As an entrepreneur, how can you know whether there will be a market demand for your product / service or not?

I like to rely on market research and the prior successes or failures of other endeavors. I search for products/services similar to what I'm looking to delve into and I look at the numbers; revenue, capital, etc. Make sure you compare it as closely as possible so that your numbers somewhat match the researched company's numbers. Also, preparing a Financial Pro Forma that extends over 3 or 5 years is VERY helpful. It's crucial, really, Make sure numbers are exact and that all finances involved are being reported on the pro forma. Everything from investors to revenue and corporate capital need to be mentioned and calculated. If you take a look at that 3 or 5 year pro forma and don't see a profit after the first year or second year, it will not be lucrative. It is vital that you also calculate any overhead expenses and any production costs that you may incur (if applicable).

agree with Shaikha Ali Al-Sowaidi  on her answer

 

Aah, what a simple but crucial question.

 

You don't know till you test your assumptions, a process which most entrepreneurs ignore and debate over after investing time an resources into their idea.

We know that companies have all kinds of ways to trick you into thinking you need to buy something, but one of the more obnoxious techniques is the “illusion of demand.” As BBC Future points out, this illusion makes it seem like you’re missing out on something even when you’re not.

 

The illusion of demand works in all kinds of ways, but a classic example is old infomercials that would say something like, “if operators are busy, please call again.” This capitalizes on the idea that we tend to look to others to inform our own decisions. If something is scarce or people are lining up to buy it, that means it’s probably good. BBC Future points to one experiment that shows how this works:

 

In another set of experiments, Burger and his colleague David Caldwell demonstrated that people are more likely to act if they perceive they have a unique opportunity to do so. In one study, for example, participants spent time evaluating products that are typically sold on US college campuses, including an insulated travel mug. Afterwards, with the study apparently over, the researchers mentioned to the participants that the mugs were actually on sale at a reduced price. Some of the participants were simply encouraged to hand over money – but others were told that the mugs were in short supply and that they could only buy one if they drew a qualifying ticket from a hat. In reality, all of the tickets were marked with a symbol that qualified the participants to buy a mug. Sure enough, the ‘lottery’ participants were more likely to offer to buy a mug.

 

It’s a pretty common technique for sales, especially during tech launches where supply is limited and people are scrambling to buy new gadgets as close to release as possible. It’s a simple manipulation tactic you can counter by just taking a few extra minutes to think about whether you actually want to buy something or if you’re only interested because everyone else is.

 

When you walk into almost any store, you're immediately overloaded with sights, sounds, smells, and various things to touch. This barrage on your senses are hand-picked for one goal: to make you spend more. Here's what's going on.

No matter what type of store you walk into—from the Apple store to Wal-Mart—you'll find all types of carefully engineered tricks that get you to fork over cash. From the scent of coconut in the summer clothes section to the end caps filled with junk you don't want, stores are carefully organized in ways you may never notice.

 

It shouldn't be surprising that the main sense that retail stores go after is your sense of sight. What is surprising are the subtle cues they leave around to get us to spend more. These are small symbolic cues that have a big impact on what we decide to buy, and how long we're willing to stay in a store.

For example, color has a big impact on our shopping choices. Each color often evokes or represents a feeling, and retailers use that to their advantage. Yarrow explains:

It could be the color of the product, or if they're displayed in groups of colors that tends to have a big emotional impact. Colors have different associations and those things tend to get people going. So, for example, red is almost always the color associated with sales because it inspires people to take action and it's a stimulating sort of color.

If Target's logo was blue, it wouldn't be perceived as a place where things are reasonably priced. I think value-oriented stores tend to have logos with red, but it could also be orange. Black is almost always associated with higher prices and luxury.

Colors have all sorts of impact on how we spend. Studies have shown that waitresses who wear red tend to get bigger tips, and red even makes us spend more online.

It's not just color, though. Retailers also tap into your unconscious is by creating simple navigation roadblocks. For example, people often go to a grocery store just to pick up a single item like milk, but milk is in the back of the store. You're forced to walk through and see everything before grabbing your one item. Chances are, unless you put the blinders on when you're walking through that you'll grab another item or two.

Retailers want you to get lost in the store so you to see more of their products. Take Ikea, for example. The store is structured in a way that you're bound to get turned around and lost. This causes you to see more than you need to, and in turn you end up with a couple more items in your hand. You could always walk in the exit doors to avoid getting lost when you're grabbing one item, but you don't have that option at every store.

Stores like Apple and Ikea also want to create a lifestyle image:

A lot of this is about a brand image. It's to get you to feel a particular way. One of the things I've found works really well is when you create a theme or a lifestyle, and people can see themselves living in this lifestyle. That causes them to want to buy those things—that's why Ikea sets up those rooms—you go to buy a lamp, and suddenly you want to buy that couch too. Pottery Barn is really good at this—they'll create a theme of a room or a party, and people kind of slip into that and they want to buy it.

It's not just big budget items. Stores do this all the time with little add-on purchases. They'll include a complementary pair of shoes next to some new jeans, or a cell phone case that happens to match a skirt right next to it. They want you to see yourself using or wearing what they're offering, so they present it all in a way that your brain makes those connections without you realizing it.

 

The idea here is that stores manipulate your sight so you see more products that you might want and also an entire lifestyle you want to live in. Unfortunately, it's one of those things that typically works so well that the only thing you can really do to avoid spending more money is to recognize what's happening and try not to fall for it.

 

You need to analyse the market, estimate demand and only after that design a product  for selling in the market