Difference Between Consumer Goods and Capital Goods

Edited by Diffzy | Updated on: September 21, 2022

       

Difference Between Consumer Goods and Capital Goods Difference Between Consumer Goods and Capital Goods

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Introduction

In economics, goods are products that fulfill human desires and give usefulness, such as to a buyer purchasing a pleasing product. Good are transferable, unlike services. There are different types of goods explained in economics. Tangible goods which we can see or touch, intangible goods which we cannot touch or see but can feel; such as services, private goods are the type of goods that are owned by people, free goods are all the items in nature that we obtain for free, and so on. 

Goods are described as anything that can aid in the fulfillment of human wants and desires. goods are basically divided into two categories: consumer goods and capital goods. Consumption products are those that are most suitable for final consumption. In other words, the consumer is the ultimate user of consumer products, whereas capital goods are those items employed in the creation of consumer goods.

This article broadly distinguishes between Consumer goods and Capital goods.

Consumer Goods Vs. Capital Goods

The key difference between Consumer goods and capital goods- Consumer goods as the name suggests are the goods that are used or consumed by consumers than producers to make other goods. On the other hand, capital goods are the type of goods that are used in the production of consumer goods. Capital goods are not directly, solely bought by consumers. Although they’re interconnected, they’re not the same.

Difference Between Consumer Goods and Capital Goods in Tabular Form

Table: Consumer Goods Vs. Capital Goods
Parameters
Consumer Goods
Capital Goods
Demand
Direct
Derived
Purpose
For consumption by consumers.
manufacturers
Marketing
B2C (business to consumer)
B2B (business to business)
Prices
High
Low
Buyers
consumers
Manufacturers
Quantitative Demand
High
Comparatively low

What are Consumer Goods?

Consumer goods are objects that are regarded to be finished goods. Customers directly consume them to meet their requirements or desires. They are not to be confused with capital goods, which are utilized to manufacture consumer products.

A bike, for example, is a Customer good since it will be purchased directly by a consumer. However, the components required to construct that cycle are capital goods.

Importance of Consumer Goods

  • Consumer goods and services are expensive in nature therefore, an increase in consumer goods’ demand directly impacts the nation’s GDP. 
  • Consumer goods are important for day-to-day life. Production and consumption of the same are vital for the standard of living.
  • The Consumer goods industry opens doors to many other related industries such as advertisement and retail. This creates huge employment within a country as well as globally.
  • Other related industries such as customer care services, payroll services, accounts services, and so on are absolutely dependent upon the production of consumer goods.

 Understanding the types of consumer products might help you comprehend them better. Consumer goods are broadly divided into three categories:

  1. Durable Goods
  2. Non-durable goods
  3. Consumer Services
  4. Durable Goods

Durables or durable goods are products that are used for a longer period of time. Consumers do not purchase them often. Houses, jewellery, vehicles, and so on. These goods are comparatively expensive since consumers purchase them as a long-term investment. The life cycle of durables is more than three years. 

Features of durable goods can be stated as follows:

  • Durable goods’ lifespan is comparatively more and they don't wear out often.
  • Consumers prefer to take credits and loans from banks to purchase these goods as they're quite expensive.
  • Higher demand for durable goods is a sign of improvement in the national economy.
  • Purchase of such goods requires proper planning and a thorough background check.

Types of Durables

  1. Consumer durable goods: cars, houses, furniture, etc bought by an individual are an example of consumer durables. In this case, consumers, won't need to invest in these often and they can use them for a longer time.
  2. Business durable goods: Plots, machinery, equipment, office furniture, and so on bought by businesses are examples of business durable goods. These help businesses in convenient operations running.
  3. Non-durable goodsAs the name suggests non-durables are goods that are perishable or have a lesser lifespan. If not consumed or used in time, then they're more likely to be get wasted. Household items like laundry essentials, food, and beverage products are examples of non-durables. In simple words, everything that comes with an expiry date is a non-durable good.

Features of non-durable consumer goods:

  • They're comparatively cheaper.
  • They're purchased more often.
  • Their lifespan is limited.

Consumer Services

Consumer services are intangible in nature and are offered to households or individual persons and not to businesses. Examples of consumer services could be education, healthcare facility, insurance facility, banking, entertainment, and so on.

Features of consumer services can be explained as follows:

  • Thorough background checking is essential as they're often non-replaceable.
  • Prices for consumer services could be higher depending upon the quality of the service.
  • Unlike goods, these services cannot be stored, reused, replaced, or transferred.

Under the yellow, red, and orange goods classification system, consumer goods are classified as follows:

  • Convenience goods
  • Shopping goods
  • Specialty goods
  • Unsought goods

This classification is broadly dependent on consumers’ buying habits. This factor of classification is vital when understanding consumer goods.

Convenience Consumer Goods

These goods come under staple items that are required on daily basis by individuals. Lesser choices and efforts are put in by consumers while purchasing these. Most consumers buy these products out of their habitual behaviour. For example, cigarettes. Both wholesalers and retailers are involved in the sale of consumer goods. 

No particular prior planning is needed for these purchases and they're comparatively cheaper.

Convenience goods are the staple items that can fulfill the basic necessities of an individual such as grocery items, toiletries, and so on.

By considering all the above points, we can understand that convenience consumer goods are purchased more frequently than any other type of goods. 

