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1 The definition, significance and role of the product consumption
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
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:
Making plan for
of the plan
Figure 2.1 Model of product sales
(Dong Thi Thanh Phuong, 2005)
Given modern business, the process of product sales includes the following
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
Average cost per
Maximize market share
Low cost per customer
Low cost per customer
High profits, then lower profits
Reduce expenditure and
Maximize profits while
maintain, reposition, harvest
defending market share
or drop the products
Offer new product
Offer a basic product
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
awareness Build awareness
among early adopters and interest
Price to match or best
Build more intensive distribution
Go selective: phase out
and Reduce the level needed to
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
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
New businesses established or new market penetration typically applied
pricing strategies to attract customers towards themselves to occupy a market