Although a cynic might say big Pharma are in some cases manufacturing need from nothing in order to grow demand (Attention Deficit Hyperactivity Disorder has been accused of being a disorder invented to create need). However this is an exception that proves the rule I suspect.

For example you mentioned fashion companies. Are they creating the need for the clothes or they are just addressing people’s natural need for status and the desire to feel important?

My experience has been that while the old saying goes “necessity is the mother of invention,” the dominant approach to innovation has been primarily supply-side.

To over simplify the matter, supply-side approaches are always solution in search of a problem. Sometimes they find a problem and become incredibly successful, like the automobile and phonograph for instance. Most of the time they don’t, like the segway and scout modo. Its a huge crap shoot. The common wisdom says that around 80% of new products fail. Of course one should always be skeptical of common wisdom, so take that figure with a grain of salt.

A demand-side approach begins with the need, the problem, and people involved. Solutions that emerge from this approach have a ready-made market. This approach isn’t as dramatic as the lone visionary putting her genius out into the marketplace. But it is, I believe, an approach that delivers results more consistently and predictably if you have the discipline to follow it.

Ok, perhaps i’m a little biased. http://www.niblettes.com/blog/2006/06/10/supply-side-thinking-is-toxic-to-innovation/

Also, I mildly disagree with your point that companies can not create needs out of nothing. Pharmaceutical companies have (arguably) done this by practically inventing disorders that need their drugs as treatment. The fashion industry relies on creating new demands every year: Your pants are too high, so buy these. Now your pants are too low, so buy these. Everything in black. Now everything in white. The cosmetic industry as well creates demand by encouraging women to feel bad about themselves and how they look and then presenting them with a great new product that will fix it (just pick up any edition of any Cosmo–you’ll collapse under the weight of messages proclaiming your inadequacy).

While I can’t think of many examples of manufactured demand, it isn’t completely unheard of.