Why is the concept of derived demand so important for
companies selling products and services to other organizations? What is an
example where an industrial company has benefited from changes in end-consumer
Derived demand increasing or decreasing consumer
demand for a specific product. Demand or lack of demand for specific products
can either create or reduce demand for product related to the specific product.
For businesses, derived demand creates a right to left flowing chain, which
starts with consumer demand. Derived demand value chains and the ripple effect
underscore the importance of business to business relationships.
The automobile industry is affected by the
end-consumer demand. It is the second biggest, a company gets almost fifty
percent of its revenues from automotive companies that deals with steel. Steel
is the backbone of the United States; it plays a huge part of the economy and
give people job.
Lohrey, J. (2015). An Example of Derived Demand |
Chron.com. Retrieved from http://smallbusiness.chron.com/example-derived-demand-80611.html
O'Hara, M. (2014, December 18). Important End
Consumers Of Steel - Market Realist. Retrieved from http://marketrealist.com/2014/12/overview-key-end-consumers-steel/
The concept of derived demand demonstrates how
changing customer preferences or a changing economy affects
business-to-business markets (Lohrey, 2015).
From a business-to-business perspective, derived demand creates a
right-to-left-flowing value chain that starts with consumer demand. Every
leftward step in a value chain directly results from consumer demand (Lohrey,
Example, a customer order creates a demand for fabric. Getting this fabric
starts with cotton or some other combination of fibers that first must be spun
and then woven into cloth. Each step in the chain adds the value necessary to
move raw materials down the chain until raw materials become the finished
product (Lohrey, 2015).
Derived demand value chains and the ripple effect underscore the importance of
business-to-business relationships. It all starts with creating consumer
demand, especially in cases where demand might not exist. Small businesses in
the same place can collaborate and promote each other's products or services.
Vendors and manufacturers might create demand for their own products by
creating demand for their customer’s products. Joint ventures, strategic
partnerships and vendor partnership agreements are all helpful in using derived
demand to each business’s best advantage (Lohrey, 2015).
Lohrey, Jackie (2015). An Example of Derived Demand. Retrieved November 5, 2015