Consumer Demographic

Consumer Demographic

Subject: Marketing (Consumer Demographic)

 

Level: Bachelor (2nd year)

 

Due date: 25/3/16

 

Prescribed textbook is attached (please refer to chapter 2)

 

Referencing style: Harvard

 

Question – Perspectives of Consumer Behaviour

Write a critical review of the literature on the perspectives on consumer behaviour. Your review needs to include three main perspectives introduced in the prescribed text book (e.g. reviewing three perspectives from economic, psychological, sociological, anthropological and other perspectives) and refer to at least three additional references other than the chapters in the prescribed text book. The length of the review is expected to be about 800 words. 

Consumer Demographics and Behaviour THE SPRINGER SERIES ON DEMOGRAPHIC METHODS AND POPULATION ANALYSIS Series Editor KENNETH C. LAND Duke University In recent decades, there has been a rapid development of demographic models and methods and an explosive growth in the range of applications of population analysis. This series seeks to provide a publication outlet both for high-quality textual and expository books on modern techniques of demographic analysis and for works that present exemplary applications of such techniques to various aspects of population analysis. Topics appropriate for the series include: • General demographic methods • Techniques of standardization • Life table models and methods • Multistate and multiregional life tables, analyses and projections • Demographic aspects of biostatistics and epidemiology • Stable population theory and its extensions • Methods of indirect estimation • Stochastic population models • Event history analysis, duration analysis, and hazard regression models • Demographic projection methods and population forecasts • Techniques of applied demographic analysis, regional and local population estimates and projections • Methods of estimation and projection for business and health care applications • Methods and estimates for unique populations such as schools and students Volumes in the series are of interest to researchers, professionals, and students in demography, sociology, economics, statistics, geography and regional science, public health and health care management, epidemiology, biostatistics, actuarial science, business, and related fields. For further volumes: http://www.springer.com/series/6449 Jo. M. Martins · Farhat Yusuf · David A. Swanson Consumer Demographics and Behaviour Markets are People 123 Jo. M. Martins Department of Marketing and Management Macquarie University Sydney, NSW 2109 Australia jmartins@tpg.com.au Farhat Yusuf Department of Marketing and Management Macquarie University Sydney, NSW 2109 Australia farhat.yusuf@mq.edu.au David A. Swanson University of California Riverside Department of Sociology Watkins Hall 1223 92521 Riverside California USA dswanson@ucr.edu ISSN 1389-6784 ISBN 978-94-007-1854-8 e-ISBN 978-94-007-1855-5 DOI 10.1007/978-94-007-1855-5 Springer Dordrecht Heidelberg London New York Library of Congress Control Number: 2011932163 © Springer Science+Business Media B.V. 2012 No part of this work may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, microfilming, recording or otherwise, without written permission from the Publisher, with the exception of any material supplied specifically for the purpose of being entered and executed on a computer system, for exclusive use by the purchaser of the work. Printed on acid-free paper Springer is part of Springer Science+Business Media (www.springer.com) Preface Purpose There is a growing interest in markets and the related way people behave as consumers of goods and services. A result has been the rising demand for information dealing with consumer behaviour. These accounts acknowledge the importance of demographic events such as births, population size and other demographic characteristics such as sex and age as determinants of market size and also of market opportunities for different types of products. However, the references to demography are often in the form of tabulated data without a clear indication of the relationship between the data and observed consumer behaviour. Among other things, texts on consumer behaviour mention the importance of market segments in making products more relevant to different groups in society. Frequently, market segments reflect demographic characteristics of groups in the population, such as those born within a given period of time. This allows for the identification and quantification of market segments to assess opportunities for the positioning of specific products in relation to these population segments. The life cycle is also an important determinant of income and changing needs that influence consumer behaviour and preferences for different products as people get older. These underlying market features make the relationship between demography and consumer behaviour an essential perspective. This introductory book is a response to the demand for a better understanding of consumer behaviour using demographic perspectives that enhance those of other disciplines. It combines theoretical concepts with empirical evidence, and uses some relevant analytical frameworks and tools for this purpose. It also aims to provide teaching material with an emphasis on the characteristics of populations and groups within them and their relation to market size, diversity and consumer behaviour. Organization The book’s demographic focus implies an emphasis on populations and groups rather