Consumer sovereignty

From CEOpedia | Management online

Consumer sovereignty is a term used to describe the power of consumer. It is a consumer that decides what they like and desire to have. They create the demand. In this respect, they have the power over the ones that give, sell the goods to them. The focus needs to be on what is wanted and the customer is the one that wants. Professor Abba P. Lerner in his Journal Article "The Economics and Politics of Consumer Sovereignty" says that in today's world, in a society that is quite wealthy, we actually copy or imitate our needs based on what others have. However, the consumers can decide how they can arrange their surroundings, such as a place they live in, the car they posses, clothes they buy. Also, when it comes to decisions that are made, consumers want to be free, as far as democracy is not disturbed [1].

Value for consumers

An interesting point to mention may be that consumers value their own purchases more than gifts they get from others. This may be an indication of how important the choices made by consumers are for them, because goods we have to spend our own money on are carefully chosen so that there is no feeling of spending money on something not good enough or unnecessary[2].

Limitations of consumers power

On the other hand, consumer sovereignty is limited. There are certain aspects that have influence on the power of the buyer, some of which are as follows:

  • Consumer's income - not every desired product can be purchased by the potential buyer if they do not have enough money to get it. Also, the quality of desired goods may not be as required cause of the lower price.
  • Access of products - it may not be possible to get some kind of products depending on the location of the consumer, such as e.g. the quality of wi-fi connection may not be as strong in a village as in a city.
  • Mixed decision - it is hardly possible for a producer to make something that will be only for one customer. Decision what will be made is based on different choices of consumer put together.
  • (Irr)Rationality of buyer - consumer may not realise that the price is connected to the quality of the product or they simply choose to buy something of lower quality to spend their money on something additional.
  • Customs - consumer lives in a certain reality so producers need to adjust to the reality and cannot produce something that will not sell well on a certain market because of the traditions and conventions of a society.
  • Trends - trends may hold consumers back from purchasing a certain product not to be ludicrous.

In his Journal of Economic Perspectives, Perk, uses Hutt's description of a "consumer sovereign, producer servant". This approach depicts producer as a person wanting to gain as much income as possible so that they do their best to make their sovereign (consumer) satisfied.

Brief summary of consumers sovereignty

The below citation from the article of Steve Fleetwood beautifully sums up the power of consumer, showing that it can be limited due to the money buyer has:

"Consumer sovereignty refers to the sovereign-like rule of consumers over producers in markets. Those with money are able to use their purchasing power to provide producers of commodities with information to inform the latter’s decisions over what to produce and in what quantities. Consumers do not have to translate their demands into actual purchases, of course, they can take their custom to another producer [3]."

Consumers are the ones that have the tool to set the rules - thanks to their money producers see what people want to buy and they create, produce, make items that satisfy their potential or already customers. If what is produced does not satisfy the potential buyer they can always purchase something from another shop, merchant etc. This is how the market is dependent on the consumer and their power is shown. As long as people buy, producers will exist on the market. If it changes, or never happens, there is no chance of existing for a shop, merchant, etc. The limitation of the consumer is connected to how much money they have or even their place of living.

Examples of Consumer sovereignty

  • The power of customers to choose what products they buy and what services they use is an example of consumer sovereignty. Customers have the freedom to choose the products and services that best meet their needs, and companies must compete for their loyalty by providing the best value for their money.
  • Consumer sovereignty can also be seen in the decisions people make about where to invest their money. Investors have a variety of options available, from stocks and bonds to mutual funds and other investment vehicles, and they have the freedom to choose the ones that offer the greatest potential returns while also taking into account their risk tolerance.
  • Consumers can also exercise their power by advocating for changes to policies and legislation that impact their interests. This can involve lobbying legislators, writing to elected representatives, or joining consumer advocacy groups. By taking action, consumers can make their voices heard and help shape the laws and regulations that affect them.

Other approaches related to Consumer sovereignty

Other approaches related to consumer sovereignty include:

  • Market Orientation - This is an approach that puts the customer at the centre of business, where their needs and wants are the main focus of the company. Businesses must be aware of the changing needs and wants of their customers in order to stay competitive in the market.
  • Segmentation - This approach attempts to break the market down into smaller, more homogenous groups of customers. This can help businesses to better target and provide services that are tailored to the specific needs and wants of their customers.
  • Value Chain Analysis - This approach looks at the various elements of the value chain and how they can be used to create value for customers. This includes looking at the suppliers, production processes, and distribution of products to the end customer.
  • Customer Relationship Management - This approach focuses on creating relationships with customers and building a loyal customer base. It involves understanding customer needs, providing good customer service, and developing loyalty programs.

Consumer sovereignty is an important concept that puts the power of the consumer at the centre of the business. Other approaches related to consumer sovereignty include market orientation, segmentation, value chain analysis, and customer relationship management. These approaches help businesses to better understand their customers and provide services and products tailored to their individual needs and wants.


Consumer sovereignty — recommended articles
Buying cycle — Market dynamics — Price-Taker — Concept selling — Consumer markets — Nicosia model — Competitive product — Relationship selling — Substitute goods

References

Footnotes

  1. ↑ Lerner, A., P.; (1972) p. 258-266
  2. ↑ Waldfogel J.; (2004) p.3
  3. ↑ Fleetwood, S. (2006) p.4

Author: Klaudia Trybuła

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