The consumption chain
Human living consumption and social consumption lead to scientific and research consumption and then create new consumption products. This process runs through the whole development of human society. As a complete process, it is not separated or isolated. Each part of the process is connected so as to form a complete chain. The consumption process promotes commodity production as well as the development of commodity exchange, which is realized by the dissipative structure, so as to create the consumption chain. The consumption chain is a structural intangible chain in the consumption system. Both the lateral and longitudinal consumption chains start with a certain consumption form and end with another consumption form, and then develop into a higher level dialectically and spirally.
The study of the consumption chain must begin with the relations between consumption and production, between consumption and exchange. It will never succeed if attention is only paid to consumption. Without commodity production and exchange, consumption is just like water without a source or a tree without root, and will not form a consumption chain.
The consumption chain can be divided into the macro-consumption chain and the micro-consumption chain. The macro-consumption chain is the summary of millions of micro-consumption chains, and the micro-consumption chains are the cells and foundation stones of the macro-consumption chain. To study the macro-consumption chain will help us recognize the general development trends and laws of the economy and human society; to study the micro-consumption chain will help us seize chances and critical points in competition and promote favorable factors and avoid the unfavorable, so as to remain invincible.
It is human instinct to make use of consumption materials. Consumption creates demand, and demand leads to consumption, so demand has a strong influence on consumption. In the process of economic activity, all the researchers, producers, and distributors are seeking the new demander and researching and producing the new commodities that are in demand as well as the new consumption forms so as to satisfy the new demanders, and finally to pursue new economic and social benefits and then maximize them. Consumption leads the development of scientific research and production, and the consumption and exchange of commodities as well. As a result, the consumption chain comes into being.
The consumption chain is the ‘chain’ of the consumption system. Consumption is both the start and end of the consumption chain. It is the spiral and dialectic development of affirmation and negation. It is a repeated systemic and holistic movement in dissipative structure.
Commodity exchange originally is an economic activity between a producer and a consumer, aiming to satisfy living consumption demands, scientific research and production consumption demands, and social consumption demands. But producers’ business operations are for the purpose of pursuing benefits. Therefore, they spare no pains to find out when and what commodities are demanded according to the higher and lower classes in each area, department, country, and group, so as to input capital and energy as much as possible and finally realize profit. Developing the commodity exchange channel actively is the trigger to develop the consumption chain, which propels the development of economy.
Scientific research and production create consumables (or commodities) (production is consumption, consumption is production as well) needed by human beings and consumption patterns. The evolutionary process of human being is the dialectical development process of affirmation and negation and the consumption chain in which consumption triggers economic development in an interlinking development process. It is also the process of affirmation and negation.
The chain link and development of the consumption chain during the development process of the three major consumptions have their laws including macro-consumption chain law and micro-consumption chain law. The macro-consumption chain is represented in the motion of the micro-consumption chain; the micro-consumption chain is the embodiment of the macro-consumption chain.
Analyzing from the macro perspective, the motion of the macro-consumption chain and the ‘three major consumptions’ lead the rapid development of commodity exchange and circulation channels as well as commodity exchange. For the purpose of chasing profit, merchants freely trace the need of ‘three major consumptions’ in order to exchange commodities. The process of exchange has a double-edged effect: on one hand it greatly propels the development of ‘three major consumptions’; on the other hand it exerts negative effect caused by the situation that the scientific research and production consumption determines the forms and consumption levels of living consumption and social consumption. However, during the whole process of extracting natural resources, blind development of scientific research and production consumption sometimes finds expression in demand over supply or supply over demand on the market exchange of commodities. If the oversupply of production consumption is severe, there might be an economic crisis.
The state superstructure plays a dynamic role of a subjective state machinery, using the administrative means, economic lever, and legal channels to strengthen the understanding of the regulation law of a free market of economic development activities so as to manage it, to implement the macro plan to regulate the market economic rules in order to exert positive effect and limit the negative effect of the natural law in regulating the economic activities on the market. In this way, economic crises can be relieved and prevented; at the same time the imbalance of the macro-consumption chain can be avoided and the formal operation of the consumption chain can be ensured artificially. It is the outcome of the state superstructure acting on market regulation law.
