Predicting shifts in demand can help you surf the profit waves generated by demand fluctuations.
Whether you correctly forecast the increase or decrease in demand for a particular product, you can profit from both scenarios.
The Starting Point
Unless you have access to expensive market forecast data, you can use less expensive historical data to generate your own forecast model. There are various options to obtain historical data, one example is the gauk Market Research Wizard. Other methods include conducting your own targeted questionnaires and observing demand trends in your area, by asking family, and friends.
Whichever method you choose, if you can correctly predict the demand trend for a product, you stand to gain from your correct prediction, whether the trend is upward or downward sloping.
How To Gain From A Future Increase In Demand
Basic economics explains that an increase in demand for product A will result in an increase in its price. The more people want product A, the higher product A’s price will be.
Let’s say you are predicting product A demand will increase next month. If your prediction is correct, by purchasing and stocking product A today you stand to gain by reselling it next month at the higher price (theoratically, even if you purchased product A today at retail price, you can gain by reselling it at next month’s higher retail price). A good example of demand led price increases is game consoles at Christmas, which experience a huge demand surge during this period, and a correlated increase in price.
NOTE: another factor that can lead to an increase in the price of a product is shortage of supply. The lower the quantity available for resale, the higher the price of the product. Supply is inversely related to demand.
In summary, if you can correctly predict a future increase in demand for product A, by purchasing product A today and reselling it once demand has increased, you stand to gain from product A’s future price increase.
How To Gain From A Future Decrease In Demand
Just like a product’s increase in demand leads to an increase in its price, a decrease in demand leads to a decrease in its price. The advantage of a slump in demand is that you don’t have to predict it (unless you are already holding stock of the product). What you will have to predict is: i) how long the low demand will last; ii) when will it reach the bottom; iii) whether and when will its demand increase again.
A good recent example is luxury goods: in some parts of the world buyers are delaying purchases of luxury goods to more certain economic times. Due to this lower demand, prices for certain luxury goods have decreased. By buying lower priced luxury goods now (or as soon as you start noticing that their prices are increasing again) and reselling them once demand picks up again, you stand to earn the difference between today’s lower price and tomorrow’s higher price due to a resurgence in demand for those goods (Christmas will certainly see an increase in demand for quite a few luxury lines).
In summary, you can profit from a product whose demand has slumped, just as you can with products that are about to experience a surge in demand. Your experience, access to the right information, ability to hold stock for variable periods of time, and market research will all play a part in increasing the likelihood that your prodictions are correct.
In conclusion, when you experience a decrease in overall demand, it is always a good idea to evaluate where new opportunities have arisen. With Christmas approaching, there are certain products which will undoubtedly increase in demand, independently of market conditions. Now is the time to evaluate your options and act on these new opportunities.