Question

Regardless of Business Type; Why is it important to understand and evaluate Consumption Records?

Answer 1

Regardless of Business type, it is important to understand and evaluate consumption records. Consumption in economic sense refers to the expenditure on final goods and services for final personal consumption.

Before setting any business it is important to know about how much demand that good has and it depends on the consumption of people for that good. Consumption demands cannot easily be modelled into a function or predicted because a person's consumption depends on a lot of factors which keep on changing and consumption patterns differ from person to person. A consumption function which may be able to model one person's consumption might not be able to model some other person's consumption because it depends on a lot of factors like consumer's income, prices of various goods, prices of their complements and substitutes, tastes and preferences etc.

Evaluating consumption records will help a person take better decisions regarding whether to set up a business in a particular locality or not, how much to invest in that business, how much inventory needs to be maintained, what kind and quality of goods are preferred by the people, what prices would the people be willing to pay for the goods etc. Information about all these would help the person to establish business in a better manner and would also be cost saving as if the person sets up a business without evaliating consumption records, it might produce goods and services which are not actually demanded in the market, or he might underproduce and might not be able to meet consumers demand due to which potential consumers might shift to some competitor's business, or he might charge a price which is too low or too high than what the consumers are willing to pay leading to market inefficiencies. Al these are true for all kinds of businesses whether it is about opening a garments shop or about setting up a firm manufacturing heavy machinery.

Many times, MNC's set up their outlets in different countries just to be able to better understand the consumers in a particular region and then supply them the products as per their preferences. For example, the taste of coffee offered by Starbucks in India and in ither foreign nations would be quite different and it has been able to set up its brand name glovally only because it first evaluated consumption records of any particular region and then supplied them products according to their tastes and preferences instead of providing with a common product across nations.

Therefore, it is extremely essential to understand and evaluate consumption records for the sucess of any business regardless of it's type.