than on the individual per se, which is the basis for assumptions made in micro-economics. However, it associates demographic and macro-economic factors v vi Preface of income and consumption because, among other things, of the close relationship between levels of income and demographic characteristics during different stages of the life cycle. In this context, the book deals with the influence of population on market size. It also examines market characteristics related to differences in income per head of population and purchasing power for basic and other commodities as relative affluence rises. The book is concerned with demographic and income groups in the populations in relation to generic commodity groups rather than product brands and their differentiation. It concentrates on the interaction between consumers and generic products through their progression in their life cycle and varying income levels. The question of gender and cohort characteristics and their association with consumer preferences for different types of generic commodities is also dealt with. The book is organised into three major parts. Part I – Basic Issues: Market Size and Composition Chapters 1, 2 and 3 introduce basic issues that affect market size and composition, perspectives on consumer behaviour from different disciplines and relevant demographic perspectives that enhance the understanding of market characteristics and consumer behaviour. Part II – Demographic Change, Markets and Consumption Chapters 4, 5 and 6 are concerned with how the demographic transition and growth in population have led to clusters of countries and related markets with different sizes, age distributions and stages of development, which have different demands for basic and progressive commodities. These chapters introduce concepts that relate population growth to income per head of population that in turn determine not just how much but what households consume. The life cycle is also introduced as an organising framework to examine household consumer behaviour. Part III – Consumption, Income, Age, Cohort and Gender Chapters 7, 8, 9, 10 and 11 deal with household allocations of their budgets to meet their varying preferences as their income and age changes. They also examine how gender traits affect preferences for different types of commodities. Further, ageing and product substitution are analysed and cohort preferences are tested. Finally, Chapter 12 reviews demographic perspectives of consumer behaviour and their implications for the future. Preface vii Use The book can be of help to those in business and public organizations who have an interest in enhancing business strategies and government policies concerned with consumer behaviour. It will be of benefit to those with demographic skills who wish to build up their range of experience, and will also profit those with exposure to studies of consumer behaviour who wish to improve their know-how with the enhancement from demographic perspectives. The book also provides material for a full semester course on consumer demographics and behaviour or shorter courses using selected sections of the text. It is designed as a primer without requirement for previous exposure to demography or consumer behaviour studies. Contents Part I Basic Issues: Market Size and Composition 1 The Making of Markets …………………… 3 1.1 Markets are People . ………………….. 3 1.2 Choices People Make: Tendency to Consume or Save and Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.3 Market Size, Value and Measurement Issues . . . . . . . . . . . 7 1.4 Market Size: Income and Population . . …………. 9 1.5 Income and the Life Cycle . . ……………… 9 1.6 Market Segmentation and People’s Characteristics . . . . . . . 10 1.7 Strategy Development: Dimensions and Assessment . . . . . . 12 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 2 Perspectives on Consumer Behaviour . . . . . . . . . . . . . . . . . 15 2.1 Consumer Behaviour: Assumptions and Deductions . . . . . . 15 2.2 Economic Perspectives . . . . . . . . . . . . . . . . . . . . . . 15 2.3 Psychological Perspectives . . . . . . . . . . . . . . . . . . . . 18 2.4 Sociological Perspectives . . . . . . . . . . . . . . . . . . . . . 23 2.5 Anthropological Perspectives . . . . . . . . . . . . . . . . . . 29 2.6 Psychographic Perspectives . . . . . . . . . . . . . . . . . . . 31 2.7 Evolving Perspectives and Concepts . . . . . . . . . . . . . . . 32 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 3 Towards Consumer Demographic Perspectives . . . . . . . . . . . 37 3.1 Demography is About People: Characteristics and Change . . . 37 3.2 Population Age and Changing Market Characteristics . . . . . . 39 3.2.1 Life Cycle Events . . . . . . . . . . . . . . . . . . . . 39 3.2.2 Fertility, Mortality and Population Age . . . . . . . . . 39 3.3 Demographic Events: Market Triggers . . . . . . . . . . . . . . 44 3.4 Demographic Dynamics and Market Changes . . . . . . . . . . 45 3.5 Gendered Effects . . . . . . . . . . . . . . . . . . . . . . . . . 45 3.6 Ageing and Substitution Effects . . . . . . . . . . . . . . . . . 46 3.7 Cohort Effects . . . . . . . . . . . . . . . . . . . . . . . . . . 46 3.8 Demographic Factors and Consumer Behaviour . . . . . . . . . 46 ix x Contents Appendix: Consumer Market Demographics in the United States . . . 47 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Part II Demographic Change, Markets and Consumption 4 Population Growth in Global Markets . . . . . . . . . . . . . . . . 55 4.1 Population Growth Over Time . . . . . . . . . . . . . . . . . . 