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Estimating the product demand for a product is extremely crucial to a business for several reasons. Those in charge of a business hold the responsibility of keeping that business profitable in the short and long term. In order for a business to be profitable, they must be able to accurately assess product demand for each item that is being marketed in order to cut out excess costs involved with overproduction. It is crucial for companies to understand the factors affecting their product demand. For starters, increasing a products price will inherently lower product demand if all other factors remain the same. However, certain elements such as income level, the size of the consumer population, complementary and substitute goods present in the market, and variations in consumer preferences and taste can all have major influences on the demand curve (Samuelson & Marks, 2015). Another factor that may have an effect on product demand is price elasticity, which basically gauges the consumers response to price changes. As stated earlier, increasing price typically decreases demand. Although, if a product is inelastic, like say the Apple iPhone, a business can essentially raise the price a little each year and maintain strong sales with little decease in quantity.

One example where a business failed to adequately estimate demand is in the mid 2000s when Blockbuster, a video rental company, decided that having physical brick and motor locations were going to remain in demand even after the digital age of streaming was taking off. Although blockbuster had weathered the storm in the VHS to DVD crossover, they were not able to maintain profitability when companies such as Netflix offered services that allowed people to receive DVDs by mail and also eventually stream movies. Blockbuster likely though that they had enough brand loyalty seeing they had dominated the video rental market for several years. However, their inability to predict the demand of a physical store for pickup and drop-off of rental DVDs, ultimately cost them everything.