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7.1. What Is A Product?

Product is a complex of tangible and intangible attributes, including packaging, color, price, manufacturer's prestige, retailer's prestige and manufacturer's and retailer's services which the buyer may accept as offering satisfaction of wants or needs.

Any change in physical feature (design, color, size, packaging, etc.) however minor it may be, creates an effect of a new product. The seller has an opportunity to use a new set of appeals to reach what may be essentially a new market. The key idea in our definition of a product is that the consumer is buying more than a set of chemical and physical attributes. Fundamentally he is buying want satisfaction. A wise firm sells product benefits rather than just the product.

Manufacturers sell symbols as well as products. "People buy things not only for what they can do, but also for what they mean."   Goods   are   psychological   symbols   of   personnel attributes, goals and social patterns.

Product   planning   embraces   all    activities   which   enable producers and middlemen to determine what should constitute a company's line of products. Ideally product planning will ensure that the full complement of a firm's products that are logically related, individually justifiable items, designed to strengthen the company's competitive and profit position. It requires an estimate of the industry's market potential, the company's sales potential, the cost requirements and the profit possibilities   of   products   to   determine   whether   product development is feasible. "Product development" - a more limited term  -    encompasses the technical activities of product research, engineering and design. Here, we are concerned with product  innovation or improvement and are working with production research and engineering departments.

More specifically, the scope of product-planning and product-development activities includes decision making and programming in the following areas:

          Which products should the firm make and which should itbuy?

•     Should the company expand or simplify its line?

•     What new uses are there for each item?

•     Is the quality right for the intended use and market?

•     What brand, package and label should be used for each product?

          How should the product be styled and designed and in what
sizes, colors and materials should it be produced?

•     In what quantities each item be produced and what inventory controls should be established?

•     How should the product be priced?

7.2. Approaches For Developing Separate Markets

Monopolislic competition is obviously more attractive to a marketing manager than pure competition. The key to achieving a monopolistic competition situation is to have a total product which a substantial group of customers feel is markedly different from competitive products. If the firm is successful in differentiating its product, it in effect "carves out" a special target market for itself.

There are two basic ways to accomplish this end:      

- Product differentiation          

- Market segmentation

When there are direct competitors for  the customers in a particular market grid box, however then becomes necessary to stress product differences. This latter approach is called product differentiation. Sometimes a firm may use both approaches at the same time. These ideals are explained more fully below:

Market segmentation; seeks to isolate previously unsatisfied target markets and design a unique product for that part of market grid. Here the emphasis is on a uniquely different physical product and/or service.

7.3. Product Differentiation

Product differentiation seeks to direct customer demand toward the firm's product even though it may be quite similar to competitive products. In other words, it's trying to shift the demand curve to the right.

The approach, which stresses promotion, emphasizes the distinctive points of a particular product. The purpose is to satisfy the many slightly different demands held by customers in one or several market grid boxes. The differences in the various competitive products actually may be minor but nevertheless they may be very important to customers.

Psychological differences may be important in differentiating a product. If a woman truly believes that a cosmetic is more suited to her personality, she may be pleased to see and hear about the distinct qualities of the product. More will be said in the promotion chapters about how promotion actually can "create" new products.

Here    it    should    be    noted    that    promotion    of   product differentiation, which  usually  is  intended  to adapt slightly heterogeneous products to many different market grid boxes, may provide real customer satisfaction. Different customers, having  different  needs,   may  respond  to  different  product appeals - even in the same advertisement. Some women may be concerned with cleanliness, others with beauty and others with glamour; a single advertisement might appeal to all of them in behalf of a particular product.

Product differentiation is seen in many product categories, such as cigarettes, soaps, cosmetics, food and automobiles. On fact, product differentiation is employed for most widely advertised products - those appealing to mass audiences. This approach attempts to adapt a single physical product to the many and varied demands of a sometimes heterogeneous group of potential customer.

7.4. Market Segmentation

If the product changes are important enough to narrow the potential market, then the firm uses the market segmentation approach. If major changes are needed to satisfy some part of the market, it may be wise to introduce a new product or modify an old one to satisfy this other market. Product differentiation can not always be used to satisfy this all customers, since partly or wholly new products sometimes are demanded by certain segments of a market grid.