55 4.2 Growing Population in Regional Markets . . . . . . . . . . . . 56 4.3 Population and Stage of Development . . . . . . . . . . . . . . 57 4.4 Recent Population Growth . . . . . . . . . . . . . . . . . . . . 59 4.5 Demographic Transition and Differences in Age Distribution . . 61 4.6 Age Distribution and Stages of Development . . . . . . . . . . 63 4.7 Future of the World’s Population . . . . . . . . . . . . . . . . . 64 4.7.1 Four Hypotheses . . . . . . . . . . . . . . . . . . . . 64 4.7.2 The Medium Projection . . . . . . . . . . . . . . . . . 64 4.7.3 Demographic Transition and Ageing of Global Markets 66 4.7.4 Stage of Economic Development and Ageing . . . . . 66 4.8 Some Implications of World Ageing to Consumer Behaviour . . 66 4.8.1 More Developed Countries . . . . . . . . . . . . . . . 67 4.8.2 Least Developed Countries . . . . . . . . . . . . . . . 67 4.8.3 Other Less Developed Countries . . . . . . . . . . . . 68 Appendix: Population Growth Rates Estimation – Example . . . . . . 68 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 5 Growth of Global Markets . . . . . . . . . . . . . . . . . . . . . . . 71 5.1 Population Growth and Food Consumption: The Malthusian Perspective . . . . . . . . . . . . . . . . . . . 71 5.2 Population and Income Per Capita Growth . . . . . . . . . . . 72 5.3 Income and Global Markets . . . . . . . . . . . . . . . . . . . 75 5.3.1 Languid and Brisk Growth . . . . . . . . . . . . . . . 75 5.3.2 The World’s Largest Markets . . . . . . . . . . . . . . 77 5.3.3 Engel’s Law and Market Diversity . . . . . . . . . . . 77 5.3.4 Income Per Capita and Market Opportunities . . . . . 79 5.3.5 Relative Market Size and Income Level . . . . . . . . 80 5.4 Factors Affecting Global Markets Size and Composition . . . . 81 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 6 Life Cycle: Consumption, Consumer Income and Savings . . . . . 83 6.1 Consumption and Income . . . . . . . . . . . . . . . . . . . . 83 6.1.1 Rising Consumption Tracks with Income . . . . . . . . 83 6.1.2 Life-Cycle Humps in Household Consumption and Income . . . . . . . . . . . . . . . . . . . . . . . 86 6.2 Conceptual and Measurement Issues . . . . . . . . . . . . . . . 89 6.2.1 Different People: Different Experiences . . . . . . . . 89 6.2.2 Panels and Pseudo Panels . . . . . . . . . . . . . . . . 89 6.2.3 Another Hump: Fertility and Family Size . . . . . . . 90 6.2.4 Differential Mortality . . . . . . . . . . . . . . . . . . 92 Contents xi 6.3 Demographic and Other Factors in Life-Cycle Consumer Behaviour . . . . . . . . . . . . . . . 93 6.3.1 People in the Household . . . . . . . . . . . . . . . . 93 6.3.2 Employment . . . . . . . . . . . . . . . . . . . . . . . 94 6.3.3 Work-Related Expenditures . . . . . . . . . . . . . . . 94 6.3.4 Durable and Non-Durable Goods . . . . . . . . . . . . 94 6.4 Retirement Puzzles: Consumption and Savings . . . . . . . . . 95 6.4.1 Retirement and the Baby-Boom Generation . . . . . . 95 6.4.2 Retirement: Consumption and Savings . . . . . . . . . 95 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 Part III Consumption, Income, Age, Cohort and Gender 7 Consumer Allocation Patterns . . . . . . . . . . . . . . . . . . . . . 101 7.1 Household Two-Stage Budgeting . . . . . . . . . . . . . . . . 101 7.2 Diversity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 7.3 Household Consumer Profiles . . . . . . . . . . . . . . . . . . 104 7.3.1 Bare Essentials: Food, Housing, Domestic Fuel and Power . . . . . . . . . . . . . . . . 104 7.3.2 Alcohol and Tobacco . . . . . . . . . . . . . . . . . . 105 7.3.3 Household Furnishings, Equipment and Operation . . . 106 7.3.4 Clothing and Footwear . . . . . . . . . . . . . . . . . 106 7.3.5 Transport . . . . . . . . . . . . . . . . . . . . . . . . 106 7.3.6 Medical and Health Services . . . . . . . . . . . . . . 107 7.3.7 Education . . . . . . . . . . . . . . . . . . . . . . . . 108 7.3.8 Recreation . . . . . . . . . . . . . . . . . . . . . . . . 108 7.3.9 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 108 7.4 Household Allocation and Some Organising Factors . . . . . . 109 7.4.1 Engel’s Law and Maslow’s Hierarchy of Human Needs 109 7.4.2 Culture . . . . . . . . . . . . . . . . . . . . . . . . . . 109 7.4.3 Stylisation and Conspicuous Consumption . . . . . . . 109 7.4.4 Public Policy and Meritorious Goods and Services . . . 110 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110 8 Market Segmentation and Income Distribution . . . . . . . . . . . 111 8.1 Income and Preferences . . . . . . . . . . . . . . . . . . . . . 111 8.2 Inequality in Income Distribution . . . . . . . . . . . . . . . . 112 8.3 Inequality in Household Consumer Spending . . . . . . . . . . 114 8.4 Basic and Progressive Commodities . . . . . . . . . . . . . . . 116 8.4.1 Basic Commodities . . . . . . . . . . . . . . . . . . . 116 8.4.2 Progressive Commodities . . . . . . . . . . . . . . . . 116 8.4.3 Mixed Commodities . . . . . . . . . . . . . . . . . . . 117 8.5 Income Preferences . . . . . . . . . . . . . . . . . . . . . . . . 119 8.5.1 United States . . . . . . . . . . . . . . . . . . . . . . 119 8.5.2 United Kingdom . . . . . . . . . . . . . . . . . . . . . 120 8.5.3 Malaysia . . . . . . . . . . . . . . . . . . . . . . . . . 120 8.5.4 Chile . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 xii Contents 8.6 Household Income Preference Patterns . . . . . . . . . . . . . 123 8.6.1 Similarities and Differences . . . . . . . . . . . . . . . 123 8.6.2 Basic Commodities . . . . . . . . . . . . . . . . . . . 