales at retail businesses. Additionally, manufacturers and wholesalers have to keep up production and supply to retailers. Failure to have adequate inventory to meet the demand of consumers is a major business problem with several side effects.
The first major issue with not having enough inventory to meet demand is lost sales. Customers usually approach your business with an intent to buy. This in itself is an accomplishment. When consumers realize you are out of stock, they have to seek out other providers or brands to meet their needs. Not only do you lose sales, but you miss out on profit opportunities.
In the long run, a greater concern in not meeting consumer demand is losing customers altogether. For a buyer, finding out a product he wants is unavailable is frustrating. Some customers may give your business or product more than one opportunity to make good, but eventually, they want options that are consistently available. Retailers must monitor customer demand and stay diligent with inventory management and buying processes to ensure they have products on hand to meet demand.
When you have dissatisfied customers in the market, you also have negative word-of-mouth advertising floating around. You may never see some consumers simply because a friend warned "Don't go to Company X because it always runs out of Product Y." Insufficient supply falls under the general umbrella of inconvenience, and you don't want a significant portion of the market to view your business or products as inconvenient.
While the service issues carry greater weight, failure to meet consumer demand also has other economic effects. Generally, when you buy products from vendors, you get discounts for higher-volume purchases. If you under-buy and don't meet demand, you miss an opportunity to get a better cost per unit through a larger purchase from your supplier. Forecasting demand accurately allows you to more easily make large purchases.