Page 163 - Encyclopedia of Business and Finance

eobf_C 7/5/06 2:57 PM Page 140

Consumer and Business Products

materials; component parts and processed materials; on price, delivery, and credit terms. This negotiation, and
maintenance, repair, and operating supplies; and business because raw materials are ordinarily sold in large quanti-
services. ties, makes personal selling the principal marketing
Business products also carry designations related to approach for these goods.
their durability. Durable business products that cost large
sums of money are referred to as capital items. Non- Component Parts and Processed Materials. Component
durable products that are used up within a year are called parts are items that are purchased to be placed in the final
expense items. product without further processing. Processed materials,
on the other hand, require additional processing before
Installations. Installations are major capital items that are being placed in the end product. Many industries, includ-
typically used directly in the production process of prod- ing the auto industry, rely heavily on component parts.
ucts. Some installations, such as conveyor systems, robot- Automakers use such component parts as batteries, sun-
ics equipment, and machine tools, are designed and built roofs, windshields, and spark plugs. They also use several
for specialized situations. Other installations, such as processed materials, including steel and upholstery fabric.
stamping machines, large commercial ovens, and comput- Buyers of component parts and processed materials
erized axial tomography scan machines, are built to a stan- have well-defined specifications for their needs. They may
dard design but can be modified to meet individual work closely with a company in designing the compo-
requirements. nents or materials they require, or they may invite bids
from several companies. In either case, in order to be in a
The purchase of installations requires extensive
research and careful decision making on the part of the position to get the business, personal contact must be
maintained with the buyers over time. Here again, per-
buyer. Manufacturers of installations can make their avail-
sonal selling is a key component in the marketing strategy.
ability known through advertising. Actual sale of installa-
tions, however, requires the technical knowledge and
assistance that can best be provided by personal selling. Maintenance, Repair, and Operating Supplies. Mainte-
nance, repair, and operating (MRO) supplies are fre-
quently purchased expense items. They contribute
Accessory Equipment. Products that fall into the subcat-
indirectly to the production of the end product or to the
egory of accessory equipment are less expensive and have
operations of the business. MRO supplies include com-
shorter lives than installations. Examples include hand puter paper, light bulbs, lubrication oil, cleaning supplies,
tools, computers, desk calculators, and forklifts. While
and office supplies.
some types of accessory equipment, such as hand tools,
Buyers of MRO supplies do not spend a great deal of
are involved directly in the production process, most are
time on their purchasing decisions unless they are order-
only indirectly involved.
ing large quantities. As a result, companies marketing sup-
The relatively low unit value of accessory equipment, plies place their emphasis on advertising, particularly in
combined with a market made up of buyers from several the form of catalogs, to business buyers. When large
different types of businesses, dictates a broad marketing orders are at stake, sales representatives may be used.
strategy. Sellers rely heavily on advertisements in trade
publications and mailings to purchasing agents and other Business Services. Business services refer to the services
business buyers. When personal selling is needed, it is usu- purchased by companies to assist in the operation of the
ally done by intermediaries, such as wholesalers.
firm. They include financial, marketing research, promo-
tional, legal, lawn care, and janitorial services. The deci-
Raw Materials. Raw materials are products that are pur- sion to hire an outside business to perform needed services
chased in their raw state for the purpose of processing is often predicated on how frequently the service is
them into consumer or business products. Examples are needed, the specialized knowledge required, and the rela-
iron ore, crude oil, diamonds, copper, timber, wheat, and tive costs of providing the service internally versus con-
leather. Some (e.g., wheat) may be converted directly into tracting with an outside firm.
another consumer product (cereal). Others (e.g., timber) It is not always clear whether a product is a consumer
may be converted into an intermediate product (lumber) product or a business product. The key to differentiating
to be resold for use in another industry (construction). them is to identify the use the buyer intends to make of
Most raw materials are graded according to quality so the product. Products that are in their final form and are
that there is some assurance of consistency within each ready to be purchased and consumed by individuals or
grade. There is, however, little difference between offer- households for their personal satisfaction are classified as
ings within a grade. Consequently, sales negotiations focus consumer products. On the other hand, if they are bought

140 ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION