“P&D” stands for Product, Demand and Supply; a term developed by John Murphy, a marketing professor at the University of Chicago Booth School of Business. Murphy defines Product, Demand and Supply as the dynamics of buying and selling. This concept, Murphy argues, is at the heart of economic activity, because it explains why companies make decisions, make investments and make products. Murphy suggests that a company will make a decision about whether or not to produce a product if it has a sufficient amount of demand for it. It then makes the investment to manufacture that product in order to meet the existing market demand.
Demand and supply are what drives all economies. It’s an economic principle that explains why, for example, it is much more difficult to create a new product than it is to improve upon an existing one. The same applies to economic activity within an organization. Murphy defines demand as the total number of individuals who would be willing to buy a certain product or service. He also defines supply as the total number of individuals who would be willing to purchase that product or service. This process of demand and supply is the fundamental organizing principle of the economy. When these two factors are in balance, the economy is said to be operating at full capacity.
Murphy suggests that the failure of organizations to properly define and monitor their demand and supply will lead them to miss opportunities. They fail to recognize that some people want to buy a product or service while others would prefer to do other things. For example, it may be true that the majority of people would prefer to spend money on something other than on a new car. However, there might be an even larger segment of people who would like to spend their money on a vacation. Without identifying these categories of consumers, Murphy argues, businesses and firms will spend too much money on products and services that do not cater to the consumer desires of a large segment of the market. As a result, they will never make enough profit to cover their costs. Murphy further suggests that this will result in a loss of market share for those companies, and a loss of future earnings opportunities for those firms that are unable to respond quickly enough to customer demands.