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1 The definition, significance and role of the product consumption

1 The definition, significance and role of the product consumption

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foodstuffs, fuel, matches, cigarettes, etc. and durable-use goods such as tables,

scooters, watches, clothes, etc… (Smriti Chand, 2016)

The use of such goods is called unproductive consumption because their

consumption does not help in the production of other goods. Similarly, the

services of doctors, teachers, servants, mechanics, etc. are consumed for

satisfying human wants. The use of such services is called productive

consumption because they help in producing goods and services.

So is the case with machines. There is also public consumption in which

certain wants such as those for education, street lighting, sewerage, or defense

are paid for collectively by the state. But when a person uses goods and services

in satisfying his wants, he does not destroy them in the act of consumption.

This is because man can neither create nor destroy matter. His act of

consumption simply involves the destruction of utilities. But an egg that falls on

the ground or houses destroyed by fire or earthquake, and crops by floods or

drought, and a car smashed “by accident is not consumption because they fail to

satisfy human wants.

Further, all goods and services which are not paid for in their acts of use are

excluded from consumption such as the use of vegetables, fruits or flowers

grown in the kitchen garden, and services of the housewife. To conclude with

Prof. Meyers, Consumption is the direct “and final use of goods and services in

satisfying the wants of human beings.”

The classical economists did not give much importance to consumption,

but the modern economists emphasize much on it and take it as an important

element in economics. Specially Jevons and the economists of his time gave an

important place to consumption. In modern times, consumption is treated as an

inducement on which the economic system of a country rests. The importance of

consumption is explained as under.


1. Beginning of all Economic Activities

Consumption is the beginning of all human economic activities. A man

feels a desire and then he makes an effort to satisfy it. When the effort has been

made, the result is the satisfaction of the want Consumption also means the

satisfaction of human wants.

A farmer ploughs the land and produces crops laborers work in factories

and produce goods so as to get satisfaction from the consumption of goods. In

fact, the main motto of every productive activity is that people consume goods

and production is done for consumption, which constitute economic activities.

Consumption, therefore, is the beginning of all economic activities.

2. End of all Economic Activities

Consumption is not only the beginning of all economic activities; it is also

the end of all economic activities. Suppose a man is hungry and he starts

preparing his food. Economic activities begin with it. After preparing food,

when he consumes it, all economic activities which were started with the

preparation of food, come to an end. Consumption, therefore, is the end of all

economic activities.

3. Index of Standard of Living

The consumption pattern of a person, i.e., what he eats, what he wears, in

which type of house he lives in, etc. give us the knowledge of the standard of

living of the person.

4. Consumption is the Source of Production

According to Adam Smith, “Consumption is the sole purpose of all

production.” Production increases with increase in consumption. It is consumption of

goods that necessitates their production.

5. Importance in Economic Theory

On the basis of the study of the individual behaviour as regards

consumption, certain laws of consumption have been formulated in economics


such as the Law of Diminishing Marginal Utility, the Law of Demand, the

Concept of Consumer’s Surplus, etc. In this way, the study of consumption has

contributed much in the formulation of certain economic principles.

6. Importance for the Government

The Government formulates its economic policies on the basis of the

consumption habits of the people. Minimum wages and imposition of taxes are

determined by the government considering the consumption requirements of the

public. From the consumption pattern of the people, the government is able to

know the production of essential and non-essential commodities in the country.

From the analysis of income and consumption, the government is able to know

the saving capacity of the public.

7. Importance in Income and Employment Theory

In modern times, consumption has been given the most important role in the

income and employment theory by Keynes. This theory explains that if

consumption “does not increase the demand for goods will decrease and then

production will fall. It may lead to unemployment. Thus consumption plays an”

important role in the determination of income, output and employment in a country.

2.2. The contents of consumption

Consuming products that require businesses to use overall organizational

measures, the economy and plans to carry out operations related to the sale of

goods such as capture the market demand, production organization, receiving

the product, preparing and selling goods at the request of customers with the

minimal cost of doing business. Thus, consumption of products in the enterprise

is an activity highly professional character, including many different types of

work related to the technical production operations and business process of

organization management consumption. The goal of this process including

market share, sales, revenue diversification, profitability and quality goals,

improve the image of the business and improve customer service.

The manufacturing process of a manufacturing business takes place in a

closed cycle, and the market is the starting point. The market is at the heart of


the firm, both the objectives and serves its firm. All business activities directed

at the market. Starting organizational apparatus, investment, and technical

infrastructure, improve the quality of products, quality services to the marketing

activities are aimed to meet market requirements best. Businesses can only

survive and prosper when the product or service market now admitted, was done

regarding value, while the market will help businesses recover capital spending,

offset interest charges and have to re-expand production doing. Market connect

production and consumption, producers and consumers. It is an important place

for evaluating, testing, policies, customer reactions.

