Classification of Products and Markets for SS 1

Classification of Products and Markets

Performance Objectives

By the end of the lesson, students should be able to:

1. state the meaning of product;
2. discuss the classes of products and their characteristics;
3. explain the meaning of market and the types of markets;
4. analyze the influence of cultural and social factors on classification of markets;
5. classify given products and markets.

Meaning of Product

A product is anything that can be offered to a market to satisfy a want or need. It can be a physical good, a service, an idea, a place, or even a person.

Products are created or developed to provide value to customers. They are the core offering that businesses use to attract and retain customers.

Classes of Products

Products can be grouped into different classes based on their characteristics and how they are used. Understanding these classifications helps businesses to market their products effectively.

Industrial and Consumer Products

One major way to classify products is based on who buys them and for what purpose. This leads to two broad categories: consumer products and industrial products.

Consumer Products

Consumer products are goods and services purchased by individuals and households for their personal use or consumption. These products are not bought for resale or for use in producing other goods.

Characteristics of consumer products include:

1. Personal Use: They are bought to satisfy personal or family needs and wants.
2. Final Consumption: They are consumed directly by the end-user.
3. Variety: There is a wide variety of consumer products available, from everyday necessities to luxury items.
4. Marketing Focus: Marketing efforts often focus on brand building, emotional appeal, and widespread distribution to reach individual buyers.

Examples of consumer products include:

1. Food items like rice, beans, bread.
2. Clothing and footwear.
3. Household appliances such as refrigerators and televisions.
4. Personal care items like soap, toothpaste, and creams.
5. Services like haircuts, transportation, and entertainment.

Industrial Products

Industrial products are goods and services purchased by businesses, organisations, or government agencies for use in producing other products or services, for resale, or for use in their daily operations.

Characteristics of industrial products include:

1. Business Use: They are bought by organisations for business purposes, not for personal consumption.
2. Derived Demand: The demand for industrial products is often derived from the demand for consumer products. For example, if demand for cars increases, the demand for steel (an industrial product) also increases.
3. Fewer Buyers: Compared to consumer markets, there are generally fewer, but larger, buyers in the industrial market.
4. Technical Specifications: Purchases are often based on technical specifications, quality, and reliability rather than emotional appeal.
5. Direct Selling: Marketing often involves direct selling, personal relationships, and technical support.

Examples of industrial products include:

1. Raw materials like crude oil, timber, iron ore.
2. Component parts such as car engines, computer chips, or fabric for clothing manufacturers.
3. Major equipment like factory machinery, generators, and heavy-duty vehicles.
4. Operating supplies like office stationery, cleaning supplies for businesses, and lubricants.
5. Business services such as accounting, legal advice, security services, and industrial cleaning.

Tangible and Intangible Products

Another way to classify products is based on whether they have a physical form that can be touched and seen.

Tangible Products (Goods and Places)

Tangible products are physical items that can be seen, touched, felt, and stored. They have a physical presence.

Characteristics of tangible products include:

1. Physical Form: They exist as physical objects.
2. Ownership: Ownership can be transferred from seller to buyer.
3. Storage: They can be stored, inventoried, and transported.
4. Quality Assessment: Quality can often be assessed before purchase by examining the product.

Examples of tangible products include:

1. Goods: Cars, mobile phones, books, food, furniture, clothes.
2. Places: Land, houses, office buildings, tourist resorts (the physical location itself is tangible, though the experience of visiting might be intangible).

Intangible Products (Services and Ideas)

Intangible products are products that do not have a physical form. They cannot be seen, touched, or stored in the same way as physical goods.

Characteristics of intangible products include:

1. Lack of Physical Form: They cannot be physically held or stored.
2. Inseparability: Production and consumption often occur at the same time. For example, a haircut is produced and consumed simultaneously.
3. Variability: The quality of intangible products can vary depending on who provides them, when, where, and how.
4. Perishability: They cannot be stored for later use. An unused airline seat or an empty hotel room cannot be saved for another day.

Examples of intangible products include:

1. Services: Hairdressing, banking, education, medical consultation, transportation, legal advice, internet access.
2. Ideas: Political campaigns, religious doctrines, health awareness campaigns (e.g., “stay safe, wash your hands”), environmental conservation messages.

Meaning of Market

A market is a place or system where buyers and sellers interact to exchange goods, services, or information. It is where transactions occur, and prices are determined by the forces of demand and supply.

A market does not always have to be a physical location. It can also be a virtual space, like an online store, or simply a group of potential buyers and sellers with a common need or interest.

