Balancing Consumer Needs and Wants
Distinguishing between customer needs and wants can make or break a business.
Accurately judging between consumer needs and wants is important. Businesses that are vending need based products will not be affected by small fluctuations in the market as noticeably as businesses based on want based models will. Needs change over time as new technologies emerge and older processes are retired. When these game changing innovations occur, consumer needs change and businesses without flexibility get left behind.
An example of a needs based industry that was disrupted by technology is the clothing industry. Since the advent of the internet, clothing retailers have watched their customer base dwindle in-store. With more shoppers opting for the convenience of online retailers, brick and mortar stores were at a disadvantage. Not only were consumers lured away by the convenience of online shopping, but also by the impressive selection of merchandise accessible via the internet. Soon, brick and mortar stores realized that in order to keep their businesses competitive they would need to create an online presence.
During economic downturns, businesses solely based on consumer wants suffer severely.
When consumers are forced to choose between needs and wants, needs such as food, shelter, and fuel will come first. Economic recessions affect businesses dependent on consumer discretionary spending more acutely than their need based counterparts. Businesses based on consumer wants have evolved into huge industries. During the 2020 coronavirus pandemic, the travel industry saw many businesses under its umbrella quickly face dire financial situations. The reverse happened to businesses based on needs. With the exception of the oil industry, businesses based on needs saw demand soar. Grocers, online merchants, and those providing lodging services saw product or service demand increase to an unprecedented degree in most countries.
During anomalies like global pandemics which can significantly disrupt business supply chains, both needs based and wants based businesses suffer. Having a diversified supply chain is an option for both sectors. As the world saw with the global coronavirus pandemic, the majority of affected business supply chains originated in Asia. China was the first area to go into lockdown because of the virus, and the shock waves were felt by businesses around the world.
What can businesses do when consumer needs far outweigh demand for consumer wants?
Businesses have always been faced with this dilemma. Needs are exactly that. They are needs. People can’t do without these goods or services. A successful and savvy business owner will market products in such a way that consumers will see those products as needs. A business based on consumer wants can convince their consumer base that their product is something the consumer can’t live without. If the business markets this successfully, then a relatively permanent demand based on need for their product will result.
For example, computers were once viewed as luxury toys or convenient accounting machines. The industry has evolved to the point where the world is dependent on them. Computer technology and internet connectivity are now seen as societal needs rather than wants.
When demand for needs greatly exceeds the demand for wants what can businesses do?
Businesses can plan for the unexpected by creating crisis mitigation plans. A good crisis management plan will address at least the following three things.
- Percentage of Reserve Stock
- Percentage of Local Sourcing
Diversifying suppliers is not an easy decision. It is expensive to develop infrastructure in new areas. Creating new supply relationships takes time. The advantages haven’t previously been great enough to outweigh the disadvantages to having multiple sources of supply. After the global coronavirus pandemic, businesses will compare the loss incurred because of disruption against the estimated cost of diversification. They may find that diversification is warranted.
Businesses can also protect themselves by having a greater stock of raw materials and products. Investing in more storage infrastructure could be a solution for some businesses. It may prove to be cheaper and easier than investing in an additional supply chain locale.
Local sourcing is also a great solution that businesses can implement. After businesses compare their losses incurred as a result of supply chain disruption they may find that it is economical to have the security of locally sourced materials. The disparity in labor costs between domestic versus foreign sources may not be enough to justify the risk of future supply chain disruption.