This approach attempts to develop a special total product to satisfy target customers in one or only a few market grid boxes. Here, more drastic changes are made in the total product  to  appeal   to  smaller  target  markets  and   perhaps achieve a more inelastic demand curve. For a manufacturer, this may actually result in considerable product diversification and expansion of his product line. There might be a special product for each market grid box or even for each individual customer. Theoretically, since most customers are slightly different and have slightly different demands, all products should be custom -made. Taken to the extreme, this would eliminate mass production.

Actually, this policy seldom is carried to its logical conclusion. Few customers desires for different products are so strong that they will pay the higher production costs that completely individualized products entail. Nevertheless a market segmentation policy can expand product lines markedly.

7.5. Product Life Cycles

Products, like customers, have life cycles. In fact, the life of a product can be divided into four major periods:

-       product introduction

-       market growth

-           market majority sales decline.

A product's marketing mix must undergo changes during these periods. The sales history of the product varies in each of these periods and more importantly, the profit picture changes; nor do the two necessarily move together.

7.5.1. Introduction

In the introduction stage, since the product is not sought by customers, promotion is used to "pioneer" acceptance. Potential target customers must be informed about the existence, advantages, and uses of the new product. Even though a firm has successfully carved out a new market for itself, its success may not be apparent. This introductory stage is usually characterized by losses; considerable mono) is expended for promotion and product and place development. Funds are, in effect, being invested with the expectation of future profits.

7.5.2. Market Growth

In this second stage, the innovator begins to enjoy financial success. Competitors start coming into the market. Each of them tries to develop the best and most useful product design. Much product variety may be seen as each firm tries to find the   best   way   to   serve   this   new   market.   Monopolistic competition with down-sloping demand curves is characteristic of both  the product introduction  and  market growth periods. During this period, the sales of the total industry are rising fairly rapidly as more and more customers enter the market.   The second  phase  may  last   from  several  days to several years, depending on whether the product in hula hoops or   television    sets.    The   early    innovators    usually    make substantial profits. The total industry may appear extremely profitable and competitors rush in with copies of the most successful products. As far as this product is concerned, this is the time of peak profitability

7.5.3. Market Maturity

In this third stage, many competitors have entered the market. We now move into a more competitive situation with declining profits.  Promotion emphasizes the advantages of particular brands, but products differ only slightly because most of the companies have settled on the same way to appeal to the mass market. There is a tendency to copy competing features. Mass production   methods  also  discourage  product   variety.   This market,  still  characterized  by  monopolistic  competition,   is becoming  much   more  competitive  on   product,  price   and promotion. Basic product similarities and mass production mean that firms must resort to product differentiation practices. At this time, emotional appeals become more common - the only remaining way to add value to the product. Industry profits decline throughout the market maturity period because the cost of promotion rises and competitors begin to cut prices to attract business. Although each firm still has its own demand curve, the curves are becoming, increasingly elastic as the various products become almost homogeneous. Prices may be cut even as total industry volume rising. This has been the case recently in plastics and transistors, for example.

7.5.4. Sales Decline

As new products come along to replace the old, this fourth and final stage of the life cycle reached. Price competition from dying firms may become more vigorous, but companies that have strong customer franchises may continue to profit almost until the end. These competitors will have down-sloping demand curves because they have successfully differentiated their products. As the new product goes through the introductory stage, the old product may still be able to retain some sales, until finally sales decline so much that the product is withdrawn from the market.

7.6. Classification Of Products

Just as it's necessary to segment markets for meaningful programming in market, so also it's helpful to separate products into homogeneous classifications. İlere we shall divide all products into two groups: CONSUMER GOODS and INDUSTRIAL GOODS a classification that parallels our segmentation of the market.

7.6.1. Consumer Goods And Industrial Goods

There are many kinds of consumer goods. So many, in fact, that is impossible to discuss the marketing process for each of them. Further, some products usually considered consumer goods may also be industrial goods since they are destined for use by intermediate customers. Consumer goods are those goods or services destined for the ultimate consumer in such a form that they may be used without further commercial processing. These contrast with industrial goods, which are defined as those goods and services destined for use in producing other goods and services. ' All goods fit into either of these two categories.

