Page 52 - Introduction to Business

26 PART 1 The Nature of Contemporary Business

May 2004. When the index rises, it indicates that consumers are more confident
about current business conditions. This implies that consumers may continue
spending, and this in turn could affect business revenues and earnings. A drop in the
Consumer Confidence Index sends a message to firms that they should not be opti-
mistic about the immediate business environment and may want to curb investment
or expansion plans. Economists get very concerned, since these actions may raise
unemployment and reduce corporate profits and income tax revenues. A related
index put out by the Conference Board is the Expectations Index, which measures the
consumer outlook for the short term. When this index rises, it indicates that overall,
consumers are optimistic about the short-term outlook for the U.S. economy.

The Consumer Knows Best
Given the fact that businesses depend heavily on consumers for their survival, the
questions in every businessperson’s mind are, Who is the consumer? Are all con-
sumers alike? Do culture, income, demographics, national boundaries, and so on
impact a consumer’s purchasing habits and purchasing power? If so, how and why?
Properly identifying, understanding, and serving customer needs is key to business
success. Regardless of what businesspeople think, it is ultimately the consumer
who calls the shots. Quite often businesses come up with a relatively novel product
or service, but the consumer may not be ready for it. The consumer may find the
particular product or service to be of little value to him or her, and this may result
in that business’s failure. The test of business success is in the market, and in the
market the consumer rules!

Consumer Demographics and Psychographics

The United States is the largest consumer market in the world. It is also the world’s
largest economy with one of the lowest unemployment rates. In addition, the
United States is the world’s largest importer and exporter of goods and services.
According to the U.S. Census Bureau, for example, 51 percent of the U.S. popula-
tion of some 285 million in 2004 (and projected to increase to 300 million by the end

American Eagle Outfitters is a typi-
cal specialty store that primarily
tries to cater to the changing
desires and needs of American
teenagers.

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