The macro-consumption chain arises in the process of commodity production and exchange in the form of money and monetary instruments among different areas and countries. Especially after the first and second industrial revolution, with the rapid development of international trade, the three major consumptions relations of different areas, nations, and enterprises grows interdependently and promotionally, and the macro-consumption chain comes into being.
The First Industrial Revolution prompted trans-regional and trans-national commodity production and exchange, and internationalized trade. This kind of international trade was very powerful, for it not only changed the degree of wealth accumulation, but also changed the social structure and knowledge components. In a similar way, where international trade develops the macro-consumption chain develops, as a result, the law of the development of macro-consumption chain formed. The Second Industrial Revolution made the relations between developed countries such as America, France, German, and Britain closer, so their consumption chains were connected closely macroscopically. The consumption chain assumed the inevitable responsibility of commodity production and exchange in international trade, and made economic development more interdependent and interrelated.
The macro-consumption chain is the natural law deriving from the objective commodity consumption trade and cannot be changed by human will. In the process of commodity exchange in macro trade, it acts on the development of commodity exchange and propels the natural law of the three major consumptions. Its negative effect goes like this: trans-regional and trans-national international trade are closely related; an economic crisis occurring in a certain region or country (financial, economic) would lead to economic crisis in other countries or regions within the whole chain, thus resulting in international crisis.
A financial and economic crisis followed damage to the macro-consumption chain by the monopoly economy. The macro-consumption chain is the natural law deriving from the macro commodity economic trade. It leads the economy to develop spirally by the natural laws of the three major consumptions. In the process of economic development, large-scale industrial monopolized enterprises emerged, which carried out capital commodity production and commodity exchange with the purpose of infinitely seeking profit, thus damaging the natural development laws of the three major consumptions. Commodity production and exchange are highly concentrated and the market price of the commodity is monopolized as well. The law that the value rule fluctuates depending on the supply–demand relation does not regulate it. This is a serious consequence of monopolies merely focusing on exploiting profits. The rise of monopoly capitalism does not mean doomsday; even in such circumstances, human society will go on developing rapidly, but it leads to the overall progress (fairness, justice) of society.
There is national regulation and control of three major consumptions to ensure close and coordinated operation of the macro-consumption chain. In developed capitalist countries, during the process of commodity production and exchange of capital, the positive and negative effects of the natural law of three major consumptions can be found constantly, and the destructiveness of capital moving towards monopoly is found as well. The experience and lessons of the United States from the first economic crisis had positive effects on the natural law of three major consumptions and inhibited the negative effects at the same time; the state began to intervene in economic development and formulated various intervention laws such as the anti-monopoly law, using the economic lever and administrative means to intervene in economic development so as to promote economic recovery and sustainable development in the United States, and at the same time propel the progress of the whole American society. The various measures taken by American government to intervene in the economy were also adopted by France, Germany and other European countries, which also promoted the stable and interdependent development of macro-consumption chains and social progress in these countries.
In the early days of the foundation of PRC, Mao Zedong believed that heavy industry was the key to China’s reconstruction. He thought that priority should be given to the production of means of production. It is correct beyond any doubts. However, we can never neglect the production of means of livelihood, and especially the product of grains for this reason. In 1962, Mao Zedong summarized the laws of development of the national economy and put forward the ideas of developing the national economy based on agriculture. These ideas formed a fundamental policy, ‘based on agriculture, oriented in industry’, for developing the national economy.
Now our question is how to regulate the proportion of investment in heavy industry, agriculture, and light industry appropriately, and the investment proportions in agriculture and in light industry should be increased. Now we have two options to develop heavy industry: one is to develop agriculture and light industry on a smaller scale; the other is to develop agriculture and light industry on a larger scale. In the long run, the former will make heavy industry develop less and slowly; at least the foundation is not so stable. Several decades later, the outcome shows that this method is not worthwhile. The latter will make heavy industry develop more and faster, and the foundation of development will be steadier as it provides for people’s needs.
Economic development has its own rules. Once people know the natural law of economic development, the state has its countermeasures towards economic development. First is to conform to the natural development laws of economy and bring its positive functions into play; second is to conquer its negative effects through national power. This is because the superstructure of a country stands for the total economic base of the whole society, gross productivity and gross production relations, so it has the responsibility to do so. Therefore, the country is the only force which can coordinate the macro-consumption chain (the value chain) and ensure the coordinated and scientific development of close interlinks of the consumption chain. On the other hand, we should also know that when a country cannot scientifically intervene in the natural law of economy, the consumption chain must be out of balance and economic crisis must occur.