The type of customer buying the good determines whether it should be classified as a consumer and industrial good. Although the same physical product may be involved, an enti­rely different marketing mix may be required, depending upon the type of buyer and intended use. The following products and services can be either consumer or industrial goods, depending upon whether they are destined for a final consumer or some intermediate customer (such as a manufacturer, farmer or government agency): typewriters, typing paper, rugs, deco­rators" services, lighting fixtures, brooms and plumbing services.

Consumer goods include all products which are "destined for use by ultimate consumers or households and in such form that they can be used without commercial processing.Industrial goods are those which are "destined to be sold primarily for use in producing other goods or rendering services as contrasted with goods destined to be sold primarily to the ultimate consumer.

7.6.1.1 Need For A Classification System

Fresh meal, cannot salmon and lettuce are all foods, vet all are marketed differently.   Hosiery and women's party dresses are clothing items, but the marketing mixes for each are quite dis­similar. Hosiery is available in many different types of outlets and has a much simpler fitting problem. And hosier) has been successfully branded, while few women's dress brands are widely recognized by customers.

There are many other examples of apparently similar products with dissimilar marketing problems. It is clear that the nature of the product has considerable bearing on how the four P's are combined in a marketing mix. To avoid treating every product  as a special  case,  we  must try  to develop  some sensible, if tentative, generalizations about how products are related to marketing mixes. Let us see if we can develop such a product classification system.

7.6.1.2. Some Possible Classification Systems

One system of classification might be by the type of outlet through which the products are marketed. All products usually found in grocery stores could be treated alike, for example. So could those found in drugstores, clothing stores, sporting goods stores, hardware stores and so on.

Under such a system, how would we treat a product such as toothpaste? Toothpaste is now being sold in drugstores, food stores, variety stores, department stores, college book stores and many other places. At one time stores specialized in certain products, but there is a definite trend for several types of store. This is called "scrambled merchandising."

Another possibility would be to categorize a product as a necessity or as a luxury. The difficulty with this system is that it would depend on the rater's attitudes. A "necessity" to one person might be a "luxury" to another. Moreover, while broad categories such as food are obviously necessities, relatively few individual food items are.

Classifying by the degree of demand elasticity is another pos­sibility. But the elasticity of demand for general categories such as food does not hold true for all the products within the category. Within the meat category alone (which might be considered to have a fairly inelastic demand) the demand for special meat products, such as hamburger or porterhouse steak, are much more elastic. The reason is that there are many substitute ways of satisfying the general demand for meat.

7.6.1.3. A Useful Classification System

We need a classification system based on the way people buy products. The purpose of the marketing process is the satis­faction of consumers. It follows that, to develop and market products effectively, we must know how they feel about these products and especially their basis of choice. It follows that, then, that any classification system should be based upon customer behavior. Our   system   works   that  way,   separating  goods   into   fourcategories:

1)           Convenience goods,

2)     Shopping goods,

3)     Specialty goods,

4)     Unsought goods.

Convenience goods are those which customers wish to purc­hase immediately and with a minimum effort. Put another way, convenience goods are those goods for which the probable gain from making price and quality comparisons is thought to be small relative to the value of customers." time and effort.

Shopping goods as the name implies, are those goods for which customers actually do shop. That is, they compare price and quality of various brands. They may read about perfor­mance, search newspaper advertisements and even go to several stores. In short, they feel that the gain from making these comparisons is worth their time and effort.Specialty goods are those which customers characteristically insist upon and for which they are willing to make a special effort.

Unsought goods are those which potential customers do not yet want or know they can buy. They do not search out these goods. Furthermore, they would be unlikely to buy them i I they saw them.

7.6.1.4. Shopping Behavior Determines Classification

It should be noted that some kind of shopping behavior charac­terizes convenience and shopping goods. These goods can be seen as being at either end of a continuum of customer "shop­ping effort". The amount of search and comparison increases steadily as one moves from shoe strings ( a convenience good) to suits and dining room furniture (shopping goods).

