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Uses of products Uses of products
by Joseph Gatt
2021-02-20 09:28:14
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If, from a consumer's perspective, you purchase a product. You can use the product (eat it, play with it, wear it, get information from it etc.). Or you can just own the product and leave it on display somewhere. Or you can store the product, hope for the value of the product to go up at a future date, and sell the product for a profit.

So you can use a product. You can own a product. Or you can invest in a product.

From an economic perspective, this answers a lot of questions. Why do people purchase books when they could get them for free at the library? Because they own the book, when they have to return the one they bought at the library.

prod0001_400The library question is of course a bit more complex. I sometimes purchase books, specifically those I can not find at the library. Libraries tend to display a lot of generalist books, so if you have a favorite author or a favorite topic, chances are you won't find your favorite books at the library and you will have to purchase your favorite author or favorite topic's books.

Let's take another example. Food marketing. If you do a blindfold test and ask people to taste certain chocolate products, breakfast products, meat products or canned products, there's a good chance that they'll find the cheaper product tastier and more appetizing than the expensive, well-established brand.

But food marketing is as much about taste as it is about brand ownership. Some people don't mind owning the cheap brands. But in some circles, ownership of the expensive brands is a must.

The ownership – use ratio. I wish I had the time and the money to make a big economic study and figure out how many products people own vs. how they really use them.

But we can get a hint. Roughly 8 trillion dollars of food is produced annually. Roughly 2.6 trillion dollars of that food goes to waste. So the global ownership – use ratio of food is roughly 8 to 5.4, which translates to about 4 to 3. So for every 4 steaks we own, we eat 3 steaks, and throw away one steak.

My estimations of global production vs. use ratio in the world is approximately 2 to 1. The way I did this calculation is I counted the debt to GDP ratio in the world which is 1 to 2 and I figured out that for every two products that we purchase, one goes to waste. I know these are very rough estimations.

So an estimated half the world's products go to waste. For perishable products, the reason is obvious, as they go over their expiration date.

But for non-perishable goods, there have been several problems when it comes to production. First problem is the “ownership of brands problem.” That is, for many products (especially fashion and electronics and household appliances) consumers purchase a product (and with credit card, i.e. borrowed money) not so they can use the product, but so they can own it.

Second problem is you have lots of companies that don't realize that consumers want ownership of the brand, not the product itself. So a lot of companies were launched to compete with big brands, thinking that consumers wanted to use the same product, but a cheaper, different version of the product. When in fact consumers purchase the brand, own the brand, but rarely use the brand (as the saying goes, only wear the big brand on a “hot date.”).

So a lot of the 50% of global production that goes to waste is in fact consumers owning brands they never use, and factories producing products to compete with brands, when consumers are happy owning the big brand and are not interested in competing brands, because they don't use the product, they own the product.

And then a big chunk of the 50% world production that goes to waste is people who purchase products for investment purposes (often in the form of stock market shares or other financial products, or in the form of land and real estate).

The problem is, just like some consumers want to own a little bit of everything and never use much of anything. You have investors who want to own a little bit of everything and who forget to sell at a higher price (constantly hoping the price will go ever higher). Or investors who purchase a lot of stuff, then head to the yacht club and smoke cigars and drink martinis, and forget that they are investors in the first place.

So if I had grandchildren I would tell them: Buy stuff you will use. Don't buy stuff you will own. And invest in stuff you will sell. Don't invest in stuff you will own. To paraphrase Rabbi Hillel the Elder, these sums up financial management, the rest is commentary.


   
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