The macro-consumption chain is the concentrated expression of the micro-consumption chain while the micro-consumption chain is the concrete manifestation of the macro-consumption chain (the consumption chain develops in the form of interlinks). The consumption chain of economic movement operates in a dissipative structure system, which unconsciously influences living consumption (including spiritual and cultural consumption), social consumption, and scientific research and production consumption, and incessantly controls consumption ideas and consumption behaviors.
Following the appearance of surplus consumption goods, barter comes into being; for example, nomadic people exchange cows, sheep, and horses for inland porcelain, foodstuffs, silk, and other commodities. During this primary product-exchange period, although there are interdependent relations, they are simple, territorial, linear and spontaneous, without the socialized interlinking relations of consumption.
With the development of the Stone Age, and then the Bronze Age and Iron Age, as a result of the development of smelting technology, processing industry, and productivity, human beings began the phase of family and handicraft industry workshop production. After the precise labor division between different industries, in the process of exchanging surplus products of equal value with money as a special commodity, consumption exchange occurred between individuals first, and was followed by consumption exchange between different collectivities or groups, which gradually formed into a preliminary micro-socialized consumption chain. This micro-socialized consumption chain promoted commodity exchange and the development of consumption economy. In the earlier period of commodity production and exchange, although a micro-consumption chain had formed, economic crises did not occur because the production and exchange of commodities had not developed.
Along with the development of scientific and technological productivity, the scope of commodity exchange expanded to trans-regional and transnational trade, after society began to produce and consume capital goods, and exchange them. That is how the micro-consumption chain has gradually formed and developed.
Individual production, consumption and household consumption drive the consumption chain and influence consumption. For instance, a peasant cultivates farmland of 30 acres, and buys one tractor equipped with the facility to plow, plant, harvest, and thresh. After making a profit in the first year, he buys a house; in the second year, he decorates his house and purchases a color TV, a refrigerator, and a mobile phone; in the third year, he purchases a low-grade car; in the fourth year, he goes out traveling and sightseeing, which again drives consumption. It can be seen that he has made a great contribution towards the economic development of the whole society, and it is easy to understand how the micro-consumption chain forms in the process of such operations and its manifestation in the process of economic development.
Labor rewards, wages, and bonuses through personal work are used for direct personal living consumption or purchasing appliances and other living consumption, which boost comprehensive consumption through the operation of the consumption chain.
In the process of commodity production and commodity exchange of capital, because of the extreme particular division of labor in production and society, no matter what one thinks subjectively, all consumption behaviors are in the process of making a contribution to social and economic development. This really embodies social relations featuring one in all, all in one and all for one, and one for all.
Automatic regulation of supply–demand is reflected by the micro-consumption chain and production consumption. When purchasing consumption goods on the market, price fluctuations of some consumption goods appear from time to time. The price of some commodities rises in times of short supply, but cyclically, the price falls again. This is the common reflection of the micro-consumption chain in relations between supply and demand. Businessmen instantly seize business information and then purchase and transport this kind of commodity from locations where supply exceeds demand to where demand exceeds supply to gain higher benefits. When over-demand in the area eases, the fast increase in supply results in a reduced price for this kind of commodity.
Another example is that increases in production consumption adjust temporary imbalance in the micro-consumption chain. For instance, if watermelons are undersupplied in one area, peasants will increase the output next year to meet the demands of the market, and thus the supply–demand relation will be automatically adjusted.
Consumption is the pull of production competition. All production consumptions compete in production with a focus on consumption. How to decide the investment in production consumption depends on investigation and research as well as decision-making about the consumption market. The consumption market investigation and research are the preparation of an enterprise for investment. Studying the current conditions of the supply–demand relationship is to learn how the consumption chain operates in an industry. If an unbalanced consumption chain results in demand exceeding supply in industry, or other external elements make it stand out with a huge consumption market, investors will invest in production consumption in this industry immediately. This process is part of the feasibility analysis before an enterprise makes any investment.
