One of the most challenging aspects of managing any business is that of matching supply to demand and having a scalable infrastructure that can quickly adapt to accommodate fluctuations in demand in order to ensure optimal efficiency by fully utilizing the available capacity at any given time. The more complex a business is, the more difficult this is to achieve because of the large capital investment in machinery and trained personnel necessary to operate the business. These are pretty much fixed costs that are difficult to quickly scale up or down in a short amount of time.
This challenging aspect got more complicated with the advent of consumerism. “Consumerism is a social and economic order that encourages the acquisition of goods and services in ever-increasing amounts. With the industrial revolution, but particularly in the 20th century, mass production led to an economic crisis: there was overproduction—the supply of goods would grow beyond consumer demand, and so manufacturers turned to planned obsolescence and advertising to manipulate consumer spending.”  As volumes increased, companies were able to keep prices low by investing in automation and reducing labor. If the general population of consumers lacked enough money to keep the economy booming, there was no need to worry because businesses and banks would start offering loans and credit creating the banking empire that eventually ended up becoming too big to fail.
So, the theory goes, the more we can make consumers consume, the more we can keep the economy growing. Thus, came the super-sized meals, bigger homes and just more stuff. The current business model in today’s economy is to make products with a short life cycle and as soon as one product is launched start developing a replacement. Not necessarily a better product, just something people will want. Consumers have become conditioned to no longer VALUE stuff but WANT stuff. When a consumer values a product, price matters. The product is sold using a value proposition and the value it creates for the consumer must be equal to or greater than the price. In such a case the market determines the price people are willing to pay and the supply chain has to manage the cost without sacrificing the value the product delivers. When consumers WANT things, price does not matter. Thus, the OEM can set any price they want and develop payment strategies so the consumer never realizes the total cost of ownership. Then the OEM can squeeze the supply chain in order to maximize their profits.
Ironically, as Americans, we have become obsessed with cheap prices. Because of this, no company wants to see any production cost increases because they would not dare pass those increases on to the consumer and risk seeing a drop in sales volume. Are these companies really doing consumers a favor by keeping prices low or is this more of a disservice? On the other hand, when we look at the basic necessities consumers depend on like a home for shelter, a car for transportation, a cell phone for communication, utilities, education, etc., have these costs gone down? Are these not the costs we should be looking at managing for a balanced economy where everyone has an opportunity for upward mobility and building wealth? What if some of these costs would drop by 20% and the cost of consumables went up by 30%? Maybe we would value the stuff we buy a little more and the companies providing these products would have to focus on giving us a value proposition rather than keeping prices low so their sales will remain high. This just might enhance more competition, one of the founding principles that a capitalist economy is based on.
1. https://en.wikipedia.org/wiki/Consumerism citing History of American Consumerism
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