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Modernization Impact on Durables Consumption in Emerging Markets

This study explores how modernization influences the consumption of durable goods in emerging markets. It examines the relationship between modernization indicators such as energy consumption, income levels, urbanization, and more, with the demand for items like dishwashers, refrigerators, and TVs. By employing various regression models and analyzing data from different perspectives, the researchers aim to predict and understand consumer behavior in these markets. The study highlights the importance of accurately measuring modernization factors to make informed predictions about durable goods consumption.

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Modernization Impact on Durables Consumption in Emerging Markets

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  1. Can Modernization Explain the Consumption of Durables in Emerging Markets?A.N.M. Waheeduzzaman Presented by Group 5 Jason McAffee, Scott Orrell,Ryan Taylor,  Matt McKinney, John Farris

  2. Introduction • Why was this study conducted? • Potential of Emerging Markets – GDP growth • Global Consumer demands and preference of durables in emerging nations…. “cultural convergence.” • Marketers can estimate durable consumption/demand based on measures of modernization • Dishwasher, Microwave, Refrigerator, TV, VCR, Washing Machine

  3. Understanding Modernization • Individual vs. Societal modernization • Measures • Energy Consumption to explain technological growth • Income – wealth production • Urbanization – industrial growth • Proportion of working female – • Credit availability – strength of banking system • Telephone lines (Cellular providers) – mass comm • Economic freedom – consumption behavior

  4. Method • Ways to measure consumption • Consumer Behavior Studies • Diffusion Studies • Demand Estimation and Forecasting • This study borrows from models and applies them to modernization

  5. Energy at the center of technological growth • Irwin (1975) • Provided energy consumption as a measure for societal modernization • M = (GNP/E)[(GNPCAP)² + (ECAP)²]^(1/2) • Where: • M = Modernization Score • GNP = Gross National Product • E = Energy Consumption • GNPCAP = Per captia GNP • ECAP = Per capita Energy Consumption

  6. Durables and Modernization Variables • Durables • Dishwasher (DSW) • Microwave (MCW) • Refrigerator (RFG) • Television (TV) • VCR (VCR) • Washing Machine (WSM) • Variables • Urbanization(URB) • Education (EDU) • Energy Cons. (ELEC) • Income (PCI95) • Life Expectancy (LFXP) • Female Workforce (FEM) • Credit Avail. (CRD) • Telephone lines (TEL) • Economic Freedom (EF)

  7. Relationship of growth between durables and variables

  8. Specification 1 • Contribution of technology and energy consumption in modernization • Ratio of economic output to technological input

  9. Specification 1 - Findings • Based on using the modernization index developed by Irwin • Consumption models for all six durables were significant • DSW and WSM have higher R-squares than other products • Due to higher income needed and higher energy usage

  10. Specification 2 • Accepts the multidimensionality of modernization and uses all nine variables in a regression model

  11. Specification 2 - Findings • Based on using all nine modernization variables • R-squares improved for each durable • Beta-coefficients showed mixed pattern

  12. Specification 3 • This is a derivative of Specification 2 using a factor analysis to reduce the data set and determine the underlying dimensions of modernization

  13. Specification 3 - Findings • Based on using Factor Analysis of Specification 2

  14. Specification 3 – Findings • Regression Results • Industrialization – all significant • Openness – 4 out of 6 • Quality of life – 5 out of 6

  15. Strengths and limits of each specification Assumption: The consumption of durables depends on the modernization score of the country Three models are used in this study, but which one is the best and why?

  16. Specification 1 - Conclusion Single variable modernization index measure- • Advantage: useful for quick estimates with less data and time • Disadvantage: does not include socioeconomic variables and thus, limited to only two variables so produces less accurate estimates

  17. Specification 2 - Conclusion Multivariate socioeconomic measure - • Advantages: uses nine variables defining modernization were used to determine consumption. Also useful in determining overall estimates • Disadvantage: the direction of beta estimates were not in line with the expected relationships. This indicates the problem of multicollinearity

  18. Specification 3 - Conclusion Factor analytic measure- • Advantages: extracts the nine socioeconomic measures from specification 2 and reduces them into three factors that define modernization in a way that solves the multicollinearity problem • Disadvantage: Factors that determine the dimensions of modernization (openness, quality of life, and industrialization) could change as time progresses.

  19. So which one is the best? • All models are good at predicting demand of durables based on the level of modernization of a country • However, the third specification (factor analysis) is the best • Why? • The second specification improves the first because it measures more variables • The third is the most accurate and therefore best because it uses the variables from the second but eliminates the multicollinearity problem

  20. Future direction • Analyze the variance in the predictive power of the models with respect to specific variables • Product • Country • Time Period • Estimate the consumption of durables in other countries using the methods in this study

  21. Future direction • Continue the study using different variables and durables that will be more relevant in the future • Use more general categories to shield against possible obsolescence

  22. Questions • Elaborate the three models/specifications of consumption presented in the study. Which specification offers the best explanation and why? Explain. • How would you extend the study? What would you do? Offer future direction in the area.

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