The process of producing common and regular consumables, promoting products’ quality, and reducing costs through the use of new technology results in the outstanding development of the consumption chain and affects competition in the consumer market.
In another case where the marketer chooses the right market for a certain industry, appears to be more competent, and selects competitive products for consumption, with an excellent marketing mode, the marketer can set up an enterprise immediately, engage in the competition of the consumption market, and thus is able to drive an outstanding development of the consumption chain.
Consumption drives the continuous development of all consumptions such as scientific research and product consumption, living consumption, and social consumption. Demand exceeding supply is reflected in the consumption chain, providing opportunities for newly established enterprises and enterprise development, as well as for increasing employment.
Consumption is the pull of production competition. In the process of competition some enterprises succeed and some fail; failures also exist in the process of market competition. Those failures take the form of supply exceeding demand, excessive costs, outdated technology, and poor services or services unable to meet the consumption mode of consumers in the operation of the consumption chain. The enterprise that doesn’t have a deep understanding of the operation of the consumption chain or cannot grasp the operating principles of the consumption chain will cause gigantic losses or be eliminated by the market and even go bankrupt.
The macro-consumption chain structure is a proportional relations structure among the three major consumptions of society; scientific research and production consumption must adapt to the demands of living consumption and social consumption. The macro-consumption chain demands that scientific research and production consumption must go ahead of social consumption and living consumption and keep in a certain proportion, because the material productivity of the scientific research consumption level and quality determines the productivity level of the living consumption level and quality. The development of scientific research productivity should drive the consumption chain structure of living consumption and social consumption to ensure a dependent and coordinated development. If imbalances exist among living consumption chains, social consumption chains and scientific research development chains, consumption capacity cannot meet the requirements of production consumption; a surplus of production would appear, resulting in an economic crisis.
But a boom in the living consumption chain and social consumption chain will definitely drive the development of scientific and production consumption. Therefore, in the process of production consumption, the production consumption cost in the form of laborer income, consumer purchasing power, consumption costs of scientific research, and the income for performing social consumption must rise simultaneously. The profits in the process of production and operation should be reduced. This can ensure the development of new productivity and make living consumption and social consumption drive the development of production consumption, to guarantee the close and harmonious operation of the consumption chain of the three major consumptions.
The structure of the micro-living consumption chain is decided by the consumption capacity and its proportional law is Engels’ Law. Engels’ coefficient, a proportional number derived from Engels’ Law, is an indicator showing the living standard. Its computational formula is:
There are different patterns of consumption structure in clothes, food, housing, and transportation of people. Individual income, living consumption mode, consumption structure, and consumption mode of the consumption chain by industrial structure determine the macro living consumption mode. Individual and household living consumption mode and structure depend on the consumption capacity of the total income of the family and individual, and at the same time are restricted by consumption consciousness. Families or citizens with the same consumption capacity may have different consumption modes because of differences in their consumption consciousness.
Factors such as social environment, culture, and custom also have great influence on consumption mode and structure. Studying people’s consumption mode and structure, guiding people’s new consumption consciousness, and creating new consumption modes and structures are the top priority of scientific research, production, and consumption operators as well as their important responsibility in observing, analyzing, studying, and driving the development of the natural law of economy from the perspective of the micro consumption chain.
Price change of one point in the micro-consumption chain affects the overall situation. Price changes in the micro-consumption chain lead to a chain reaction on the market. A price change of one point in the micro-consumption chain affects the overall situation. For instance, an increase in food prices makes a chain fluctuation in industries, domains, and people’s living consumption related to food production.
If the range of the price rise is limited to about 6~7%, it is beneficial to economic development and will promote production consumption, increase the employment rate, and drive the integrated development of the economy. But an increase in price by a large margin leads to serious imbalance of the macro-economic chain; under such circumstances, government should take various immediate measures to prevent this.
1. Performance rules of the consumption chain. Satisfaction of the three major consumption demands in the process of capital goods production and exchange must be reflected in the prices and value chains of public commodities as well as the consumption modes and consumptive levels of common working class and ordinary laborers in the process of commodity exchange on the market. Differences in economic development levels and living consumption levels among various countries and regions would lead to differentiation in general consumption levels and value. But a common characteristic is that the price differentiation between the costs of production and the market price of ordinary consumer goods is very small.
