What will be the supply and demand of the specific products or services that will result from your business idea? If you want to answer this question, you can use the supply and demand matrix.
The supply and demand matrix is a tool that I have developed for more than five years. The biggest goal in mind then was to have a tool that would enable me to measure the business potential energy of brainstormed business ideas.
If there is a higher level of supply and a higher level of competition in the market, your future business will be at higher risk. This is contrary to the businesses that result from the business idea that products and services will have a lower level of supply and competition.
It is logical that the competition will bring additional risk to your small business. So, when you start developing your business idea, you will need to include these considerations.
The same is when it comes to the demand of the market that will present the need of the market. Thus, if the market demand is at a higher level, the risk will be lower.
In the figure below is given this matrix that you can use when you want to consider these elements related to your business idea.
The Quadrants of Supply and Demand Matrix Explained
1. Little Chance for Success – Supply and Demand Matrix
If you have a large supply of specific products and services that, according to your business idea, you want to sell, and on the market is a small demand for them, you will have little chance for success. You will need to change or improve your business idea and remove such products or services. But, if you really want to have them in your offer, you will need to create an appropriate differentiation strategy to attract customers’ attention to these products.
2. Risky Opportunity – Supply and Demand Matrix
The quadrant of the matrix with small demand and small supply I call a risky opportunity. How is it possible to have the opportunity that, on the other side, is risky? This market can become an excellent opportunity, but only if you succeed in increasing the demand for products and services.
Your job as an entrepreneur, if you decide to enter such a market like this quadrant, with such products, will be to work on increasing the demand. If you feel that you can do this, these products can be a great opportunity for your business. These products, in most cases, are innovative products, and potential customers even don’t know that they really need such solutions. Because of that, you will need to work on creating a customer’s need to increase the demand.
3. Good Competition – Supply and Demand Matrix
I call the quadrant with the higher demand and large supply a good competition. This quadrant indicates that the products are in huge quantity on the market, but also, the consumption of these products is huge. So there is good competition. You can choose your business idea based on these products, but you should be aware that you’ll have very strong competition. However, it is clear that because there is a high demand, the risk is much lower.
4. Excellent Chance for Success – Supply and Demand Matrix
The quadrant is marked as an excellent chance for success and has the products or services for which there is high demand while supply is at a lower level. You should include these products without thinking about your business idea. In most cases, it is not an easy job to find and recognize such a market opportunity.