Specialty and unsought goods are not on the same continuum of shopping effort. They are special cases. No shopping at all is done for unsought goods. In the case of specialty goods, cus­tomers would be willing to travel extensively for a particular product but not to shop for the most satisfactory product. The customer has already made a decision about a particular pro­duct, probably a specific brand and will look as far as neces­sary to find it. This does not mean that she will have to look very far, however. Knowing the strength of customers' prefe­rences and willingness to search, many retailers may carry such a product, knowing that otherwise they will lose the business.

It is very important to see that customers' attitudes are crucial in this classification system not the methods of distribution. Distribution should (low naturally from how customers think about the products or services.

7.6.1.5. Marketing Significance Of Product Classification

The two-way product classification is a useful framework for programming marketing operations because each major class of products ultimately goes to a different market and requires different marketing methods. In the field of product planning, for   example   branding,   packaging,   color   and   fashion   are generally for more significant for a consumer product than for an industrial goods.

7.6.2. Convenience Goods

Convenience goods, again, are those goods for which the probable gain from making price and quality comparisons is through to be small relative to the value of the customer's time and effort. Usually considered as convenience goods are items such as cigarettes, soap, drugs, newspapers, magazines, che­wing gum candy and most grocery products.

These products are frequently and readily purchased, require little service or selling, are not very expensive and may even be bought by habit. Typically, the customer is not willing to put very much time or effort into the purchase or convenience goods. The classic cigarette slogan "I'd walk a mile for a Camel", tried to imply that Camels were not a convenience goods, but it is doubtful that many consumers think of their own cigarette brand in this light.

Care must be exercised in classifying goods as convenience goods too quickly. The attitudes (perhaps based on income and wealth as well as other factors) of target customers are important.

Note that the product classification may be related to elasticity of demand. If customers do not give much thought to price when purchasing convenience goods, probably the demand for these products will be relatively inelastic.

7.6.2.1. Three Types of Convenience Goods

Convenience goods can be subclassified into three types, based primarily on how customers think about and buy such products:

1)           Staples,

2)     Impulse goods,

3)     Emergency goods.

Staples. Staples, such as food and drug items used regularly in every household, are usually bought without much thought beyond the initial decision to buy such products. Staples are usually purchased frequently. Branding becomes important, since brand recognition or preference helps the customer reduce her shopping effort. Furthermore, if her store changes prices only infrequently on these items, she does not need to reconsider which item to purchase, but can stay with familiar ones.

Staples items are offered for sale in many convenient places because of customers' reluctance to search very far. They are found in food stores, drugstores, hardware stores and vending machines, for example. Some customers value convenience so highly that they prefer to have such goods delivered to their home. Some think of milk, ice and newspapers as items which ought to be delivered to them. This extra service often increases the price but, because of the convenience, customers are willing to pay slightly more.

Impulse goods. Contrasted to staples, impulse goods are those which customers typically do not seek. They are included in the category of convenience goods (rather than unsought goods) mainly because they are items which the customer wishes to purchase on sight and may have purchased the same way many times before. For example, ifa housewife were to pass a street corner vendor, decide eating ice cream would be a good idea and purchase an ice cream bar, this bar probably would be an impulse good.

However (and this is the important distinction) if the same housewife were to purchase a box of ice cream bars while shopping with the invention of using them for a family dessert, then the bars would be regarded as staples. She was looking for desserts, among other things. The distinction is a subtle but important one. If the customer docs not purchase an impulse good immediately, the need may disappear and no purchase will be made whereas she probably will buy some dessert. If the housewife passed a man selling balloons and considers buying one for her small child but finds she has not the proper change, it is most unlikely that she will go back later looking for a balloon.

Other probable impulse goods include fountain service, roasted chestnuts or peanuts, candy and novelties, some women's hats and blouses and costume jewelry. As the income and buying power of consumers grow, the number of impulse items seems to be expanding. But it should not be assumed that all impulse goods are purchased for emotional reasons. To be sure, impulse goods may satisfy emotional motives, but they may also satisfy economic motives. A housewife might buy a new floor mop which promises to make her housework easier even though she had not even been thinking about one.