Reflected on the market are ordinary consumer goods taking 70~80% of the total goods on the market, luxurious living consumption goods taking about 20~30% of the total, with 20% profit margins for common living consumption goods – the highest could reach up to 30%. The market share of exclusive living consumption goods is 20~30% and the profit margin reaches 70~80, thus making a significant contribution in driving high-speed economic development, high revenue, high accumulation, high science and technology, and high consumption. Although with a relatively low profit margin, common living consumption goods have made great and fundamental contributions to social stability. Ordinary living consumer goods, from the orientation of production consumption to direct public consumption, forms their own law of consumption chain, called Law 2/8, also called the performance law of the common consumption chain, including that exclusive living consumption goods drive the ‘five highs’. We should study this law to guarantee the normal performance development of the consumption chain, embodying it to make it develop from a low level to a middle level then to a high level, driving rapid economic development.
2. Consumption and a low living consumption chain. The low living consumption chain belongs to the scope of the ordinary consumption chain, but reflects the performance rule of the consumption chain at a lower living consumption level, for instance, disadvantaged groups with too low an income from the performance rule of the consumption chain that food consumption takes 60~70% of the total income and other living consumption only takes 30~40%. The state should help disadvantaged groups to raise their consumption productivity level, increase their income and life assurance, eliminate poverty, and help them catch up with the living standards of other people, so as to drive domestic economic development.
3. Consumption and a high consumption chain. Human beings have entered a new stage of historical civilization in which science and technology change with each passing day. Consumer goods produced using high and new technology and production consumption have continuously promoted the improvement and rapid development of consumption-based economic society. The consumption of high consumer goods produced by high technology and a high consumption chain drives rapid economic development. High consumption creates high revenue and high accumulation, while fast development in turn drives the development of high and new technology. Advanced science and technology productivity creates the chain development law of a high consumption chain.
At the same time as a high consumption chain drives fast economic development, we should understand that the group that consumes a high level of consumption is only 15~20% of the total consumption group. If the high consumption of a society and production are divorced from the living consumption of 80% of consumers, it will cause an imbalance in the macro-consumption chain and can lead to economic crisis. So the state should pay adequate attention to the consumption development of low and public consumption groups, and also consider how to resolve the conflicts between these groups and the high consumption group. Only in this way can we maintain rapid and continuous development of the economy.
Living consumption and social consumption drive the development of scientific research and production consumption, and production consumption decides the level and consumption mode of living consumption and social consumption. Social consumption also includes living consumption of public accommodation such as railways, highways, subways, marine transportation, and public gardens.
If production of living consumables cannot meet the consuming capacity of living consumption, the phenomenon of demand exceeding supply would occur. If the production of living consumables exceeds the consuming capacity of living consumption (products that are necessary for product turnover should be taken out of consideration), the phenomenon of supply exceeding demand would occur. It is the inevitable phenomenon of the natural economic law on the market. With the force of its power, the state would bring the positive effects of natural economic law into play based on respect for it and intervene in its negative effects at the same time.
In the practical process of economic activity, the influence of the three major consumptions in driving economic development is extremely complex, but its rule is invariable. For instance, wages and rewards change monthly and yearly; wages and rewards in the process of production consumption and operation increase continuously; prices change every day; the proportion of development for different economic fields varies all the time. All the above-mentioned factors are changing, however, with certain rules. Our research goal is to find out the rules.
China is a rapidly developing country and has great consumption needs, which is the motive driving the long-term and continuous development of China’s economy. Living consumption and social consumption of the population of 1.3 billion in China provide the whole world with a huge consumption market, driving not only the rapid economic development in China but also the economic development of the world. It is an objective law independent of human will. China’s economic development will make a great contribution to the whole world.
Tracking the manifestation of a commodity in the operational process of the consumption chain and different customer demands for consumption has created different consumption chains. From the perspective of an enterprise, most productions are independent of each other; however, when observed from the perspective of the living pattern of customers, productions are related in the process of market commodity exchange, thus constructing dispersal and different consumption chains among productions as well as industries. An Australian entrepreneur’s original idea of printing a newspaper on the packaging paper from a fast-food restaurant triggered a consumption revolution in the media. For him, to buy fast food and read news on the packaging paper at the same time was a kind of new living consumption, which was also an inspiration for marketing innovation.