123 8.6.3 Affluence Commodities . . . . . . . . . . . . . . . . . 125 8.6.4 Medical and Health Services . . . . . . . . . . . . . . 125 8.7 Income Preferences and Household Size . . . . . . . . . . . . . 125 8.8 Average Income, Inequality and Consumer Progression . . . . . 126 8.9 Generic Propositions . . . . . . . . . . . . . . . . . . . . . . . 127 Appendix 1: Gini Coefficient Estimation – Example . . . . . . . . . . 128 Appendix 2: Arc Elasticity Estimation – Example . . . . . . . . . . . 129 Appendix 3: Income Preference Ratio Estimation – Example . . . . . 130 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131 9 Age, Preferences and Market Segmentation . . . . . . . . . . . . . 133 9.1 Age Humps . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 9.1.1 Reinforcing Demographic and Socioeconomic Factors . . . . . . . . . . . . . . . 133 9.1.2 Average Household Expenditure and Life-Cycle Path . . . . . . . . . . . . . . . . . . . . . 133 9.1.3 Largest and Best Customers . . . . . . . . . . . . . . . 134 9.2 Age Preferences . . . . . . . . . . . . . . . . . . . . . . . . . 136 9.2.1 Varying Preferences and Apexes . . . . . . . . . . . . 136 9.2.2 United States . . . . . . . . . . . . . . . . . . . . . . 137 9.2.3 Australia . . . . . . . . . . . . . . . . . . . . . . . . . 139 9.2.4 United Kingdom . . . . . . . . . . . . . . . . . . . . . 139 9.2.5 Japan . . . . . . . . . . . . . . . . . . . . . . . . . . 140 9.2.6 New Zealand . . . . . . . . . . . . . . . . . . . . . . 141 9.2.7 Chile . . . . . . . . . . . . . . . . . . . . . . . . . . . 142 9.2.8 Malaysia . . . . . . . . . . . . . . . . . . . . . . . . . 144 9.3 Household Age Preference Patterns . . . . . . . . . . . . . . . 145 9.3.1 Young Commodities . . . . . . . . . . . . . . . . . . 145 9.3.2 Senior Commodities . . . . . . . . . . . . . . . . . . 146 9.3.3 Middle Age Commodities . . . . . . . . . . . . . . . . 147 9.4 Age Preferences and Household Size . . . . . . . . . . . . . . 147 9.5 Generic Features . . . . . . . . . . . . . . . . . . . . . . . . . 148 Appendix: Age Preference Ratio Estimation – Example . . . . . . . . 149 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 10 Gendered Preferences and One-Person Households . . . . . . . . . 151 10.1 Embedded Consumer Characteristics and Roles . . . . . . . . . 151 10.2 Sex, Income and Ownership in US One-Person Households . . 154 10.3 Male and Female Consumer Allocations and Progression . . . . 155 10.3.1 Allocations . . . . . . . . . . . . . . . . . . . . . . . 155 10.3.2 Progression . . . . . . . . . . . . . . . . . . . . . . . 158 10.4 Gendered Preferences and Age . . . . . . . . . . . . . . . . . . 160 10.4.1 Higher Female Life Expectancy and Numbers . . . . . 160 Contents xiii 10.4.2 Sex Preferences and Age in the United States . . . . . 160 10.4.3 Sex Preferences and Age in Australia . . . . . . . . . . 162 10.5 Gendered Consumer Behaviour of People Living Alone . . . . 165 10.5.1 General Structural and Context Issues . . . . . . . . . 165 10.5.2 One-Person and Average Households . . . . . . . . . . 165 10.5.3 Gendered Consumer Behaviour . . . . . . . . . . . . . 166 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167 11 Age and Product Substitution and Cohort Preferences . . . . . . . 169 11.1 Ageing: Role Change, Limitations and Product Substitution . . 169 11.2 A Framework for Older Age Product Substitution . . . . . . . . 170 11.3 Product Substitution by Older People in Selected Countries . . . 173 11.3.1 Home Orientation . . . . . . . . . . . . . . . . . . . . 173 11.3.2 Increasing Disability . . . . . . . . . . . . . . . . . . 173 11.3.3 Alternative Time Use . . . . . . . . . . . . . . . . . . 175 11.3.4 Work Related Activities and Different Time Use . . . . 175 11.3.5 Capacity for Some Pursuits . . . . . . . . . . . . . . . 175 11.3.6 Ownership Drive . . . . . . . . . . . . . . . . . . . . 177 11.3.7 Age Product Substitution Index . . . . . . . . . . . . . 177 11.4 Cohort Preferences: The Identification Problem . . . . . . . . . 180 11.4.1 Cross-Sectional and Longitudinal Held Preferences: Pseudo-Panels . . . . . . . . . . . . 180 11.4.2 Cohort, Period and Age Effects: Constrained Models . 181 11.5 Cohort Effects: Reading Material in the United States . . . . . . 186 11.6 Life-Cycle Transformations: Product Substitution and Kept Habits . . . . . . . . . . . . . . . . . . . . . . . . . . 188 Appendix 1: Age Product Substitution Index Estimation – Example . . 189 Appendix 2: Age, Period, Cohort Analysis Constrained Multiple Regression – Example . . . . . . . . . . 190 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195 12 Demographic Perspectives on Consumer Behaviour and Implications for the Future . . . . . . . . . . . . . . . . . . . . 197 12.1 Demographic Transition and Household Purchasing Power . . . 197 12.2 Population Growth, Age Distribution and Demand for Basic and Progressive Commodities . . . . . . . . . . . . . 198 12.3 Inequality of Household Income, Consumption and Progression 199 12.4 Household Consumption and the Life Cycle . . . . . . . . . . . 200 12.5 Gendered Consumer Preferences . . . . . . . . . . . . . . . . . 202 12.6 Future Population and Markets Growth . . . . . . . . . . . . . 203 12.7 Demographic Bonus and Emerging Larger Progressive Markets . . . . . . . . . . . . 204 12.8 Demographic Deficits and Ageing of Progressive Markets . . . 206 12.9 Demographic Dynamics and Future Market Challenges . . . . . 