Just because a product seems to be purchased as an impulse good does not mean that the customer was not already aware of the product category and perhaps even of the brand. There might even be strong brand preference on some items which are purchased on impulse for example Coca-Cola and some brands of candy bars. An impulse purchase might satisfy a strongly felt need in the same way that the need had been satis­fied many times before. This would still be an impulse purc­hase, however, because the particular purchase in question was not planned and the need might not be satisfied (at least with the particular product involved) if it had not been seen.

This means place will be extremely important for impulse goods. Department stores often place such goods on the first floor near main doors, while supermarkets and drugstores put them near the checkout counter.

Emergency goods. Emergency goods are purchased less fre­quently, only when the need is urgent. Then the customer wants the product available in the most convenient place. Price, perhaps even quality, is of small concern especially if the need is immediate enough. The demand for such goods may be extremely inelastic. Ambulance services, umbrellas or raincoats during a rainstorm and tire chains during a driving snowstorm are examples of emergency goods.

7.6.2.2. Shopping Goods

Shopping goods are those for which the probable gain from making price and quality comparisons is thought to be large relative to the time and effort needed to shop properly for these goods. When a substantial group of customers find it worth­while to shop around for a particular product, then we arc dealing with a shopping good.

Shopping  Goods   can   be   divided   into   two   classifications depending on what customers are seeking:

        Homogeneous

        Heterogeneous

7.6.2.2.1. Homogeneous Shopping Goods

Homogeneous products (those which consumers view as essentially similar) begins to bear fruit here. It will be recalled that when consumers view the various products offered in a category as essentially the same, each competitor has an almost perfectly elastic demand curve. In such a case, a slight price cut would substantially increase sales volume (if compe­titors did not match this cut), and thus we might expect price competition among the various competitors in the market.

We do, in fact, find this condition in many markets. Many consumers, for example, find certain sized and types of refrigerators, television sets, washing machines and even automobiles to be essentially similar and are primarily concerned about shopping for the best price.

Manufacturers seek to emphasize their differences and retailers try to promote their "better service". But if the customers do not believe these differences are real, they will emphasize the one variable which they feel is or can be different price.

7.6.2.2.2. Heterogeneous Shopping Goods

We are dealing here with the products which the customer sees as nonstandardized and wants to inspect for quality and suitability. Furniture, draperies, dishes and clothing are good examples of this type of shopping good. Style is important and price is secondary. Sometimes consumers will go to three or four stores to be sure they have done a good job of shopping, even if the item is not high priced.

Price is not totally ignored. But for nonstandardized merchandise, there are fewer bases for price comparison. When the customer has found the right product, she/he may not be too concerned with price, provided it is within a reasonable range. That is, the demand for the product may be quite inelastic. The more close substitutes there are, of course, the more elastic becomes the demand. But it does not approach the extreme elasticity found with homogeneous shopping goods.

Branding may be less important for heterogeneous goods. The more a consumer wishes to make her/his own comparisons of price and quality, the less reliance she/he places on a brand.Brands are usually found on these goods, but often little effort is made to publicize them. Women's dresses have labels, but the style and quality is usually of more importance especially when the label cannot be displayed by the wearer.

The buyer of these goods often not only wants but expests some kind of help in buying, the kind depending upon the social class of the purchaser. Often, she/he wants expensive service, such as alterations on clothing or installation on appliances, because of the size and importance of purchase. A short shirt picked up on the run (a convenience good) need not be nearly as satisfactory with respect to size and fit as a suit (shopping good), which has a higher price and has required considerable shopping.

7.6.2.3. Specialty Goods

Specialty goods are those consumer goods on which a signi­ficant group of buyer characteristically insist and for which they are willing to make a special effort. The special effort the customer expends is not to compare the product with others, but merely to locate it. Searching in shopping goods sense does not take place.

Specialty goods are usually specific branded items rather than product categories that is, they are specific products which have passed the brand preference stage and reached the brand insistence stage. Product differentiation and market segmen­tation efforts seek to create specialty goods.

A unique product in the introductory or market growth stage, even though not branded, might also be a specialty good. A new drug compound, even though available from several manufacturers, might be a specialty good for some target customers. Generally, however, a specific brand is involved.

It is sometimes assumed that specialty goods are limited to relatively expensive items, probably durable, which are normally purchased infrequently. There seems to be no valid reason for making these restrictive assumptions, however. Any successfully branded item which develops a strong consumer franchise may achieve specialty goods status. Consumers have been observed asking for a drug product by its brand name and when offered a substitute, actually leaving the store in anger.

