Pent Up Demand

You may have heard economists speak of “Pent Up Demand” recently, and perhaps you are wondering what this means.

Most of the time, if we want to buy something, we just go and buy it. However, there are times when we have to put our purchase decision on hold. The delay could be a choice made by the consumer, or might be a supply issue. When lots of people delay purchasing the same product at the same time, this is called Pent Up Demand. Here are a few examples:

• A popular resort closes its doors for a year in order to undertake renovations
• Weather conditions result in certain fruits and vegetables not being available
• During a recession, people don’t buy non-essential products such as cars

When this delay comes to an end, consumers make up for lost time. So the demand in the next period ends up being even higher than what it was previously.

We are witnessing Pent Up Demand right now as COVID restrictions ease. Suddenly, people can eat out, drink at bars, and travel for the first time in months. Demand for many of these services is higher than ever. Supply is lower too, as explained in this video, however that is a separate issue to Pent Up Demand.

If you own a hotel, a restaurant, a bar, a gym, a beauty parlour, or any other business which is currently experiencing Pent Up Demand, then you should be thinking carefully about how you price your product. If ever there was a time to introduce Dynamic Pricing and Revenue Management into your business, then now is the time.

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