207 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208 Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209 List of Figures 1.1 Household average weekly income after tax and expenditure – Australia 1998–99 AUD …………. 5 1.2 Households and markets …………………. 8 1.3 Use of telephones, internet and cellular phones per thousand people in high, middle and low income countries gross domestic product per capita in international dollars 2005 (Purchasing Power Parities) . . . . . . . . . . . . . . . . . . . . . 11 1.4 Average weekly gross income by age and sex of employed people in Australia 2006 AUD . . . . . . . . . . . . . . . . . . . . 11 2.1 Maslow’s hierarchy of human needs . . . . . . . . . . . . . . . . . 19 2.2 Hierarchy of effects and other consumer behaviour models . . . . . 20 3.1 Australia and Malaysia age-specific fertility rates per thousand women 2004 . . . . . . . . . . . . . . . . . . . . . . 40 3.2 Australia and Malaysia age-specific death rates per thousand people 2004 . . . . . . . . . . . . . . . . . . . . . . 41 4.1 Four hypotheses for the world’s population 2000–2050 . . . . . . . 64 5.1 World gross domestic product 1500–2001. 1990 International Dollars (Purchasing Power Parities) . . . . . . . 76 5.2 Gross domestic product per capita (Purchasing Power Parties) and percentage spent on food 2005 – 145 Countries . . . . 78 6.1 Gross domestic product per capita and personal consumption per capita (purchasing power parities) 2005 – 145 countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 6.2 Household income and consumer expenditure, Brazil 2002/3, monthly average in Brazilian Reais . . . . . . . . . 84 6.3 Household income and consumer expenditure, Japan 2005, monthly average in thousands yen . . . . . . . . . . . . . . . . . . 84 6.4 Hump-shaped pattern of household expenditure by age of household head, average for all ages = 1.000. Australia 1998/9, Malaysia 1998/9 and United States 2002 . . . . . 87 7.1 Food share of household expenditure and gross domestic product per capita for selected countries . . . . 105 xv xvi List of Figures 9.1 Number of people per household by age of household head Australia (2003/4), Chile (1996/7), Japan (1999) and United States (2007) . . . . . . . . . . . . . . . . . . . . . . . 134 9.2 Number of income earners per household by age of head of household – Australia (2003/4), Chile 1996/7, Japan (1999) and United States (2007) . . . . . . . . . . . . . . . . . . . . . . . 135 9.3 Ratio of household consumer expenditure for household head age group to the average for all ages – Australia (2003/4), Chile (1996/7), Japan (1999) and United States (2007) . . 135 9.4 Household consumer expenditure per equivalent persons by age of household head – Australia (2003/4), Chile (1996/7), Japan (2005) and United States (2007) . . . . . . . . . . . . . . . 147 10.1 Expenditure on owned and rented dwellings one-person households male and female allocations as percentage of total consumer expenditure – United States 2000–2001 . . . . . . . 163 11.1 Age distribution of world population – percentages 1985, 2005, 2025 and 2050 . . . . . . . . . . . . . . . . . . . . . 170 11.2 Limitation of usual activity by age – United States, 2002 . . . . . . 174 11.3 Time spent on paid work/study, domestic work and travel by age – average minutes per day, United Kingdom 2005 . . . . . . 176 11.4 Home ownership and mortgages by age of household head – Australia 2003/4 . . . . . . . . . . . . . . . . . . . . . . . . . . 177 11.5 Work and retirement related preferences (APRs), age product substitution index (APSI) by age of household head – United Kingdom 2007 . . . . . . . . . . . . . . . . . . . . . . . 179 11.6 United States household expenditure on reading materials per capita, at 1984 prices, by age of household head 1984, 1994 and 2004 . . . . . . . . . . . . . . . . . . . . . . . . . 186 11.7 United States household expenditure on reading materials per capita, at 1984 prices, by age of household head 1984, 1994 and 2004 . . . . . . . . . . . . . . . . . . . . . . . . . 187 12.1 World population and gross domestic product 1900–2000 – population in thousands of people and GDP in millions international 1990 dollars (purchasing power parities) . . . . . . . 197 12.2 Recreation and total consumer household expenditures by income quintile as proportion of the total expenditure for all households – United States 2007 . . . . . . . . . . . . . . . 199 12.3 Average hours per week spent with friends, colleagues, neighbours and acquaintances by age – Australia 2006 . . . . . . . 200 12.4 Selected leisure activities – average minutes per day per person – United Kingdom 2005 . . . . . . . . . . . . . . . . . 201 12.5 Time spent on main activities by sex – United Kingdom 2005 . . . 203 List of Tables 1.1 Gross domestic product per capita England and Wales 1668 – United Kingdom 1996 (1990 International Dollars) . . . …. 6 1.2 Global largest markets in gross domestic product terms and population billions of international dollars and millions of people 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 1.3 Market environment and strategy development: Dimensions and change factors . . . . . . . . . . . . . . . . . . . . . . . . . . 12 3.1 Fertility, life expectancy and age distribution in selected countries 2005 . . . . . . . . . . . . . . . . . . . . . . 41 4.1 World’s population estimates BC to 2005 AD . . . . . . . . . . . 55 4.2 World population by region years 1650–2005 . . . . . . . . . . . 56 4.3 World population by development stage 1950–2005 . . . . . . . . 58 4.4 Population in ten largest countries 2005 . . . . . . . . . . . . . . 