What is a demand signal?

A demand signal is any data that indicates demand for products or services and encompasses a large set of measures that show both met and unmet demand. Understanding the principle of “met and unmet demand” is important because true demand can never be measured directly, only inferred from met (or achieved) demand plus an estimate of unmet (missed) demand.

Let’s explore this with an example:

Your local bakery makes 100 croissants in the morning before the store opens and by the end of the day has only sold 80, it knows shopper demand that day was precisely 80 croissants. If the following day, however, the bakery makes 80 – in line with demand on the previous day – and by 10.30 am has sold all of them then it has established demand for at least 80 croissants but perhaps there was some unmet demand? If the bakery were to record requests from every shopper who couldn’t find a croissant after 10.30 it would have an additional measure of unmet demand but the bakery wouldn’t know about demand from those shoppers who didn’t ask, despite wanting a croissant.

In this example, the record of shopper requests is a powerful demand signal; it increases information about the true demand for croissants on the second day although it’s still imperfect as the bakery can assume that some shoppers didn’t ask and some may have bought more than one.