Chase demand strategy can be defined as a strategy where the changes are made to the output according to the demand. Here, the changes are in terms of increasing or decreasing the output in line with the rising or falling demand. It involves matching the demand by hiring or firing the workers or by controlling the level of production and using inventories to control the changes in the demand level.
What is Chase Demand Strategy?
Chase demand strategy is an uncertain demand strategy where the changes made to the output level will depend on the change in the demand. In case of chase strategy, the main concern of the management is to respond to the changes in the demand.
In this strategy, the output changes are carried out following the demand changes in order to save the inventories and maximize the profits.
There is a possibility for the production managers to over produce during the low demand periods. Also, there is a possibility that the production manager might under produce during the high demand periods.
However, chase strategy remains an uncertain demand strategy as it involves the element of uncertainty in the changes in the output level.
Characteristics of Chase Demand Strategy
Following are the characteristics of chase strategy:
- The demand is uncertain and fluctuates over time.
- Using this strategy, the total revenue cannot be maximized but the profit can be maximized by listening to the demands of the market.
- The number of units sold is directly dependent on the change in the sales.
- Employment and production is determined by the time rate of change in demand.
- The costs are variable as they change when the output level changes.
- The decisions on chase demand strategy are taken on the spot and are very quick.
- Chase demand strategy requires an efficient system of sales forecasting.
The demand changes occur because of the factor’s which are beyond the control of management such as inflation, rising prices, changes in preferences of the consumers and changes in the trend.
Using chase demand strategy, the company can decide to concentrate on the immediate needs of the customers rather than concentrating on the desires of the customers.
The use of investment is not possible due to the uncertainty of the demand.
Chase Strategy Example:
Consider the example of a factory manager who is working in a factory that produces empty cans for sewing machines. The manager uses chase strategy to meet the demand of the sewing machines that are sold in the market.
If the demand of the sewing machines suddenly rises, then manager strikes a deal with his supplier for providing additional sewing machines. However, if the demand of the sewing machines suddenly drops then he can ask his supplier to stop producing excess sewing machines.
This strategy enables the company to respond to the increases and decreases in the demand of the consumers. This is possible by reducing or increasing the number of the factories. This particular strategy is also known as “on the spot decision-making”. This is because the decision is taken on the spot, in the sense that the decision on increasing or decreasing the number of the factories is taken on the spot and is final.
One of the simple advantages of chase demand strategy is that it enables the company to maintain the level of production at a certain level irrespective of the changes in the demand of the market. This level of production is decided by the managers, depending on the size of the market.
How Does Chase Demand Strategy Work?
Chase demand strategy remains an uncertain demand strategy as it involves the element of uncertainty in the changes in the output level.
This strategy is based on the fact that all the changes taking place in the output are the responses to the changes in the demand.
It involves changing the number of workers and the level of production in order to match the variations in the demand.
This strategy is also uncertain as it involves the “imperfect” information of the changes in the demand, sales and the market conditions.
This strategy requires the changes in prices in order to react to the changes in demands. This is done by changing the prices while maintaining the level of production. This strategy is very simple and effective because it enables the company to increase the price of the product without affecting the number of the buyers.
It also requires the investment to be made in a combination of fixed cost and variable costs.
The main aim of chase strategy is to enable the company to keep the inventories at a minimum level and to keep the customers happy by serving their needs rather than serving the desires.
How to Implement the Chase Demand Strategy?
Following are the steps for implementing the chase demand strategy:
Step 1: Sales Forecasting
The production manager must have the sales forecasting system so that he can maintain the right amount of inventories for the company. The sales forecasts must be prepared depending on the factors such as past sales, inventory, manufacturing capacity, etc.
Step 2: Make Price Fluctuations
In order to implement the chase strategy, the production manager should be able to change the price of the product in order to react to the variations in the demands of the market.
Step 3: Hire or Fire
This step enables the production manager to decide on hiring more workers or firing some workers, depending on the level of the demand that the manager has decided upon.
Step 4: Match the Output with the Demand
This step enables the production manager to determine the size of the production depending on the level of demands of the market. This can be done by increasing or decreasing the production level.
Setting of Production Goals
According to this strategy, the company must set the production goals so that the level of production can be maintained at a constant level in response to the variations in the market demands. This step enables the production manager to take decision on the level of production so that they can meet the demands of the market.
Step 6: Improvement and Changes
In this step, the production manager can decide to change or improve the production process in order to decrease the production costs.
Step 7: Constant Level of Production
The final step in the chase demand strategy involves the production manager maintaining a constant level of production throughout the time period by following the above mentioned steps to remain successful in the overall implementation of the chase demand strategy
Advantages of Chase Demand Strategy
The chase demand strategy involves a strategy of “on the spot decision making ” which means that an immediate decision is taken in the face of sudden changes in the market demands.
The chase strategy involves a flexible system on the part of the production manager.
This strategy can be used in the profit-making situation as well as in the time when the company is not focused on profit making.
By using this strategy, the company can carry out a strategy of “stock piling”
The production manager using this strategy can make a quick decision. He does not have to wait for long to prepare and implement the decision.
The demand of the market is completely served by using this strategy.
The chase demand strategy enables the company to keep the inventories at a minimum and the number of units sold increases quickly in the market.
Disadvantages of Chase Demand Strategy
The chase demand strategy is uncertain without any opportunities for investment.
There is a possibility that the variable costs might go down and the input costs might decrease without any increase in the level of production. This eventually increases the break-even point or equilibrium point.
There are chances that the demand for the products will fall in the course of time.
The chase demand strategy requires a reliable forecast system.
This strategy does not deal with the variations in the product price as the variable costs cannot be altered according to the changes in the price of the product.
If any unexpected change occurs in the production process, the production manager will have to deal with it immediately in a simple way such as increasing the number of workers.
This strategy is a process varying one which can be done by calculating the sales forecasts, thus giving the manager the information about the variations in the demand.
Case Study on Chase Demand Strategy
Microsoft Corporation Ltd. is a famous software company that produces software for producing computer software programs as well as operating systems. The company introduced a new operating system under the name “Windows Vista” in the market in the year 2006 and distributed it among all the consumers at a low price. The aims of the company were to expand the market demand of the software. The company introduced the “Windows Vista” operating system in the market with all the credit enhancing elements required for success in the market. The company succeeded in their aims, because the operating system was introduced at a price that was very low.