58 4.5 World population growth 1950–2005 . . . . . . . . . . . . . . . . 59 4.6 Age distribution, fertility and life expectancy in selected countries 2005 . . . . . . . . . . . . . . . . . . . . . . 62 4.7 Median age of population by stage of development 1950–2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 4.8 Demographic factors and the world’s medium population projection 2007–2050 . . . . . . . . . . . . . . . . . . . . . . . . 65 4.9 World age distribution, fertility and life expectancy 2005–2050 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 5.1 Population and income per capita growth: The Harrod-Domar model . . . . . . . . . . . . . . . . . . . . . . 72 5.2 World gross domestic product 1500–2001 (1990 international dollars) . . . . . . . . . . . . . . . . . . . . . 77 5.3 Global largest markets in gross domestic product billions of international dollars 2005 . . . . . . . . . . . . . . . . . . . . . 78 5.4 Gross domestic product per capita 2005 (2005 international dollars) . . . . . . . . . . . . . . . . . . . . . 79 5.5 World population and gross domestic product 2005 (2005 international dollars) . . . . . . . . . . . . . . . . . . . . . 80 xvii xviii List of Tables 5.6 Population growth, income and consumption expenditure. India 1970s–2000s . . . . . . . . . . . . . . . . . . . . . . . . . 81 6.1 Hump-shaped pattern of household income in selected countries – age of household head – results of quadratic regression analysis . . . . . . . . . . . . . . 88 6.2 Hump-shaped pattern of household size in selected countries – age of household head – results of quadratic regression analysis . . . . . . . . . . . . . . 90 7.1 Demographic and income indicators for selected countries . . . . 103 7.2 Household consumer profiles for selected countries . . . . . . . . 104 8.1 Income distribution and Gini coefficients for selected countries . . . . . . . . . . . . . . . . . . . . . . . . 113 8.2 Distribution of consumer expenditure and Gini coefficient for selected countries . . . . . . . . . . . . . . . . . . . . . . . . 114 8.3 Household consumer expenditure arc elasticities for selected countries . . . . . . . . . . . . . . . . . . . . . . . . 117 8.4 Income preference ratios for commodity groups – United States 2007 . . . . . . . . . . . . . . . . . . . . . . . . 119 8.5 Income preference ratios for commodity groups – United Kingdom 2007 . . . . . . . . . . . . . . . . . . . . . . . 121 8.6 Income preference ratios for commodity groups – Malaysia 2004/5 . . . . . . . . . . . . . . . . . . . . . . . . . . 122 8.7 Income preference ratios for commodity groups – Chile 1996/7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 8.8 Household consumer expenditure income preference types for selected countries . . . . . . . . . . . . . . . . . . . . . . . . 124 8.9 Inequality of income and preference ratios for selected countries . . . . . . . . . . . . . . . . . . . . . . . . 126 9.1 Largest and best customer households by age of household head Australia (2003/4), Chile (1996/7), Japan (1999) and United States (2007) . . . . . . . . . . . . . . . . . . . . . . . 136 9.2 Age preference ratios for commodity groups – United States 2007 . . . . . . . . . . . . . . . . . . . . . . . . 138 9.3 Age preference ratios for commodity groups – Australia 2003/4 . . . . . . . . . . . . . . . . . . . . . . . . . . 140 9.4 Age preference ratios for commodity groups – United Kingdom 2007 . . . . . . . . . . . . . . . . . . . . . . . 141 9.5 Age preference ratios for commodity groups – Japan 2005 . . . . 142 9.6 Age preference ratios for commodity groups – New Zealand 2003/4 . . . . . . . . . . . . . . . . . . . . . . . 143 9.7 Age preference ratios for commodity groups – Chile 1996/7 . . . . 144 9.8 Age preference ratios for commodity groups – Malaysia 2004/5 . . . . . . . . . . . . . . . . . . . . . . . . . . 145 9.9 Household consumer expenditure groups by age type for selected countries . . . . . . . . . . . . . . . . . . . . . . . . 146 List of Tables xix 10.1 One-person household characteristics – United States consumer expenditure survey 2000–2001 . . . . . 154 10.2 Male and female one-person household average annual consumer expenditure – United States (2000–2001) and Australia (2003/4) . . . . . . . . . . . . . . . . . . . . . . . . 156 10.3 Male and female one-person household average annual consumer expenditure – income arc elasticities – United States (2000–2001) and Australia (2003/4) . . . . . . . . 159 10.4 Male and female one-person household average annual consumer expenditure – selected items as a proportion of total expenditure by age of the householder – United States 2000–2001 . . . . . . . . . . . . . . . . . . . . . 161 10.5 One-person household average annual consumer expenditure selected items as a proportion of total expenditure by age of male and female householders Australia household expenditure survey 2003/4 . . . . . . . . . . 164 11.1 Home orientation age preferences – United States (2007), Australia (2003/4) and United Kingdom (2007) . . . . . . . . . . . 173 11.2 Increasing disability – age preferences – United States (2007), Australia (2003/4) and United Kingdom (2007) . . . . . . 174 11.3 Alternative time use – age preferences – United States (2007), Australia (2003/4) and United Kingdom (2007) . . . . . . 175 11.4 Work related activities and different time use – age preferences – United States (2007), Australia (2003/4) and United Kingdom (2007) . . . . . . . . . . . 