First of all, we need to introduce some of the possible rules of conduct for the businesses and households that we want to convert into customers of our business.
A consumer (if we are talking about consumer goods) or a company (if purchasing machinery, raw materials, etc). will consider buying a particular product or service if the amount of money asked of them in exchange (payment) seems reasonable to them.
In this situation, the prospective buyer makes the following argument:
Firstly, he/she considers it reasonable to pay at most an amount of money V to acquire the product or service being offered in exchange. Therefore, if he/she is asked for an amount of money P less than V, he/she will consider it worthwhile to acquire the product. So, for someone to consider becoming our customer, the following conditions must be fulfilled:
Assessment of product – its price = V-P > 0
To put it another way, a company will not be paid more than V for its product or service. However, this will not guarantee that the customer will buy the product.
Secondly, the customer will compare this offer with the available alternatives. Of two or more similar products, the consumer will choose the one in which the difference of V–P is greater.
A family is thinking about buying a car. The family values the model of manufacturer A at €40,000 (Va = €40,000) although the selling price is €30,000, Pa = 30,000. The family values the model of manufacturer B at a lower price; to be exact, let's suppose that it values the car less due to inferior features (for example, it is a smaller vehicle) at €35,000, Vb = €35,000.
The family in our example will buy the model of manufacturer A, even though it is more expensive, so long as the car of manufacturer B is sold at over €25,000, and vice versa: it will buy manufacturer B's car if it is cheap enough, i.e. if its price is under €25,000:
We can conclude that:
It will only purchase the product of manufacturer A if
Va–Pa = 40,000 – 30,000 > Vb–Pb = 35,000–Pb,
i.e. only if Pb > 25,000.
It will only purchase the product of manufacturer B if
Va–Pa = 40,000 – 30,000 < Vb–Pb = 35,000–Pb,
i.e. only if Pb < 25,000.
Thedemand for a particular product consists of the series of customers obtained for each possible price of the product in question.
In our example, if every family values these products in the same way for prices over €25,000, there will be no demand for manufacturer B's product, while for lower prices, we have the demand of all of the families that value the product of the same family that we have discussed.
On what does the value V that a prospective customer gives to a product or service depend? First and foremost, it depends on the intrinsic ability of the product to meet the customer's needs, but also:
1)On the customer's ability to adequately evaluate the product, which depends largely on his/her background and education.
It would be difficult for a customer to evaluate the GNU/Linux operating system, for example, if he/she does not even know what an operating system is and has never even considered that a computer is not necessarily required to have the Microsoft Windows operating system installed.
2)On the importance of the availability of secondary products to complement the main product that we are being offered (a car is more valuable if roads are better and petrol stations are easy to come across, and less valuable if roads are congested, public transport is good, if petrol becomes more expensive, etc).
3)On the real spread of the product offered to us, i.e. the number of other people who have it: telephone and e-mail are more valuable the more people who use them.