What do we mean by demand-side and supply-side?

There are two different, interdependent systems in product innovation: supply and demand. Some believe the supply creates the demand, but at The Re-Wired Group, we think differently.

There are two different, interdependent systems in product innovation: supply and demand. Some believe the supply creates the demand, but at The Re-Wired Group, we think differently.

Supply does not create demand; demand is there whether supply sees it or not. 

The distinction is an important one. 

Let’s talk briefly about supply versus demand at a very rudimentary level. 

  • Supply is what you as a company do: It’s your business model; it’s how you make money; it’s the resources you have in that business. 
  • Demand is the consumer: They have things going on in their lives beyond your product or service; they have money they need to exchange for your product or service; they have time constraints.  

The notion that the supply creates the demand causes companies to look at the supply side and ask, “What can we do?” Then they go build. Afterward, they turn around and ask, “Who will buy it?” 

The problem with this approach is that when you talk to customers with a supply-side focus, you speak to them through the lens of your product or service and the conversation becomes aspirational. 

“Do you want this?” you ask. 

“Well, sure,” they say. 

But that’s very different than them spending money and choosing one thing over another. The question was leading, so they told you what you wanted to hear. You are maximizing your supply-side efficiencies by getting customer buy-in for what you already built as opposed to understanding the true trade-offs customers are willing to make in the market. 

At The Re-Wired Group we flip that lens, our team of product development consultants look at the demand first, which causes us to ask the consumer a different question: “What did you do?” We want to know about the circumstances that consumers were in that caused them to buy. 

These are two very different ways to look at the world. 

The Tale of Two Companies

Let’s take a bird’s-eye view of the difference between a supply-side and a demand-side approach to innovation: the original Segway versus Bird Scooters. Re-Wired doesn’t work for either company, but as an outsider, I can see that while both companies built devices for transporting people, they produced vastly different outcomes. Let’s take a look at each approach.

Segway took an insight—people don’t want to walk everywhere—and built a beautifully designed, expensive device to transport people. It’s truly a marvel of engineering. The product, launched to much fanfare in 2001, retailed for $5,000 and was touted as a revolution in transportation.  

But despite all the hype, Segway never sold millions of scooters like they anticipated; they didn’t even sell hundreds of thousands. Now, twenty years later, the Segway brand is being retired. So, what went wrong? Segway was married to its solution and acted on an insight that did not tell the full picture of what people are trying to get done. What circumstances are people in when they don’t want to walk everywhere? Why choose a Segway in that struggling moment versus a bus, car, or bike? 

Now let’s look at Bird Rides, which launched low-cost, rentable scooters in more than 100 cities across the world in 2017. Instead of looking at an insight—people don’t want to walk everywhere—Bird asked themselves, “What are people trying to get done?” 

They found that people in big cities were often running late for work, and the bus schedule didn’t line up. If they ran, they would arrive sweaty; if they rode their bike, they would have to lock it up and worry it would get stolen. In tourist towns, the company realized that people wanted a way to stay out of their cars and enjoy their location without walking ten miles a day.

After recognizing the different “jobs,” they launched their scooters in specific market segments to fulfill the existing demand. Understanding that their customer did not want to be confined to drop-off locations, they loaded their scooters with GPS locators and hired people who would find the Birds at the end of the night and bring them back to charging locations. 

As a result, Bird has become the fastest-growing company to reach the one-billion-dollar valuation and by 2018 had sold over ten million rides. So, while Bird lacks the “wow” factor of Segway, it serves a really good “job” need and therefore was a massive success in the market. 

The Importance of Both Supply and Demand

I’m not advocating throwing supply out the window; both perspectives are important. 

On the supply side, we must understand our business strategies and how to maximize efficiencies. But we must do that through the lens of demand. They are interdependent systems that can conflict with one another. The key is understanding the conflicts and making explicit trade-offs so that supply and demand are both happy—the result is acceptable to both.

At its core, supply asks, “How do I make it better, cheaper, faster?” and then looks at things like customer insights.

Demand asks, “How do we make our lives better?” 

When we understand the two systems and how they come together, we’re able to build products and services with known trade-offs that are acceptable on both sides and that allow us to make better decisions. Neither side can convince the other to make trade-offs that are not effective for them. That’s why at Re-Wired, we look at them independently first to understand both systems before we try to see how they connect. 

When I understand how to maximize efficiencies from the consumer lens, I can use that as an input to my supply-side system. When I understand demand, I can see how a product or service I made fits into people’s lives—when and where does this work? 

If we understand that supply and demand feed each other, we can start to see the whole instead of seeing just pieces at a time. That’s where we make mistakes—missed opportunities—from both sides. You build products to sell, customer’s buy a product to make their lives better.

Flipping the Lens to a Demand-First Approach

Segway’s flaw was that they were too focused on their product and its features and benefits. They needed to take away their product and ask, “What type of transportation problem are we trying to solve?” They needed to stop looking at the product and start looking at what people were trying to get done. Once they understood demand, then they could have turned to the product and asked themselves a few questions:

  • How does this fit? 
  • Do I have to reengineer the product to fit demand? 
  • Do I need to make it more accessible at a lower price point or can I keep it at a higher price? Is the struggle big enough for the consumer to make the purchase?

If they had viewed it through demand first, they would have quickly realized that in the tourism market, they were competing with other tours at lower price points. If I’m the Segway, maybe pub crawls are a good angle because my device self-balances. If I understand demand, there are places that can use a very well-engineered thing, but the market might be small. They needed to step down-market and create a less engineered, less expensive version for a mass market opportunity—remove some features to meet a different market segment. They were too married to their idea.

When you approach demand with purpose and understand the “jobs” that people are trying to get done, the path to growth becomes clear. You’re able to use demand as that first filter and say, “Okay, if I build this, where does it fit? Which ‘job’ does it fulfill?” Ideally, you’ve identified three to four “jobs,” so now you can look at your product and see ways to fulfill those “jobs:” 

  • What do I have to add? 
  • What should I exclude? 
  • What is the competition for the “jobs?” 

That lens allows you to look at your product or services and figure out a fit; it’s why you need all the elements of the job-to-be-done.

Final thoughts

When you focus on the supply side, you iterate instead of innovating. You limit yourself in thinking and search for magic wands or silver bullets, because you run out of options. Conversely, on the demand side, your options are almost unlimited because the customer is boundless. The problem: there are too many options. Ask yourself the following: 

  • Do I look through the product before I look at the customer? 
  • Am I saying I’m customer-centric but still can’t see what the customer is trying to do, and only see what my product does? 

If you’re struggling with supply versus demand and need help flipping the lens and seeing the world through your customer’s eyes, feel free to reach out to the Re-Wired Group.