176 11.5 Capacity for some pursuits – age preferences United States (2007), Australia (2003/4) and United Kingdom (2007) . . . . . . 176 11.6 Ownership drive – age preferences United States (2007), Australia (2003/4) and United Kingdom (2007) . . . . . . . . . . . 178 11.7 Age preference ratios for retirement products – United States (2007), Australia (2003/4) and United Kingdom (2007) . . . . . . . . . . . . . . . . . . . . 178 11.8 Age preference ratios for work related products – United States (2007), Australia (2003/4) and United Kingdom (2007) . . . . . . . . . . . . . . . . . . . . 178 11.9 Age product substitution index – United States (2007), Australia (2003/4) and United Kingdom (2007) . . . . . . . . . . . 179 11.10 Average annual household expenditure on poultry, age of household head, United States 1984, 1994 and 2004, at 1984 Prices ($US) . . . . . . . . . . . . . . . . . . . . . . . . . 182 11.11 Weekly average household expenditure on alcoholic beverages, age of household head, Australia 1984, 1994 and 2004, at 1984 prices ($AUS) . . . . . . . . . . . . . . . . . . 182 xx List of Tables 11.12 Analysis of variance results for constrained period, age and cohort models, household expenditures by age of the household head, poultry in the United States and alcoholic beverages in Australia 1984, 1994 and 2004, at 1984 prices . . . . 183 11.13 Analysis of variance results for constrained period, age and cohort models, household expenditures on poultry by age of the household head per capita in the United States, 1984, 1994 and 2004, at 1984 prices . . . . . . . . . . . . . . . . . . . . 183 11.14 Analysis of variance results for period, period and cohort models household expenditures on reading materials by age of the household head per capita in the United States, 1984, 1994 and 2004, at 1984 prices . . . . . . . . . . . . . . . . . . . . 188 12.1 Gross domestic product per capita (2005 purchasing power parities), annual percentage population growth (1975–2005) in low, middle and high income countries . . . . . . . 198 12.2 World population, growth and age distribution by development stage 2005 and 2025 . . . . . . . . . . . . . . . . 204 12.3 China and India population, growth and age distribution 2005 and 2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205 12.4 Germany and Japan population, growth and age distribution 2005 and 2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206 List of Boxes Box 2.1 Economics of Consumer Choice and Rational Maximisation of Preferences: A Simple Microeconomic Model . . . . . . . . . . . . . . . . 16 Box 2.2 Multi-attribute Attitude Model . . . . . . . . . . . . . . . . . . 21 Box 2.3 A Typology of Social Trends and Consumer Behaviour . . . . . 25 Box 3.1 Balancing Equation of Population Change: A Basic Demographic Model . . . . . . . . . . . . . . . . . . 38 Box 3.2 Synthetic Demographic Concepts of Fertility and Life Expectancy . . . . . . . . . . . . . . . . . . . . . . . 42 Box 4.1 Population Growth Rates . . . . . . . . . . . . . . . . . . . . . 56 Box 4.2 The Demographic Transition: Population Growth, Mortality and Fertility . . . . . . . . . . . . . . . . . . . . . . 60 Box 5.1 Harrod-Domar Model: Population and Income Growth . . . . . 73 Box 6.1 Life-Cycle Hypothesis: Consumption and Savings . . . . . . . 85 Box 6.2 Life-Cycle Quadratic Equation . . . . . . . . . . . . . . . . . 87 Box 6.3 Household Equivalence Measures and Economies of Scale . . . 91 Box 8.1 Measures of Concentration: The Lorenz Curve and the Gini Coefficient . . . . . . . . . . . . . . . . . . . . . 111 Box 8.2 Commodity/Income Elasticity: Response in Household Consumer Expenditure to Rises in Income . . . . . . . . . . . 115 Box 8.3 Income Preference Ratios . . . . . . . . . . . . . . . . . . . . 118 Box 9.1 Age Preference Ratios . . . . . . . . . . . . . . . . . . . . . . 137 Box 10.1 Social Fragmentation: The Rise of One-Person Households . . 152 Box 11.1 Age Product Substitution Index . . . . . . . . . . . . . . . . . 171 Box 11.2 Generational Cohorts . . . . . . . . . . . . . . . . . . . . . . . 184 xxi Part I Basic Issues: Market Size and Composition Chapter 1 The Making of Markets We labour to produce with the sole objective of consuming, and the kinds and amounts of goods produced must be determined with regard to what we want to consume. W. S. Jevons – The Theory of Political Economy 1871[1970] 1.1 Markets are People This is the Age of Markets. Markets have captured the imagination of people and the Market has assumed a pervasive place in business language. Often, the Market is used to convey a whole gambit of values and attributes that require no further explanation to those in the know. In some ways, markets have become abstractions that are translated in terms of people’s understanding of trading and the way in which trading is conducted. The ubiquitous influence of markets has gone beyond private business and has influenced new concepts that involve the promotion of public services and concepts through social marketing. To capitalize on this development, it is essential to understand the driving forces that propel markets. A market can be described as … a gathering of people for buying and selling things…1 Thus, markets are about people involved in a fundamental human activity: the exchange of goods and services. Consequently, markets are influenced by people’s characteristics, their perceptions of wants and tastes, their purchasing power and their relative position in the market as buyers and sellers. One basic, simple proposition is that there are no markets without people, and that