In the fourth trigger, the article published on the 19th of June 2017 in Forbes by Robert Rapier tells about the demand for crude oil and how the demand is increasing yearly, even though the sales of electric vehicles are growing. Though brainstorming we came came up with the following keywords:
- Energy sources
- Middle class
- Predictions
- Respond to demand
We therefore came up with 3 learning objectives:
- How do companies predict, create, and respond to demand?
- How does the middle class drive demand?
- Can renewable energy keep up with the demand of human energy consumption?
How do companies predict, create, and respond to demand?
In the article How do successful companies predict the future by Rhett Power (2016), he notes that successful companies such as Segway, Tesla, GoPro and Pokemon, who have come overnight success did not necessarily predict the future, but instead created a completely new product in a completely new market segment. Power uses GoPro as an example, GoPro product did not have an existing market, no market niche, and no consumer demand yet because nobody had invented it. Instead, GoPro created the products, the market and the demand for the product. The key to success is good market research, delivering customers needs and marketing.
In the article Companies respond to customer needs with demand-driven manufacturing by Aaron Lester, “Customers want what they want, when they want it, at a price they want to pay; and if you can’t provide it, they’ll just go someplace else” (Ptak in Lester). Demand driven manufacturing can help companies react to rapid changes in the market and hence save costs. In addition, with processes such as demand-sensing technology (point-of-sale data and predictive analytics) companies can respond to actual customer orders rather than forecasts.
Example 1: Oregon Freeze Dry. Their issue was predicting customer orders, causing them to have over inventory on products which did not have demand at the moment and lack of inventory on products that were in high demand. They started using Replenishment Plus (supply chain software), which allowed them to set up individual inventory profiles for each of their products, including information for example how fast the product sells and production time. With the help of the software, they can easily notice which products are in high demand and hence produce more of them. In addition, they currently have a lot less inventory than before compared to the 1980’s.
“The law of Supply and Demand explains the interaction between the sellers of a resource and the buyers for that resource. The theory defines what effect the relationship between the availability of a particular product and the desire (or demand) for that product has on its price. Generally, low supply and high demand increase price and vice versa”. (Chapplow 2019).
“the law of demand says that at higher prices, buyers will demand less of an economic good.
The law of supply says that at higher prices, sellers will supply more of an economic good.
These two laws interact to determine the actual market prices and volume of goods that are traded on a market.
Several independent factors can affect the shape of market supply and demand, influencing both the prices and quantities that we observe in markets.”. (Chapplow 2019).
How does the middle class drive demand?
The american middle class is determined by the median income of your household size as following:
Household of one: $26,093 to $78,281
Household of two: $36,902 to $110,706
Household of three: $45,195 to $135,586
Household of four: $52,187 to $156,561
Household of five: $58,347 to $175,041 .(Bourne 2020).
According to the Pew Research Center 52% of American’s are middle class (Bourne 2020).
According to the European Commission, worldwide:
- “Middle class spending is expected to grow from about $37 trillion in 2017 to $64 trillion by 2030.
- The size of the global middle class increased from 1.8 billion in 2009 to about 3.5 billion people in 2017 — more than half of the world population and is expected to grow to some 4 billion by 2021 and reach 5.3 billion by 2030. Some 88% of the additional middle class population will be Asians.
- China and India will represent over 43.3% of the global middle class by 2030.
- The middle-class market in advanced economies is projected to grow at only 0.5%-1% per year, while the dynamic middle-class market in emerging economies could register annual growth rates of 6% or more.” (European Commission 2017)
In Europe:
- “The share of the European and American middle classes will decrease from 50% in 2016 to just 22% of world’s total, by 2030” (European Commission 2017).
“Generally speaking, those in the lower middle class have some discretionary income that can be used to buy practical consumer durables like motorcycles, refrigerators or washing machines. The upper middle class spends more on leisure, entertainment and a range of services, often paying for quality and for differentiated products that suit their specific tastes. The rich are able to afford luxury goods and services and are less sensitive to price and budget constraint issues.” (Hamel, K & Kharas, H 2018).
Can renewable energy keep up with the demand of human energy consumption?
In The Guardian an article Renewable energy will be world’s main power source by 2040, says BP by Adam Vaughan suggests that future energy will rely on wind, solar and other renewable energy sources (Vaughan 2019). PB further states that “wind, solar and other renewables will account for about 30% of the world’s electricity supplies by 2040, up from 25% in BP’s 2040 estimates last year, and about 10% today” (PB in Vaughan). They believe that for example in Europe, rates of upto 50% could be possible by year 2040. According to PB, oil will still be a part of future demand for quite a while. According to an article by Bloomberg, in 2019 April, “for the first time ever, renewable energy supplied more power to America’s grid than coal—the clearest sign yet that solar and wind can now go head-to-head with fossil fuels. In two-thirds of the world, they’ve become the cheapest forms of power” (Doan, L, Eckhouse, B, Cannon, C, Recht, H 2019). In addition, according to Bloomberg NEF forecasts, solar and wind will power half of the globe by year 2050 (BloombergNEF in Bloomberg 2019). Bloomberg furthermore adds that “By that time, coal and nuclear will have all but disappeared in the U.S., forced out by cheaper renewables and natural gas” (Bloomberg). The solar and wind is the most profitable power business in the world, according to Bloomberg. Before wind and solar power were profitable and able to stand on themselves, governments’ were relied on to subsidise greener modes of power.
Bloomberg NEF 2019. New Energy Outlook 2019. URL: https://about.bnef.com/new-energy-outlook/. Accessed: 20 February 2020.
Doan, L, Eckhouse, B, Cannon, C, Recht, H 2019. What’s Behind the World’s Biggest Climate Victory? Capitalism. URL: https://www.bloomberg.com/graphics/2019-can-renewable-energy-power-the-world/. Accessed: 26 February 2020.
European Commission 2020. Developments and Forecasts of Growing Consumerism: Worldwide. URL: https://ec.europa.eu/knowledge4policy/foresight/topic/growing-consumerism/more-developments-relevant-growing-consumerism_en#worldwide. Accessed: 28 February 2020.
Vaughan, A 2019. Renewable energy will be world’s main power source by 2040, says BP. URL: https://www.theguardian.com/business/2019/feb/14/renewable-energy-world-power-source-bp. Accessed: 26 February 2020.
Bourne, L 2020. This Is How Much Someone In The Middle Class Earns. URL:
https://www.themoneymanual.com/middle-class-incomes-in-2020/. Accessed: 26 February 2020.
Chapplow, J 2019. Law of Supply and Demand. URL: https://www.investopedia.com/terms/l/law-of-supply-demand.asp. Accessed: 26 February 2020.
Power, P. 2016. How do successful companies predict the future. URL: https://www.inc.com/rhett-power/how-do-successful-companies-predict-the-future.html. Accessed: 26 February 2020.
Kharas, H 2017. The unprecedented expansion of the global middle class. URL: https://www.brookings.edu/research/the-unprecedented-expansion-of-the-global-middle-class-2/. Accessed: 28 February 2020.
Hamel, K & Kharas, H 2018. Who will drive consumer spending in the next decade? URL: https://oecd-development-matters.org/2018/11/07/who-will-drive-consumer-spending-in-the-next-decade/. Accessed: 28 February 2020.
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