Browse Publications Technical Papers 2013-01-2239
2013-09-17

What DAIV (Demand as an Independent Variable) says About Your Market 2013-01-2239

This paper shows how the quantity demanded, viewed as an independent variable, interacts with customer values, producer costs and constraints. Failure to analyze Demand as Independent Variable (pronounced “Dave”) increases the chances that new programs will not launch, or once started, will fail.
All producers in all markets face demand curves that describe their customers' reaction to price changes. Aggregate market demand curves show how buyers react to price changes within broad product sets, while product demand curves show buyer responses to a specific item.
Demand curves relate quantities sold relative to their prices. In several military, transit and fleet cases, minimum quantity requirements form upper price boundaries along demand curves. Allowing prices to go so high that buying authorities cannot acquire the required numbers of units likely means that there may not be sufficient resources to form systems that can accomplish the buyers' goals. Simultaneously, pressure on producers to reduce costs and prices without relaxing requirements may force them into historically unattainable cost estimates. Understanding demand history provides guidance in determining reasonable prices paid and quantities sold.
Knowing how demand works in conjunction with value, cost and constraints allows analysts to provide insight into the best tradeoffs possible given limited funds. Product requirements reflect customer values; more of desired attributes or less of undesired attributes increases costs and values at the same time. Some attributes are more important than are others. Demand as Independent Variable, or DAIV permits analysts to construct frameworks for more financially valid trade studies.

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