demographic trends and the number and characteristics of people are major determinants of the size and characteristics of markets. However, the social and economic environment of markets also influences the size and characteristics of populations. Among others, Adam Smith proposed that small markets discourage divisions of labour and hinder the power of exchanging. He indicated that small numbers of people force a greater degree of self-sufficiency and offer less scope for 1Webster’s New World Dictionary. New York: The World Publishing Company, 1968. J.M. Martins et al., Consumer Demographics and Behaviour, The Springer Series 3 on Demographic Methods and Population Analysis 30, DOI 10.1007/978-94-007-1855-5_1, ⃝C Springer Science+Business Media B.V. 2012 4 1 The Making of Markets people to specialize in their innate skills; thus leading to a less efficient use of human resources and diminished opportunities for the creation of surplus production for exchange (Smith, 1970 [1776]). This also influences productivity and the capacity of households to go beyond mere basics to progress to a wider range of commodities. In more rudimentary markets, barter is used as the means of exchanging commodities that households have for others that they want. Barter markets are rather cumbersome because they require the meeting of people who wish to exchange one for another specific commodity, on a mutually advantageous basis. Barter tends to fall into disuse as economies become more sophisticated and money becomes the means of exchange. In addition, the creation of credit has allowed for the surplus of some to be used by others who have wants beyond their present capacity to pay for them. 1.2 Choices People Make: Tendency to Consume or Save and Credit Markets are basically about people’s decisions within a range of options afforded by their individual or household budgets. A fundamental decision is whether to consume to satisfy a current want or to withhold current consumption and save to satisfy some future want. This can take the shape of storing a particular commodity for future consumption, such as buying food for a rainy day, or the acquisition of an asset such as a house that will provide shelter for many years to come, rather than renting one. Alternatively, saving can take the form of a financial security on the promise of future redemption, usually on favourable terms. This is about social rather than individual events, as it involves people with different characteristics and needs. The level of people’s income influences their propensity to consume and propensity to save. Keynes pointed out that consumption increases as the level of income rises. However, the proportion or propensity to consume is usually not as great as the rise in income (Keynes, 1967). In other words, the propensity or proportion of income consumed declines as income rises and the propensity to save increases as income rises. Thus, the markets for consumption and investments related goods and services vary depending on people’s level of income. This book is mainly concerned with people as ultimate consumers. Another decision is whether to stay within the current household budget or to seek credit in addition to current income. The use of credit has been a major force in shaping markets in the last fifty years. It has allowed the considerable expansion of current consumption by the promise of payment from future income. Thus, many households have been able to consume above their current income. Yet another decision is to use past savings to complement current income in the satisfaction of present wants. At lower levels of income, household choices are obviously driven by basic wants for food and shelter. There is little room for choice between consumption and 1.2 Choices People Make: Tendency to Consume or Save and Credit 5 saving. Often, the choice is between using only current income and seeking credit, or drawing on savings from a more affluent past, as might be the case with older people. As household income rises, discretionary choices are made according to people’s preferences. It is at higher income levels where choices are more frequently made between current consumption and savings, and between different means of present gratification. As household income rises an increasing proportion is used for savings, placed in securities or other investments, such as property. Households with the lowest incomes may consume more than their income (Fig. 1.1). Some of this deficit may be funded from savings made by people before they retire and some while they are young from credit anticipating future ability to repay. Concepts have evolved to deal with different patterns of consumption by consumers in relation to their income. It is said that when the consumption of certain commodities increases more than proportionately with the level of income – they are income elastic – the commodities are progressive (or superior) goods. Inversely, the proportion of basic (or inferior) goods consumed tends to decrease proportionately as income rises. An illustration of how changes in income per head of population lead to disproportional preferences for different commodities is given by the components in the increase in Gross Domestic Product (GDP)2 per head of population (per capita) 0 200 400 600 800 1000 1200 1400 1600 Ist Quintile 2nd Quintile 3rd Quintile 4th Quintile 5th Quintile Household Income After Tax – Income Quintiles Average Weekly Income and Expenditure AUD In

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