Same well-advertised food a drug products seem to have carved out a market for themselves. If they achieve the brand insistence stage, we call them specialty goods. As might be ex­pected, the demand for specialty goods will be relatively inelastic, at least within reasonable price ranges, since target customers are willing to insist upon the product.

7.6.2.4. Unsought Goods

Unsought goods are those which potential customers do not yet want or know they can buy and therefore do not search for at all. Furthermore, if these target customers happen to come upon the product, they probably would not buy unless additio­nal promotion were directed toward them.

In talking about unsought goods, it becomes extremely impor­tant to bring in the market grid concept again and state specifically what target markets are being considered. Mobile homes, for example, would probably be a shopping good for those who are logically in the market: construction workers, servicemen, students and elderly couples. At certain times, such families are definitely seeking a mobile home and for them (at that time) the product would be a shopping good. Most mobile home dealers treat the product as a shopping good, selling against other mobile homes rather than against tract home builders.

But if the target market is defined as all those families who might be interested in purchasing homes, then mobile homes probably are unsought goods. Again the classification depends upon the attitudes of the relevant target market.

7.6.2.5. Industrial Goods

While a consumer goods classification system is useful for developing effective  marketing  mixes,  an   industrial  goods classification   is  even   more  valuable.   In  the   family,   even allowing for the growing importance of husbands and children, the wife is the prime buyer; she buys all types of goods.

But is an industrial plant, there are a number of buying influences, depending mostly on the product but partly on the company involved. While most purchases are made by a purc­hasing agent, the major influence may be exerted by the office manager, plant foreman or the executive group.

7.6.2.5.1. General Characteristics of Industrial Goods

Most industrial goods have the following general characteristics:

      Their  demand   is   derived   from   the   demand   for   final consumer goods,

      Industrial demand may be inelastic while one company's demand may be elastic,

      Buyer interest in price depends on the nature of the product,

      Buying is basically concerned with economic factors,

      The  buyer's  attitude  seems  to  be  affected  by  the  tax treatment accorded the product

Whether the expenditure for the product is charged off as a capital or an expense item.

7.6.3. Industrial Goods Classifications

Industrial goods buyers do relatively little shopping as com­pared with consumer goods buyers. The accepted practice is for the seller to come to the buyer. This means that a productclassification system based primarily on shopping behavior is not appropriate.

The industrial goods classification we will use is determined by how buyers look at products. Our categories are:

Installations,

       Accessory equipment,

       Raw materials,

       Component parts and materials,

         Supplies,

       Services.

7.6.3.1. Installations

Installations are large and expensive items which do not become a part of the final product, but instead are used up over many years. All installations are capital items. They represent major expenditures for the company and are depreciated over a period ranging from 2 or 20 or more years.

There are two major classification of installations: buildings and land rights and major equipment.  Buildings and land rights include factories, warehouses, barns, retail stores, office buildings, wheat fields, mining deposits, timber rights, etc.

Major equipment includes large items of machinery, such as diesel engines, boilers, tractors, combines, paper-making mac­hines, electrical generators, printing presses, furnaces, kilns, rolling mills and large conveyor systems.

Major equipment can be subdivided into two types:

1)    Custom-made,

2)     Standard.

Custom-made equipment is made especially for a particular company and installed on the basis of special needs and detailed drawings or specifications.

Standard installations include products like tractors, general purpose diesel engines, lathes and printing presses, which are regular production items.

For our proposes, buildings and custom-made equipment are treated alike, since both require special negotiations for each individual product. Standardized major equipment, being more homogeneous, can be treated more routinely. All installations, however, are important enough to require high- level and even top management, consideration.

7.6.3.2. Accessory Equipment

Accessory equipment (like installations) does not become a part of the final product. These products are usually less expensive and shorter lived than installations, but still are capital items.

Actually, accessory equipment is very similar to the smaller standard installations. This category includes tools and equipment which facilitate production or office activities, examples include portable drills, sanding machines, electric lift trucks and small lathes.

