a) External Factors b) Internal Factors External Factors: External factors are issues which affect the demand of product but are beyond the control of management of the organization. These factors include changes in government regulations ( for example, suppose a company produces coal with sulphur content but a new government regulation bans the use of sulphur based coal in thermal power plants; this regulation will affect the demand of coal of that manufacturer), changes in customer taste which can change quickly (e.g. fashion clothing), changes in consumer’s image of a product (for example, demand of tobacco based products in regions with high literacy rates has considerably decreased as people understand the ill effects of tobacco consumption), competitors’ action regarding prices, promotion campaigns, new additions etc. Also, natural calamities like drought, earth quakes, floods etc. are important external factors affecting demand. Internal Factors: Internal factors affecting the demand of product are those issues which are in the control of management. These include decisions regarding changes in product design, packaging design, promotion campaigns, sales person incentives, expansion/ contraction in target market areas etc. Management must carefully consider the timing of demand to effectively utilize the firm’s resources and production facilities. It should not try to produce for peak demand during peak demand periods, because it would be very costly. To avoid such a situation, companies generally make promotions or price incentive schemes to encourage customers to make purchases either before or after the traditional times of peak demand. For
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