The traditional concept of production determining everything has led to the orientation of operation and management – production-market-customers – with the belief that so long as quality productions are produced, customers would certainly purchase them. However, nowadays consumers hold the supreme position: their consumption decides scientific research and production. New technology products would not sell without recognition of their target consumers, so the primary task of marketing planners is how to make consumers recognize, accept and prefer new technological products, thus realizing the social consumption productivity of new technology products.
As consumption consciousness are more and more mature today, customers’ recognition of quality products is more important than the products themselves, so ‘brand’ is more important than ‘product’ – the special rule for brand consumption chain based on credit value.
In other words, purchasing a car would trigger a series of consumption behaviors and connect formerly irrelevant industries or products – such as service stations, maintenance industry, mineral water, and instant noodles – together. Their combination is based on customer demands instead of enterprise designs. Obviously, this kind of consumption relevance could only occur from the perspective of the ‘customers’. From the perspective of the enterprises, service stations, maintenance industries, mineral water, and instant noodles are irrelevant products; however, under the lead of cars, or the lead of the living pattern of the customers, they form a consumption chain.
People learn from the consumption chain that products of enterprises cannot control customers’ behavior. When products don’t conform to the living demands and patterns of the customers, customers may not welcome the so-called quality products propagated from the single aspect of the enterprises. Seen from the perspective of customers’ consumption, customers never pay attention to independent products or industrial classification; instead, they only focus on living consumption demands and patterns to make their choice.
Thus, a micro living consumption chain is created in the process of commodity exchange by the living pattern of living consumers. What kind of new consumption chain is formed among different products, industries or domains? The answer is that customers’ living consumption and living patterns create the consumption chain. It is a pattern created by free selection of the customers, just as pearls scattered on the ground are constructed as a pearl chain by living consumption demands and production consumption process. The market is not controlled by enterprises or products but by the living patterns of customers.
A primitive viewpoint comes from the birth of enterprises: the task of enterprises is to produce quality products and sell them to customers, in which the administrative logic of ‘production decides customers’ is concealed. However, as a matter of fact, there’s a consumption chain outside the individual enterprise or the industrial chain on the market. This recessive consumption chain connects together formerly irrelevant products, thus forming a new consumption landscape.
In daily life, this kind of ‘consumption chain’ can be found everywhere. For instance, the CD player forms the industrial chain relationship among composers, singers, CD producers, wholesalers, and retailers from the perspective of the industrial chain; however, from the perspective of the consumption chain, if CD players are placed in KTV rooms, new service products of the recreation industry are created by compartments, beers, beverages, and waitresses.
The transition from industrial chain to consumption chain represents the process of our re-recognition of the consumption market, which also represents the gradual change from understanding the market from the perspective of enterprises to the perspective of customers.
Enterprises nowadays are always complaining that customer consumption is more and more fastidious, more and more difficult to grasp. In fact, the consumption chain of the customers is not hard to grasp, instead, it can be traced through the living consumption demands of customers and the corresponding consumption demands.
A living consumption chain is the dissipation consumption chain of the upstream and downstream driven by customer consumption and consumption patterns. The market is not controlled by enterprises or products, but by consumption and consumption patterns of the customers. From the perspective of the industrial chain, the enterprises of the same domains are competitors in life-and-death combat; however, from the perspective of the consumption chain, enterprises of different industries may be competitors as well, but it’s also absolutely possible that they would become partners indispensable to each other.
When a new consumption chain comes into being, it would surely break the traditional concept of centering on products or quality. In the traditional concept, ‘quality products would surely sell well’. This concept implies that quality products are defined by enterprises, not by the customers; however, in a new consumption chain, quality products are defined by consumers and their living patterns and decided by customer preference and satisfaction. Only through setting in reasonable and correct living consumption mode could products win acceptance of the customers. Otherwise, with the homogeneous trend in product quality, differentiations between products are smaller and smaller; therefore, the final selection of the products should be based on preference and satisfaction of the customers.
Marketing enterprises should study the demands of respective new consumption targets based on manifestations in the operational process of the industrial chain, social consumption chain, and living consumption chain of the three major consumptions, so as to meet their preference and satisfaction, continuously create new marketing and management modes, to achieve better marketing effectiveness.