7.6.3.3. Raw Materials

Raw materials are those products which have undergone no more processing than is required for convenience, protection or economy in storage, transportation or handling. In cont rast with our first two categories, they become part of the physical product.

Raw materials are expense items and are regarded in an enti­rely different light from the capital items we have been consi­dering. Their purchase has a major impact on the current profit and loss situation, but less impact on the long-run situation. Even so, where raw materials represent a large part of the firm's costs, top executives may enter into the negotiation, especially of annual contracts. Subsequently, routine purchase orders are sent through against suck contracts. Obviously these products would come directly from farms, forests, seas or mines. Since many different products come under this raw materials category it is useful to break them into two broad categories:

1)     Farm products,

2)     Natural products. These may be subdivided as follows:

1.  Farm Products         

Crops       

       Fibers: cotton, flax, etc.        

       Fruits and vegetables,

Grains: wheat, rye, barley, oats, etc.

Miscellaneous crops: tobacco, sugar cane, etc.     

Domestic Animals and Products

-       Livestock: cattle, hogs, sheep, etc.

-       Poultry,

-       Products obtained from animals: wool, milk, etc.

2- Natural Products      

 Animal Life

a)      Fish and game,

b)     Fur-bearing animals,     

   Forest Products

. Lumber,

. Miscellaneous: rubber, rosin, maple syrup, etc.

a   Mineral Product,

1.  Nonferrous metals: copper, lead, zinc, etc.

2.     Iron ore,

3.    Petroleum,

4.     Coal and other fuels.

It is obvious from a review of this listing that many products are included which final consumers can use directly. Many fruits and vegetables, poultry, eggs, milk and meat products are purchased fresh by customers. These products have not undergone further processing since, for practical purposes, they are finished products. Although they may require special handling because of their perishability, they can properly be thought of as consumer goods and probably convenience goods at that. Fresh fish and game, some forest products (such as fire-wood), and mineral products (such as coal) also can be used directly as consumer goods.

7.6.3.4. Component Parts and Materials

Component parts and materials (like raw materials) become a part of the finished product. Both are treated as expense items and have somewhat similar characteristics. These, however, undergo more processing than is required for raw materials.

Component parts include those items which are:

•         Finished and ready for assembly,

•         Almost finished

Requiring only minor additional processing (such as grinding or polishing) before being assembled into the final product. Examples include automobile batteries, spark plugs, small motors, tires, forgings or castings, all of which are incorporated directly into a finished product. Also included in this category are tools or other items such as automobile jacks, which are sold with the product but not physically attached to it.

Component materials include already processed materials like wire, paper, textiles or cement, which will be further processed or shaped before becoming pail of the final product.

7.6.3.5. Supplies

Supplies (like raw materials and component parts and mate­rials) are continually used up in a company's operation. Because of this, they are expense items. Unlike the previous two categories of products, however, supplies do not become a part of the physical product. Thus, while they are necessary, most supplies are not nearly as vital as the products in the firs four classifications.

Supplies may be divided into three categories:

1-      Maintenance,

2-     Repair,

3-     Operating supplies.

From this, supplies are commonly called M.R.O. items.

Maintenance items include such things are paint, nails, light bulbs, sweeping compounds, brooms and windows-cleaning equipment. Repair items are nuts and bolts or parts which are needed to repair existing installations or accessory equipment. Operating supplies include items such as lubricating oils and greases, grinding compounds, coal, typing paper, ink, pencils and paper clips.

7.6.3.6. Services

Services frequently are necessary or desirable to plan, facilitate or support operations. Engineering or management consulting services might improve the plant layout or the organization of the company. Design services may be useful for store, ware­house, plant or product design. Outside maintenance services may be desired for window cleaning, painting or general housekeeping services; these services are commonly offered to small retailers. Other services, such as in-plant lunch services and music systems to improve employee morale and produc­tion may be purchased from private contractors.

All these services are considered expense items. The cost of buying them outside would be compared with the cost of providing the services by company personnel. If special skills are involved and the services are purchased only irregularly, then an outsider may be in a strong selling position. As our economy becomes more and more complex, specialists in various activities are developing; this trend will probably continue. The demand for these services may be fairly inelastic if the supplier has a unique product.

 

 
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