The process can consume products described in the following diagram:









Reserve and







Sale force


Making plan for



To coordinate

and organize



of the plan





Organize sale

& service



Figure 2.1 Model of product sales

(Dong Thi Thanh Phuong, 2005)


Given modern business, the process of product sales includes the following

principal contents:

2.2.1 Market research

Market research is a way of getting an overview of consumers' wants, needs and

beliefs. It can also involve discovering how they act. The research can be used to

determine how a product could be marketed. Peter Drucker believed market

research to be the quintessence of marketing (1974).

To be successful in the marketplace requires any business that has to do the

exploratory analysis in order to identify the needs that enterprises should meet,

as well as the ability to consume enterprise products on the market. So,

companies can find solutions to adapt to the demands of the market; this is very

important job producing business when a particular commodity.

First of all market research is the identification of market needs, identify

the goods and products that companies need business producers to offer the

highest efficiency. Market research is an important first step for business

operations of any business; it determines the success or failure of business. If a

business accurately identifies market demand, there will be production and

business decisions reasonably bring high economic efficiency, because then the

goods of the consumer business are acceptable. In contrast, when production and

trading a commodity product does not fit the needs of customers, can not be

consumed by the enterprise will be challenging and may fail badly. It means that

'' We have to sell what the market needs, not sell what we have. ''

The contents of market research include:

- Look at the environmental factors to analyze constraints outside the control of

the company as well as the opportunities that may arise.

- Crawl overview of market size through documents mostly statistics on

consumption and sales between market space.


- Research overview geographical structure, commodity, population distribution

and purchasing power, location and attractiveness, market structure existing

sellers in the market.

- Research and trend dynamics of market movement industry, commodity

groups, the business sector.

2.2.2 Formulating strategies and consumption product plans

Product consumption strategy is oriented operation of the business

objectives and the system of measures to achieve the objective set out in the

consumption. The objective of the strategy of selling includes: consumer

products, increase sales, maximize profits, expanding markets, enhance the

reputation of the business.

Different development stages of a product have various changes in the

number of products.

The concept of the product life cycle:

 Products have a limited life

 Profits rise and fail at different stages of the product life cycle.

 Products require different marketing, financial, manufacturing,

purchasing and human resource strategy in each stage.

Figure 2.2 Product life cycle

Source: The American Economic Review Vol. 86, No. 3


Table 2.1 Summary of Characteristic, Objectives and Strategy of Product Life Cycle Stage







High cost per customer


Negative or low


Create product awareness and





Rapidly rising

Average cost per



Maximize market share


Peak sales

Declining sales

Low cost per customer

Low cost per customer

High profits, then lower profits

Declining profits

Reduce expenditure and

Maximize profits while

maintain, reposition, harvest

defending market share

or drop the products

Offer new product


Offer a basic product

features, extensions,

Diversify brand and models

Phase out weak items

service and warranty


Usually is high, use cost-plus



High distribution expenses




Price to penetrate market

Increase number of

distribution outlets

awareness Build awareness

among early adopters and interest





Price to match or best

Cut price


Build more intensive distribution

and Street

mass benefits



Go selective: phase out

unprofitable outlets

and Reduce the level needed to






Product Research

Product strategies are effective ways of doing business, based on

guaranteed to satisfy the needs of the market and customer tastes in each period

of the enterprise business.

Strategic commodities have an important part to be considered the

backbone of the strategy of selling. The higher production level, increasingly

fierce competition, the vital role of commodity products become increasingly

important. Product strategy not only guarantees production and business

activities in the right direction but also inextricably linked to the stages of the

process of reproduction of business expansion to implement the objectives of the

marketing strategy.

Pricing Research

Pricing strategy is to offer the kind of price for a commodity type of

product, corresponding to the market, corresponding to each period to sell the

most and highest rates. Business rates are given to ensure profit maximization

but consistent with consumers and consumer acceptable. Rates will vary

according to the product life cycle, so businesses need to realize precisely to

change the most reasonable.

Although currently on the market, price competition has ceded the

position to compete on quality and service but the prices are still certain

important roles. Price is still important in determining the economic benefit

between the seller and the buyer. If the product strategy that will guide the

production, pricing strategies oriented to consumption.

Pricing strategies have intimate relationships with strategic commodities.

Product strategy is very important though, and has built a thoughtful way will

not provide high efficiency without the price strategy or price strategy carries

many shortcomings.

New businesses established or new market penetration typically applied

pricing strategies to attract customers towards themselves to occupy a market


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