Real Demand Curves In Action
The rock star Meatloaf tells us that “Two out of three ain’t bad.”
But, when it comes to, say, selling your new supersonic jet, it can be.
One can adequately estimate a product’s Cost and Value (as a sustainable price for the first business jet to go over 1,000 miles per hour) only run afoul of its market’s Demand Frontier.
Below, we find Aerion offers a credible development Cost target for its supersonic AS2 (see A), and offline there is evidence its $120 million Price works for the market. Their problem lies with Demand. They forecast a market of 500 models, with 300 in a decade. But in the ten years studied in B, their forecast exceeded the limit of the Upper Demand Frontier (P-Value 4.91E-04). Five years later, in C, the Demand Frontier (P-Value 5.39E-05) shifted only slightly. As of January 2020, the company still only has the 20 orders they received in 2015. Currently, its chances of selling 300 units at $120 million in a decade are less than 25%.
COVID-19 or other forces may increase business jet demand, moving the Demand Frontier where Aerion would like it to be.
Failing that, the company likely got Cost and Price right, but missed Demand.
In business, two out of three is bad.
#demand #demandforecasting #marketanalysis #prices
