Trends In Consumption Patterns

Trends in Consumption Patterns

The business world is very susceptible to the subtleties of consumer choices. The ability to anticipate the trends in consumer consumption patterns is vital to any company desiring to be a leader or major factor in their industry. Millions of dollars are spent each year in research and analysis to determine or to create trends in, not only who the company’s customers may be, now and in the near future, but also, what will those customers want to buy, and why.

To truly understand trends in consumption patterns, one must first understand the basic principles of economics. Economics is the science that deals with the production, distribution, and consumption of goods and services (economics, n.d.). The branch of economics dealing with particular aspects of an economy, as the price-cost relationship of an organization is called microeconomics. This aspect of economics concentrates on the laws of supply and demand. According to Colander (2004), the law of supply states quantity supplied rises as price rises, when all other factors remain constant and the law of demand states that the quantity of a good demanded is inversely related to the good’s price. When price goes up, quantity demanded goes down. When price goes down, quantity demanded goes up. There are several factors that lead to changes in consumption patterns thus a change in supply and change in demand.

Utility

Many believe that people buy things for their own self interest. Sales courses indicate the need to know this self interest because the customer really is not buying their product. The actual purchase is the benefit that the customer will receive from buying their product. Knowing this benefit would enable the seller to set pricing at levels that would ideally be the most beneficial for both buyer and seller.

The customer benefit could be anything. Satisfaction, pleasure, good will, fulfillment of a need are some examples of the benefit received, but are definitely not the only reasons people buy things. The level of benefit received from purchasing any product can be different from person to person, or from group to group. A single male in his early twenties may perceive a higher level of benefit from buying a flashy sports car than perhaps would a married man in his fifties. This level of benefit has been generally termed utility, and is further broken down into segments called marginal utility.

Marginal Utility

Assuming that money is no object, the purchase of a second flashy sports car may be more or less of a benefit than the benefit received from the initial purchase. The benefit, or marginal utility, experienced from each purchase would be grouped together as the total utility gained from purchasing the cars.

Elasticity

Having established the utility and, if appropriate, marginal utility involved in the sale of the product, the setting or changing of the price charged for the product needs to be reviewed. Changing the price structure for the product is likely to have an impact on the amount of product that would be sold once the change is implemented. This change is called elasticity, and is determined by dividing the percent change in the quantity sold by the percent change in price. A January 2001 article in the Business Communications Review on the telecommunications industry discusses both utility and elasticity for that industry.

The article shows that a 3% reduction in market prices that results in a 3% increase in sales volume equates to a demand elasticity of one (.03 volume/.03 price change). If the market volume were increased by 9%, the demand elasticity would be three (.09 volume/.03 price change) (Weingarten, Stuck, 2001). Any demand elasticity above one is generally accepted as an indicator that lowering prices could be beneficial to the seller.

Elasticity Claims

At the time of this article, it had been asserted by a senior executive from a leading telecom service provider that the industry demand elasticity was in fact at three. This statement raised several