Types of Markets

Markets can be classified based on the nature of the buyers and their purchasing purpose. This leads to two main types: consumer markets and organisational markets.

Consumer Market

The consumer market consists of all individuals and households who buy or acquire goods and services for personal consumption. These are the end-users of products.

Characteristics of the consumer market include:

1. Individual Buyers: Purchases are made by individuals or families.
2. Personal Consumption: Products are bought for direct use, not for business or resale.
3. Large Number of Buyers: This market typically has a very large number of buyers, often geographically dispersed.
4. Emotional and Social Influences: Buying decisions can be heavily influenced by personal preferences, emotions, social trends, and cultural factors.
5. Small Quantity Purchases: Individual buyers usually purchase products in smaller quantities.

Examples of consumer market transactions include:

1. A student buying a textbook.
2. A family purchasing groceries for their home.
3. An individual paying for a bus ticket.
4. A person buying new clothes.

Organisational Markets

Organisational markets consist of all organisations that buy goods and services for use in the production of other products and services, for resale, or for use in their daily operations. These markets are distinct from consumer markets because the buyers are organisations rather than individuals for personal consumption.

Organisational markets are further divided into three main types:

1. Producer Market
2. Reseller Market
3. Government Market

Producer Market

The producer market consists of organisations that buy goods and services to produce other products or services. These are manufacturers, farmers, and other businesses that transform raw materials or components into finished goods.

Characteristics of the producer market include:

1. Production Purpose: Purchases are made to aid in the production of other goods or services.
2. Derived Demand: Demand is derived from the demand for the consumer products they produce.
3. Fewer, Larger Buyers: Typically fewer buyers than in the consumer market, but each buyer often makes large purchases.
4. Technical Expertise: Buyers are often professionals with technical knowledge.

Examples of producer market transactions include:

1. A textile factory buying cotton or synthetic fibres to make clothes.
2. A bakery purchasing flour, sugar, and yeast to bake bread.
3. A furniture manufacturer buying timber and fabric to make chairs and tables.
4. A farmer buying seeds, fertilisers, and farming equipment.

Reseller Market

The reseller market consists of individuals and organisations that buy goods and services with the intention of reselling them for a profit, without significant alteration. This includes wholesalers, retailers, and distributors.

Characteristics of the reseller market include:

1. Resale Purpose: Products are bought specifically for resale.
2. Intermediaries: Resellers act as intermediaries between producers and end-users.
3. Assortment Building: They often buy a variety of products from different producers to offer a complete assortment to their customers.
4. Location and Convenience: They provide convenience and accessibility to products for consumers.

Examples of reseller market transactions include:

1. A supermarket buying packaged food items, toiletries, and household goods from various manufacturers to sell to consumers.
2. A wholesaler buying large quantities of soft drinks from a bottling company to distribute to small shops.
3. A fashion boutique purchasing clothing from designers to sell to its customers.
4. An electronics store buying televisions and phones from manufacturers.

Government Market

The government market consists of federal, state, and local government agencies that purchase or rent goods and services to carry out their functions. These functions include providing public services like education, healthcare, defence, and infrastructure.

Characteristics of the government market include:

1. Public Service Purpose: Purchases are made to provide public services or for administrative purposes.
2. Large Scale: Government purchases are often very large in volume and value.
3. Bureaucratic Procedures: Purchasing processes are typically complex, involving tenders, bids, and strict regulations to ensure transparency and accountability.
4. Diverse Needs: Governments have a wide range of needs, from office supplies and vehicles to construction services and military equipment.

Examples of government market transactions include:

1. A state government purchasing textbooks and laboratory equipment for public schools.
2. A local government contracting a construction company to build roads or bridges.
3. The federal government buying vehicles, uniforms, and communication equipment for the police force or military.
4. A government hospital purchasing medical supplies and equipment.

Impact of Cultural and Social Factors on Market Classification

Cultural and social factors significantly influence how markets are classified and how products are received within those classifications. These factors shape consumer behaviour and, consequently, the structure and needs of different markets.

Cultural Factors

Culture refers to the shared values, beliefs, customs, traditions, and behaviours of a group of people. In Nigeria, diverse cultures exist, each with unique characteristics.

The influence of cultural factors on market classification includes:

1. Product Preferences: Cultural norms dictate preferences for certain types of products. For example, traditional attire is a consumer product in many Nigerian cultures, influencing the market for fabrics and tailoring services. Food preferences, like the demand for specific local dishes, shape the consumer market for agricultural products and ingredients.
2. Usage Patterns: How products are used can be culturally determined. For instance, certain household items might be considered necessities in one culture but luxuries in another. This affects the size and characteristics of the consumer market for those items.
3. Market Segmentation: Cultural differences can lead to natural segmentation of markets. Marketers might classify consumer markets based on ethnic groups, religious beliefs, or regional traditions to tailor products and messages effectively.
4. Acceptance of New Ideas: Cultural openness or resistance to change can impact the market for new ideas or services. For example, the adoption rate of digital banking services might vary across different cultural groups based on trust and familiarity with technology.