Shopping Consumer Goods

As the name suggests, consumers invest a good amount of money in “shopping consumer goods”. Consumers take a considerable amount of time to plan for this purchase. Factors influencing the demand for shopping goods are the latest trends, fashion, style, cost, comfort, brand, etc. Clothes, shoes, home appliances, furniture, home decor items, etc are some examples of shopping consumer goods. 

Shopping goods are comparatively costlier than convenience goods. Brands and businesses spend a significant amount on advertisement and promotion of these goods to attract more consumers to boost their sales. The profit margin in the sale of shopping goods is higher than that of convenience goods.

Specialty goods

These consumer goods do not belong to the basic necessities category. These are expensive products generally purchased by the upper class of society. Luxury brand products, cars, jewellery, etc. are examples of specialty goods. Features of these types of goods are as follows:

  • These goods are expensive in nature and generally not purchased by the lower and middle-class groups.
  • These purchases are not as frequent as convenience goods.
  • Brand name, uniqueness, brand credibility in society, special features are a few factors influencing specialty goods purchase.
  • Specialty goods are not the basic needs of people. People buy it out of their desire and luxury.
  • The target audience of manufacturing companies of these specialty goods is the upper class of society 

Unsought Goods

Unsought goods could be a necessity for one person but not for another. These goods are purchased out of the necessity of the situation or a place. These goods cannot be classified under the category of the other three types of goods mentioned above. In general, people do not buy these goods.

Examples of unsought goods to understand the concept: trekking shoes, new phones, insurance, fire extinguishers, etc.

Purchase for unsought goods is not taken place until the consumer knows about it. Or people know about them but don't think of buying them. 

FMCG (fast-moving consumer goods)

Fast-moving consumer goods are the type of products that are sold quickly at a lower cost. They're also known as Consumer Packaged Goods or CPGs. these goods come under the category of nondurable household items such as raw food materials, cosmetics, medicines, beverages, packaged foods, etc. 

Features of FMCG:

  • These goods are mass-produced and sold in larger volumes with lesser profit margins.
  • They're perishable and hence purchased more frequently.
  • These goods are cheaper and fewer efforts are taken for choice by consumers while purchasing.

Fast-moving consumer Electronics

“Fast-moving consumer electronics” are often low-cost general goods with a plethora of functionally equivalent alternatives. Mobile phones, game players, earbuds, headphones, OTG cables, chargers, and digital disposable cameras are examples of consumer electronics.

What are Capital goods?

In simple words, any products or goods used in the production of consumer goods are known as capital goods. These are used by companies and types of businesses to use them in the production of other consumable final products that are consumer goods. Machinery used for the manufacturing process, buildings used for consumer services, raw materials, types of equipment, tools, and so on are examples of capital goods. Every product used for manufacturing final products is known as Capital goods.

Characteristics of capital goods are as follows:

  • They're physical properties hence, tangible in nature.
  • Capital goods are subject to depreciation.
  • Demand for capital goods is passive as they're specifically used in the manufacturing industry for the production of consumable products.

Importance of Capital Goods:

  • Capital goods are high-investment items that play a significant role in the economy.
  • Capital goods boost the capability of products and services production.
  • Capital goods are essential for strengthening the economy's long-term productive potential. More capital goods diminish consumption in the near term but can lead to greater living standards in the economy.

Types of Capital Goods

  • PP&E and Fixed Assets

PPE is also known as property, plant, and equipment. These are physical assets of any business or a company. The life span of these tangible assets is usually more than a year. At the time of investment, investors check how much amount the company is investing in PPE and how it is impacting the growth of the company.

Office furniture, vehicles, land, equipment, etc are some examples of PPE capital goods. These are the company’s fixed assets that the company does not wish to invest in, frequently. These fixed assets generate income for the company for many years. 

Main Differences Between Consumer Goods and Capital Goods in Points

  • The purpose of manufacturing consumer goods is for consumption by the final consumer. Capital goods are produced to manufacture consumer goods.
  • Demand for consumer goods is higher and mostly unpredictable and is mostly dependent upon consumers’ buying preferences. Demand for capital goods is dependent upon the demand for consumer goods and is quite predictable.
  • The price of consumer goods is relatively cheaper than that of capital goods. Capital goods are prominently fixed assets owned by the company. These durable capital goods like machinery, plant, plots, land, and so on are expensive in nature.
  • Marketing of consumer goods is B2C- business to customers. Because these are produced for consumption by consumers directly. B2B marketing strategy is applied to capital goods, as capital goods are purchased by businesses to make their final product.
  • Few capital goods can be considered consumer goods based on their consumption type. A computer purchased by an individual is a consumer good but the same computer bought by a company to develop a website is a capital good as it is helping to produce a final product that is a website.
  • Consumer goods prices are set by suppliers. Companies, on the other hand, decide the price of capital goods.
  • Consumer products have a direct demand since they directly meet the wants of customers. Capital products, on the other hand, indirectly serve consumer demands, hence they have derived demand.
  • While consumer goods are intended for final consumption, capital goods are engaged with final investment.

Conclusion

Hence the bottom line is, both consumer goods and capital goods are the same. However, what differentiates one from another is their purpose and ultimate consumption. Consumer goods are consumers directly by the consumer and stored in his house. Whereas, capital goods are used for the production of consumer goods. They both contribute equally to the economy. An increase in the demand for these goods plays a crucial role in a country’s GDP.


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"Difference Between Consumer Goods and Capital Goods." Diffzy.com, 2022. Sun. 25 Sep. 2022. <https://www.diffzy.com/article/difference-between-consumer-goods-and-capital-goods-73>.



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