Consumer driven economy - Perils and dangers

A consumer driven economy rests on consumer confidence, purchase behavior, availability and pricing.

If you look at the right example of consumer driven economy- the US Economy, you will realize that there is great level of confidence amongst the consumers, manufacturers, retailers and hyper markets! A conscientious consumer spends readily only when confident of a secure tomorrow, else tightens the strings bracing against wants. With a secure tomorrow (though it is provided by the credit companies in many cases) there is little hesitation to spend what you have! But what will happen when the income does not increase proportionately to increasing wants?

When there are cash flow jitters (read too many credit card payment defaulters), even the developed economies are shaken up. And that leads to fear among buyers to decide whether to buy or not? The consumer is controlling a consumer driven economy unlike market driven economies which are controlled by producers, service providers, and manufacturers. Here we could also differentiate between ‘Market pull’ mechanisms and ‘brand push’ strategies. Earlier the mechanism was to study the market and respond accordingly. But this has changed in developed countries where the approach is to ‘sense and respond’ which is nothing but bombarding the consumers with plethora of products’ information and study their behavior and respond accordingly. Hence though it is called consumer-driven it is a brand push strategy hidden so that it is not visible. The techniques could be simply ‘sales’ offer over the counters, collecting data of consumers to ascertain interests and wants regularly, With the excessive penetration of internet, mobile communication these techniques are very easily practiced.

So, what happens when the consumer drives an economy? Clearly the economy grows but so do debts or deficit budgeting. The needs are replaced by wants! This leads to growth of credit lending companies, schemes to create demands, financial tools to enable speedy recoveries and competition of banks to make available funds. Now this becomes a balloon that can expand or burst too if not properly regulated…..