Social Factors

Social factors relate to an individual’s relationships with others and their position within society. These include family, social class, reference groups, and roles and statuses.

The influence of social factors on market classification includes:

1. Family Influence: The family unit is a primary social factor. Family size, structure, and decision-making roles influence the types and quantities of consumer products purchased, such as food, housing, and education services.
2. Social Class: People from different social classes (e.g., upper, middle, lower) often have distinct purchasing patterns and preferences. This affects the classification of consumer markets for luxury goods versus essential commodities. For example, high-end fashion and imported cars target a different social class segment than affordable local brands.
3. Reference Groups: These are groups that directly or indirectly influence a person’s attitudes or behaviour (e.g., friends, religious groups, professional associations). They can create demand for certain products or services within a consumer market. For instance, a trend among a youth group can drive demand for specific clothing styles or gadgets.
4. Roles and Statuses: A person’s role (e.g., parent, teacher, doctor) and status (e.g., CEO, community leader) within society influence their purchasing decisions. A CEO might purchase executive cars and business services, while a teacher might prioritise educational materials and family-oriented products. This helps classify consumer and even organisational markets based on the roles of the buyers.

In summary, cultural and social factors help marketers understand who buys what and why. This understanding is crucial for classifying products into relevant categories and segmenting markets effectively to meet specific needs and preferences.

Classifying Products and Markets

The ability to classify products and markets is a fundamental skill in marketing. It involves identifying the key characteristics of a product or the nature of the buyer to place them into the correct category.

Classifying Products

To classify a product, consider its physical form and its intended use:

1. Is it a physical item you can touch and store? If yes, it is a tangible product (a good or a place). If no, it is an intangible product (a service or an idea).
2. Who is buying it and for what purpose? If an individual or household buys it for personal use, it is a consumer product. If an organisation buys it for production, resale, or operations, it is an industrial product.

Let’s classify some examples:

1. A bag of cement:
   1. Tangible/Intangible: Tangible (physical item).
   2. Consumer/Industrial: If bought by a construction company to build houses, it’s an industrial product. If bought by an individual to repair a small part of their house, it could be considered a consumer product, but its primary use is industrial.
2. A haircut:
   1. Tangible/Intangible: Intangible (a service).
   2. Consumer/Industrial: Consumer product (bought by an individual for personal grooming).
3. A new school building:
   1. Tangible/Intangible: Tangible (a physical place/structure).
   2. Consumer/Industrial: Industrial product (bought by a government or private organisation for providing education services).
4. A mobile phone:
   1. Tangible/Intangible: Tangible (a physical good).
   2. Consumer/Industrial: Primarily a consumer product (bought by individuals for personal communication). However, if a company buys many phones for its employees to use for business, they become industrial products for that company.

Classifying Markets

To classify a market, identify the primary type of buyer and their purpose for buying:

1. Are the buyers individuals or households purchasing for personal consumption? If yes, it is a consumer market.
2. Are the buyers organisations purchasing for production, resale, or government functions? If yes, it is an organisational market.

If it’s an organisational market, further classify it:

1. Are they buying to produce other goods/services? If yes, it’s a producer market.
2. Are they buying to resell without significant alteration? If yes, it’s a reseller market.
3. Are they government agencies buying for public services? If yes, it’s a government market.

Let’s classify some market scenarios:

1. A market where families buy food, clothes, and household items for their homes:
   1. Buyer: Individuals/Households.
   2. Purpose: Personal consumption.
   3. Classification: Consumer Market.
2. A market where a bakery buys flour, sugar, and eggs:
   1. Buyer: Organisation (bakery).
   2. Purpose: To produce bread and cakes.
   3. Classification: Organisational Market (specifically, Producer Market).
3. A market where a supermarket buys large quantities of soft drinks from a bottling company:
   1. Buyer: Organisation (supermarket).
   2. Purpose: To resell to consumers.
   3. Classification: Organisational Market (specifically, Reseller Market).
4. A market where the Ministry of Education purchases school buses for public schools:
   1. Buyer: Organisation (government agency).
   2. Purpose: To provide public transportation services for students.
   3. Classification: Organisational Market (specifically, Government Market).